The (Unsuccessful) Great Migration: Where to Form Your Company and Why
As a founder, where you form your business matters. The most commonly selected state is Delaware. However, increasingly founders are considering states other than Delaware like Texas, Nevada and Wyoming. In July 2025, a16z declared it was moving its primary business from Delaware to Nevada, arguing the Delaware Court of Chancery are not as predictable as they used to be. This was largely provoked by Elon Musk’s latest experience with the Delaware court on defense where the court found Musk failed to prove his $55.8 billion compensation package from Tesla was the product of, in part, his fair dealing with certain large stockholders who voted in favor of such a package. The court’s decision was to rescind this package.
However, the Delaware legislature’s 2025 amendments to the Delaware General Corporation Law (DGCL) soon thereafter exemplified two of its most redeeming qualities—responsiveness and speed. Delaware amended Section 144 of the DGCL which deals with interested party transactions to, among other things, partially define controlling stockholders as those who own at least 33% of the company in an attempt to narrow the pool of folks obligated to engage in fair dealing and reduce the number of challenges to corporate governance actions. Musk only owned 22% of Tesla, but his influence over other large stockholders largely convinced the Delaware court to characterize him as a controlling stockholder and obligate him to the “entire fairness” doctrine.
Alternatively, other states like Nevada have taken a step beyond this to actually “hard code,” i.e., build into legislation, ways founders can entrench themselves and their decision-making authority. For example, officers being automatically indemnified except for intentional misconduct, fraud or knowing violations of law whereas indemnification needs to be written into a Delaware company’s charter or bylaws. Commonly, they are, but, at the very least, these pieces of Chapter 78 of the Nevada Revised Statutes (Nevada’s equivalent to the DGCL) signal to founders that Nevada supports them.
Beyond judicial predictability, founders are motivated by a variety of other factors, including favorable tax treatment, accommodative industry-specific regulations, management and board control along with related corporate governance mechanics and, frankly, ideology, in deciding where to form or where to move.
For example, some Texas corporations, depending on the industry in which they operate within and size of revenues, pay no tax or very little tax (or relatively low franchise taxes) when compared to Delaware, while Wyoming has attracted businesses operating in the digital asset sector because of the state’s new Wyoming Blockchain Legislation and revisions to the state’s Money Transmitter Act that put less burdensome (and expensive) obligations on money-service businesses than other jurisdictions. Our colleagues discuss other merits of incorporating or moving to Texas here: Delaware or Texas: Where Should You Incorporate in 2025?.
Going Full “Founder Mode”
We sometimes get asked, “Why can’t we have a dual-class share structure like Larry and Sergey or Mark?” so founders can retain substantial control over their company even after going public. If you’re not familiar with dual-class share structures, it essentially means there are two classes of common stock where a founder owns stock in one class and investors own stock in the other. Each share in the class of stock owned by the founders may have 10 votes and each share in the class of stock owned by investors 1 vote, for example. Obviously, more votes equal more power—especially if preferred protective provisions are kept to a minimum in your charter and/or preferred stock and their preferrable rights over decision-making fall away after going public.
The simple answer to this question: There are not many founders who have so quickly created money-printing machines like Google or Facebook. In general, most series seed investors and almost all series A investors will require you to recapitalize the company immediately prior to and in connection with their investments in your company. Taking a further step back, a first-time founder selecting Nevada, for example, largely to entrench their control will be a red flag to many institutional investors. Investors like minimal friction and having to ask questions about why a founder deviated from the norm by incorporating in Nevada opposed to Delaware creates just that. Furthermore, if your answer is to maximize your ability to go full founder mode, you may have greater problems than friction. Suffice to say, gambling future investments for founder controls that you’ll likely lose shortly before or while the company starts scaling is not always the prudent decision.
Not Always as Advertised
Furthermore, benefits of jurisdictions outside Delaware are not always as advertised. For example, unless you are a Nevada resident operating your business in the state, you will not be able to avoid the burden of state corporate taxes simply by incorporating in Nevada. See more on Nevada taxes here: Nevada Doesn’t Have Corporate or Personal Income Taxes: Should I Form There? Additionally, new legislation is untested legislation, and with that comes uncertainty.
The Delaware court’s specialization in corporate law, long-established body of corporate case law, and robust and ever-evolving corporate statute provides founders and investors stability, predictability and, in most cases, efficiency when most other components of building a scalable business are anything but!
Packing Your Bags
However, we understand some founders may decide to move to one of these newly popular jurisdictions. (Though, keep in mind that 68.2% of the Fortune 500, 81.4% of 2024’s IPOs and an overwhelming majority of “unicorns” exist in Delaware.) For those considering the move, here are some of the required steps, considerations and typical documentation that accompany such a move:
Conclusion
The above considerations and steps are non-exhaustive and only preliminary. (See Post-Incorporation Checklist for Startups.) However, these are the most typical considerations we discuss with clients and the most crucial steps in moving from one jurisdiction to another. Sometimes such moves in the form of conversions are a necessary step in your business’s growth, a strategic decision to unlock important opportunities for your business, to provide some much-needed regulatory clarity or at least give you the sense you can go full founder mode. In any case, you want to ensure you make the right decision for your company today and avoid missteps that are both costly and time-consuming to fix in the future.
