Which state should I incorporate in?
FormationDelawareMulti-stateGovernance
A company that intends to raise money from investors should incorporate in Delaware. A company that will be owned and run by its founders, in one state, with no investors, usually does better forming in the state where it operates, because a Delaware entity operating in California still has to register in California, pay California's taxes, and keep a registered agent in both. That has been the answer for decades, and the events of the last two years, Tesla's move to Texas, Delaware's legislative response, and Nevada's and Texas's new statutes, have changed the conversation for large companies far more than for a startup raising its first round.
Why Delaware
Delaware has a corporate statute that has been amended nearly every year for a century, a dedicated court, the Court of Chancery, that hears corporate cases without juries and writes opinions everyone can read, and the deepest body of case law in the country. The practical result is predictability: every venture investor's documents are written for a Delaware corporation, every investor's lawyer knows the law, and a Delaware company raising a round is not asking anyone to learn something new. The state's own filings show it is not shrinking: about 334,000 new entities were formed there in 2025, up more than 15 percent on 2024, with new corporations up around 30 percent.
What happened in Delaware
In January 2024 the Court of Chancery struck down Elon Musk's 2018 Tesla pay package, in a case called Tornetta v. Musk, on the ground that a board dominated by Musk had not negotiated it at arm's length. Tesla and SpaceX reincorporated in Texas that year, other companies followed to Texas and Nevada, and the exodus acquired a name, DExit. In March 2025 Delaware passed Senate Bill 21, which amended its corporate statute to give boards and controlling stockholders safe harbors for conflicted transactions if they are approved by independent directors or by disinterested stockholders, and to narrow what a stockholder can demand to inspect in the company's books. The Delaware Supreme Court upheld SB 21 against a constitutional challenge in February 2026, in Rutledge v. Clearway Energy, and in December 2025 it had already reversed the Tesla decision, holding that canceling the package outright was the wrong remedy even on the trial court's findings. The controversy that started the debate has, for now, been answered by both the legislature and the court.
What Nevada and Texas offer
Both states wrote the business judgment rule into their statutes, so their courts cannot apply the stricter reviews Delaware's judges developed for transactions with a controlling stockholder. Texas's SB 29, signed in May 2025, lets a corporation opt in to that codified rule, adopt an ownership threshold for stockholders who want to bring a derivative suit, and waive jury trials in internal disputes, and it built a business court with appointed judges that opened in September 2024. Nevada's AB 239, signed the same month, added a jury waiver of its own and stronger statutory protection for directors, on top of a law that was already the most director-friendly in the country. Both are real advantages for a company with a founder who controls it and expects to be sued about it. Andreessen Horowitz moved its own firm to Nevada in July 2025 and said publicly it would not object to portfolio companies doing the same.
What it means for a startup
The companies that left Delaware were public or late-stage, controlled by a founder, and litigating with their own stockholders. A startup raising a seed round has none of those problems and a different one: investors who want the documents they know. Those documents are Delaware documents, and a founder who forms in Nevada or Texas should expect the first institutional term sheet to ask for a reincorporation, at the company's expense, before closing. For a company with no plan to raise, the usual answer is its home state. For one that might, it is Delaware, qualified in the state where it operates. Our comparison of the three states' laws has the detail behind that.
Arabella files in all fifty states and DC, so a company that has decided on Nevada or Texas can form there. The formation flow asks about foreign qualification in the states where the company actually operates, whichever state it forms in.
Related questions
Written by the lawyers who built Arabella. This is legal information, not legal advice for your situation, and reading it does not make us your lawyers. For a real dispute or a high-stakes decision, talk to a licensed attorney. More questions.