Blockchain Innovation, Corporate Charters, Delaware Courts, Federal Regulation, Legislative Reforms
Despite increasing criticism, Delaware’s dominance in corporate law has not experienced a significant decline: as of today, 67.8 percent of Fortune 500 companies are still incorporated in its jurisdiction. Nevada is known as Delaware’s most important competitor, with an aggressive strategy that has overridden the efforts of any other jurisdiction. Yet, its success has been limited to a specific market segment: small firms with low institutional shareholding and high insider ownership.
Scholars suggest several explanations for both the rise and the staying power of Delaware. These explanations are essentially subsumed under the credible commitment theory and the network theory. According to the former, investors rely upon Delaware’s commitment towards the business community; while the latter emphasizes how Delaware is profiting from the position it has achieved. The credible commitment theory and the network theory sometimes overlap and combine. Both predict that Delaware is hard to dethrone.
In recent years, commentators have argued that this hegemony might be endangered by two different threats: the migration of cases induced by Delaware courts’ response to overlitigation; and the invasive growth of federal regulation — in particular, the possible introduction of a federal incorporation. Yet, criticisms and predictions on Delaware’s decline are recurring and always follow the same pattern. In this instance, unsurprisingly, the migration turned out to be marginal, and although the debate on a federal incorporation was revived in conjunction with a political campaign, it fizzled out soon after the Democratic primaries ended.
I contend that a mounting challenge to Delaware’s dominance is mostly flying under the radar. Wyoming is targeting a new segment of the market for corporate charters: digital asset businesses. This jurisdiction is attempting to attract these incorporators by enacting liberal legislation and providing their companies with a safe harbor.
Wyoming’s aggressive stance provides the motivation to canvass causes and consequences, criticism, and challenges to Delaware’s dominance. The investigation can generate insights as to why Wyoming’s strategy will succeed or fail. In fact, this market segmentation approach is the same tactic that Nevada adopted, though Wyoming is applying the strategy to a sector that has meaningful growth potential and is pushing it to the point of introducing exemptions to state securities laws and banking regulation.
The application of the credible commitment theory and the network theory to Wyoming’s approach suggests that this strategy of building a reputation and proving a commitment to tech-incorporators is on the right track, but success also requires a confluence of events that need time. Wyoming should develop an expertise that is too costly to be easily replicated by other jurisdictions and earn a share of the charters market before federal legislature and regulatory bodies pre-empt Wyoming’s law for cryptocurrencies.
To the extent that Wyoming’s strategy proves to be effective, it will gain this jurisdiction the lead only in the blockchain segment of the market, while Delaware will continue to dominate the rest of corporate law.
In light of all this, Wyoming’s approach might be a dare. Yet, it is also the most promising—maybe the only possible—challenge to Delaware’s dominance at the present time.
Pierluigi Matera, Delaware’s Dominance, Wyoming’s Dare: New Challenge, Same Outcome?, 27 Fordham J. Corp. & Fin. L. 73 (2022).