However, the Delaware legislature’s 2025 amendments to the Delaware General Corporation Law (DGCL) soon thereafter exemplified two of its most redeeming qualities—responsiveness and speed. Delaware amended Section 144 of the DGCL which deals with interested party transactions to, among other things, partially define controlling stockholders as those who own at least 33% of the company in an attempt to narrow the pool of folks obligated to engage in fair dealing and reduce the number of challenges to corporate governance actions. Musk only owned 22% of Tesla, but his influence over other large stockholders largely convinced the Delaware court to characterize him as a controlling stockholder and obligate him to the “entire fairness” doctrine.
Alternatively, other states like Nevada have taken a step beyond this to actually “hard code,” i.e., build into legislation, ways founders can entrench themselves and their decision-making authority. For example, officers being automatically indemnified except for intentional misconduct, fraud or knowing violations of law whereas indemnification needs to be written into a Delaware company’s charter or bylaws. Commonly, they are, but, at the very least, these pieces of Chapter 78 of the Nevada Revised Statutes (Nevada’s equivalent to the DGCL) signal to founders that Nevada supports them.
Beyond judicial predictability, founders are motivated by a variety of other factors, including favorable tax treatment, accommodative industry-specific regulations, management and board control along with related corporate governance mechanics and, frankly, ideology, in deciding where to form or where to move.
For example, some Texas corporations, depending on the industry in which they operate within and size of revenues, pay no tax or very little tax (or relatively low franchise taxes) when compared to Delaware, while Wyoming has attracted businesses operating in the digital asset sector because of the state’s new Wyoming Blockchain Legislation and revisions to the state’s Money Transmitter Act that put less burdensome (and expensive) obligations on money-service businesses than other jurisdictions. Our colleagues discuss other merits of incorporating or moving to Texas here: Delaware or Texas: Where Should You Incorporate in 2025?.
Going Full “Founder Mode”
We sometimes get asked, “Why can’t we have a dual-class share structure like Larry and Sergey or Mark?” so founders can retain substantial control over their company even after going public. If you’re not familiar with dual-class share structures, it essentially means there are two classes of common stock where a founder owns stock in one class and investors own stock in the other. Each share in the class of stock owned by the founders may have 10 votes and each share in the class of stock owned by investors 1 vote, for example. Obviously, more votes equal more power—especially if preferred protective provisions are kept to a minimum in your charter and/or preferred stock and their preferrable rights over decision-making fall away after going public.
The simple answer to this question: There are not many founders who have so quickly created money-printing machines like Google or Facebook. In general, most series seed investors and almost all series A investors will require you to recapitalize the company immediately prior to and in connection with their investments in your company. Taking a further step back, a first-time founder selecting Nevada, for example, largely to entrench their control will be a red flag to many institutional investors. Investors like minimal friction and having to ask questions about why a founder deviated from the norm by incorporating in Nevada opposed to Delaware creates just that. Furthermore, if your answer is to maximize your ability to go full founder mode, you may have greater problems than friction. Suffice to say, gambling future investments for founder controls that you’ll likely lose shortly before or while the company starts scaling is not always the prudent decision.
Not Always as Advertised
Furthermore, benefits of jurisdictions outside Delaware are not always as advertised. For example, unless you are a Nevada resident operating your business in the state, you will not be able to avoid the burden of state corporate taxes simply by incorporating in Nevada. See more on Nevada taxes here: Nevada Doesn’t Have Corporate or Personal Income Taxes: Should I Form There? Additionally, new legislation is untested legislation, and with that comes uncertainty.
The Delaware court’s specialization in corporate law, long-established body of corporate case law, and robust and ever-evolving corporate statute provides founders and investors stability, predictability and, in most cases, efficiency when most other components of building a scalable business are anything but!
Packing Your Bags
However, we understand some founders may decide to move to one of these newly popular jurisdictions. (Though, keep in mind that 68.2% of the Fortune 500, 81.4% of 2024’s IPOs and an overwhelming majority of “unicorns” exist in Delaware.) For those considering the move, here are some of the required steps, considerations and typical documentation that accompany such a move:
- Confirm your intended name is available. This seems like a trivial and maybe even unnecessary step. However, it is worth confirming you can maintain your existing business name (unless you already conduct business under or have a trademark for the name) to avoid, for example, having to surprise your customers with an invoice from an unfamiliar party.
- Understand and prepare the necessary consents to convert your existing entity. The process of moving your company from your current to a new state of organization is commonly (and in most corporate statutes) referred to as a “conversion” or “redomestication.” Redomestications mean retaining your organizational type in a move while conversions mean changing your organizational type. Most commonly, from a non-Delaware limited liability company to a Delaware corporation either in anticipation of, or in connection with, a venture financing.
