The ‘DExit’ That Never Happened

Those fears have not materialized in the year following the court’s February 4, 2025, decision. In fact, over the following six months, Delaware incorporations saw a period of significant growth.

The Facts

In 2023, Tripadvisor and its parent company, Liberty TripAdvisor, were both Delaware corporations effectively controlled by Gregory Maffei through super-voting shares. That year, the boards of both companies approved a plan to convert from a Delaware to a Nevada corporation. A key motivation, openly discussed in the board materials, was that Nevada law generally provides greater protection from liability for directors and officers, including eliminating individual liability for breaches of fiduciary duty (absent intentional misconduct, fraud, or a knowing violation of law). Maffei’s controlling vote approved the conversions, even though a majority of the minority stockholders voted against both transactions. 

Minority stockholders sued and the case made its way to the Delaware Supreme Court.

The Issue: Does Reduced Liability for Leadership Trigger a Higher Standard of Legal Review?

The main issue in front of the court was whether the possibility of reduced liability under a new state’s laws, without any existing lawsuit or concrete allegation of wrongdoing, requires a court to apply the “entire fairness” standard of review or the “business judgement rule.”

• Entire fairness shifts the burden to the defendants to prove the challenged decision was entirely fair to the corporation (i.e., a two-pronged standard, requiring a determination of (1) fair process and (2) fair price).
• The business judgment rule requires the plaintiffs to prove there was gross negligence, bad faith, or a significant conflict of interest in the decision-making process. 

The court held that in Tripadvisor’s case, the business judgement rule applied. The court explained that in the past, entire fairness review was triggered when fiduciaries adopted protections to shield themselves from existing liabilities — like adopting an exculpation provision while facing active breach of duty claims or reincorporating to destroy a particular plaintiff’s standing. If no particular litigation is pending or threatened, and no specific post-reincorporation transaction is being contemplated, the court held that a different legal regime alone is too speculative to require the entire fairness standard of review. Hypothetical future impact will not be considered.

Impact on Delaware

Maffei v. Palkon was decided after a series of Delaware court decisions which were seen as potentially burdensome on corporations, leading to speculation that these businesses would ultimately leave for other states. Recent data tracking new incorporations found that, in fact, Delaware saw 30% more incorporations in 2025 than in 2024. This increase was not mirrored in other states or nationally. Though the data does not track corporations which have left the state, it indicates a continued faith in Delaware’s corporate statutory framework and legal environment. 

Takeaways

• Reincorporation may be less risky. Controlled companies and their boards now may take greater comfort that a decision to leave Delaware, under the right conditions, would be evaluated under the business judgment rule. 

• Timing matters. A “clear day” reincorporation, meaning a decision made without the cloud of existing or imminent litigation, will be reviewed under the more lenient business judgment rule.

• Delaware remains a popular option for incorporations. Despite prior concerns, many businesses still choose to incorporate in Delaware over other states. 

If your company is weighing a reincorporation or has questions about how this decision may affect your corporate governance strategy, we encourage you to reach out to our team.