Establishing a Nevada business court could attract billions in revenue, lawmaker says

Two-thirds of Fortune 500 companies are incorporated in Delaware, a state with no corporate income tax on revenue outside its borders.

But in recent weeks, two multibillion-dollar corporations, Dropbox and hedge fund Pershing Square, announced they would be reincorporating in Nevada.

The moves are part of “DExit,” a small but growing group of companies leaving the historically corporate-friendly state for opportunity out West.

Henderson Democratic Assemblyman Joe Dalia submitted a bill draft proposal in the Nevada Legislature that he says would bolster confidence in Nevada’s legal system for companies looking to reincorporate by creating a district court dedicated to business matters and similar topics.

The proposal would be like the system Delaware has used for over 100 years, and Texas — also competing for Delaware’s riches — established its business court in September.

Lawsuits in Nevada involving complex business disputes are now heard by District Court judges who preside over a range of legal cases. Since those judges are elected, Dalia argues there’s no guarantee that they’re experienced with certain business or commercial matters.

Dalia’s vision is to have a nonpartisan, independent body select the judges who would sit on the new business court to ensure it’s filled with people experienced in the field.

“Our laws are already friendly to businesses that want to incorporate here,” he said. “What holds them back is the fact that we have a system where your business dispute could be seen in a court that is not necessarily attuned with the expertise to handle your case.”

The proposed specialty district court legislation — co-sponsored by Assemblymember Shea Backus, D-Las Vegas — would require an amendment to the Nevada Constitution. If the measure is approved by the Legislature in two different sessions, Nevada voters would then need to give the resolution the OK before it goes into effect.

There’s money to be made in business incorporation.

Nevada brings in around $200 million in commercial recording fees on top of other revenue streams, like commerce and modified business taxes.

Since the pandemic showed how fragile Nevada’s economy is to global disruptions, the state has been attempting to diversify its economy. Dalia said the business court could help that process.

“By having our own competing court, we’re opening ourselves up to potentially billions in new annual revenue, a greater appetite for investment in Nevada companies and what could turn out to be thousands of new jobs,” he said.

On top of a favorable tax system, UNLV law professor Benjamin Edwards said Nevada was an attractive option for incorporation because the state’s statutes are clearer, requiring less interpretation than Delaware decisions.

That’s the argument Dropbox made in a recent Securities and Exchange Commission filing, writing that Nevada offered a “more predictable environment” that “promotes stability and certainty for corporate decision-making.”

Edwards, who helped draft Dalia and Backus’ proposal, said Delaware also enabled small shareholders to demand records and documents from public companies’ boards of directors.

“They’re often used in preparation for filing some other litigation against the company,” Edwards said. “Nevada law doesn’t authorize those kinds of actions for public companies.”

The size of the movement away from Delaware remains to be seen, the professor said, but it was kicked off by a series of recent court cases in the state.

The most influential surrounds Tesla CEO Elon Musk, who is now also a “special government employee,” according to President Donald Trump’s White House. Last year, Delaware struck down Musk’s pay package with Tesla, now valued at over $100 billion, multiple times.

After deciding in January 2024 that the proposal was not executed fairly for Tesla’s stockholders, the company did something “very unusual,” Edwards said.

“Tesla asked its shareholders to vote for it again; and they do, knowing exactly how much he’s going to get paid and not really having any strong obligation to vote for it,” he said. “So, Tesla’s view was, ‘Well, that should be that.’ ”

That’s not how Delaware law has worked historically, Edwards said, and the state did not think that was a “suitable procedure,” killing the package again. Last June, Tesla reincorporated in Texas.

“I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters,” Musk tweeted in January 2024.

Dropbox and Pershing Square, whose CEO is a shareholder of the Musk-owned X app, will likely have their headquarters in San Francisco and New York, respectively, stay put. Most businesses incorporated in Delaware don’t operate in the state. If they did, the state would have an estimated 1,000 corporations per square mile.

Dalia said his hope was that Nevada’s larger size would enable companies to move their offices and operations to the state along with incorporating here.

“We have easy access to Silicon Valley, where a lot of venture capital funds are coming from. So we have the geography, we have the laws in place,” Dalia said. “This court could be the missing ingredient.”

But Delaware isn’t going to let one of its largest revenue streams dissipate without a fight. Its newly inaugurated governor, Democrat Matt Meyer, told Business Insider this month that the state was still the “best location in the world” to incorporate.

“Let’s be clear: If any entity leaves Delaware, we’re going to work to win them back,” Meyer told the publication, adding later that “it certainly beats going to Vegas and rolling the dice.”

[email protected] / 702-990-8923 / @Kyle_Chouinard