Most states permit both conversion and redomestication through statute. Popular states for startups seeking venture capital money that permit statutory conversions and redomestications include Delaware, California, Nevada and Texas. However, some states like New York do not permit statutory conversions or redomestication. Your options in such cases become dissolution followed by formation in such states, i.e., starting from scratch, or a merger transaction that necessitates the formation of one or more entities to merge with or into the existing company. Of course, these alternatives are more time-consuming and costly—dissolutions require the settling of debts and distribution of remaining assets, mergers require more paperwork, and non-arm’s length transactions (which this likely would be) have particular tax implications, and, in each case, the formation of an additional company or companies.
However, even conversions and redomestications require the undertaking of certain formalities. In most cases—under both the requirements of applicable state law and a business’s charter and bylaws, certificate of formation and LLC or operating agreement, or certificate of formation and partnership agreement, as applicable—conversion or redomestication will require the approval or consent of a majority of the voting equityholders and, if you already have preferred equity, the consent of a majority of the holders of preferred equity voting as a separate class. Therefore, determining whether a sufficient number of equityholders are onboard with a conversion is a preliminary step to the conversion or redomestication process. Like most transformative corporate actions, involving your key stakeholders early in the process minimizes disruption and builds trust.
However, even conversions and redomestications require the undertaking of certain formalities. In most cases—under both the requirements of applicable state law and a business’s charter and bylaws, certificate of formation and LLC or operating agreement, or certificate of formation and partnership agreement, as applicable—conversion or redomestication will require the approval or consent of a majority of the voting equityholders and, if you already have preferred equity, the consent of a majority of the holders of preferred equity voting as a separate class. Therefore, determining whether a sufficient number of equityholders are onboard with a conversion is a preliminary step to the conversion or redomestication process. Like most transformative corporate actions, involving your key stakeholders early in the process minimizes disruption and builds trust.
- Filings. Prepare and file (i) both a certificate of conversion and certificate of incorporation or formation in the jurisdiction you’re moving to and (ii) a statement or plan of conversion in your current jurisdiction. (Sometimes a certificate of cancellation, termination, withdrawal or even “dissolution” is also required by your current jurisdiction.) Note, though these can be filed simultaneously, usually the certificates come first, then the statement. You will make filings in both your inbound and outbound jurisdictions. The inbound filing will outline the history and intended effectiveness of your company along with the standard certificate of incorporation or formation that you would otherwise file if you had initially formed the organization in the new jurisdiction. The outbound filing outlines the plan of conversion, including the name of the business in the intended jurisdiction, organization type and, most importantly, the terms and conditions of the conversion of the securities of the non-surviving entity. In most cases, the equity of the non-surviving entity will be converted into similar interests of the surviving entity in a manner that preserves the economic and voting interests of such holders—e.g., one membership interest in a limited liability company will convert into one share of common stock in a corporation. However, in some cases, circumstances warrant changes to such construction for tax, employment or intellectual property reasons. For instance, a profit interest in a limited liability company does not have a substitute in a corporation and is often converted into shares of common stock of the corporation at a conversion ratio that gives effect to the hurdle value of such profit interest.
- Retain a registered agent, and file a foreign business qualification in your prior jurisdiction. Most private companies designate a third party as their registered agent to receive legal documents (i.e., service of process) and other important state notifications and information on behalf of the company. Following a conversion, it is important to designate a third-party with a presence in your new state of incorporation or formation and potentially retain a registered agent in your current state. (See below.) Many of the popular vendors have presences in all major U.S. jurisdictions and will do this in connection with the filings described above.
Additionally, now that you are no longer organized in your prior jurisdiction, if you plan on continuing to “conduct business” within that jurisdiction, the state will require you to qualify as a foreign business before continuing to do so (which requires a simple filing), and retain, or get a new, registered agent if you were previously using your office address that’s moving to the new state or elsewhere.
- Obtain a new EIN or notify the IRS of continuation of existing EIN. An employer identification number is a federal tax identification that is required to open a bank account, hire employees and file all business-related tax forms with the IRS. The IRS generally provides that a new EIN is not required upon a redomestication at the state level because it does not change the organizational type. However, conversions require obtaining a new EIN. As a result, you may either send the IRS an EIN continuation letter that informs them of the change and the intent to continue to use the same EIN or file for a new one.
Conclusion
The above considerations and steps are non-exhaustive and only preliminary. (See Post-Incorporation Checklist for Startups.) However, these are the most typical considerations we discuss with clients and the most crucial steps in moving from one jurisdiction to another. Sometimes such moves in the form of conversions are a necessary step in your business’s growth, a strategic decision to unlock important opportunities for your business, to provide some much-needed regulatory clarity or at least give you the sense you can go full founder mode. In any case, you want to ensure you make the right decision for your company today and avoid missteps that are both costly and time-consuming to fix in the future.