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Delaware bill would limit investor lawsuits as companies threaten to leave the stateン
Delaware bill would limit investor lawsuits as companies threaten to leave the state
FILE PHOTO: Elon Musk meets Indian PM Modi, in Washington · Reuters

By Tom Hals

WILMINGTON, Delaware (Reuters) - Delaware lawmakers on Monday proposed changes to the U.S. state's widely used corporate law that would limit shareholder lawsuits after several high-profile companies said they might move their legal home to another state.

The bill sets out steps that corporate boards could take to insulate directors and controlling shareholders from litigation over alleged conflicts. The bill would also limit the kinds of internal records that shareholders can access, which they need to build their cases. The bill is sponsored by leaders of both parties in both houses of Delaware's state assembly.

Delaware's corporate law governs relations between company boards and their investors for around two-thirds of the S&P500 index. Companies tend to charter their businesses in the state for its stable law and well-respected courts and the fees those companies pay to the state generate around a third of Delaware's general budget revenue.

But several companies, including Meta Platforms, Dropbox and Bill Ackman's management company, recently have said they were moving or considering moving their incorporation out of Delaware, which prompted the bill, according to the sponsor, Delaware state Senator Bryan Townsend, a Democrat and senate majority leader.

"And it also comes at a time when you have a couple other jurisdictions in particular that are seeming to gain some traction with being viewed as legitimate alternatives to Delaware," Townsend told Reuters.

Texas has established a business court that is meant to rival Delaware's Court of Chancery for specializing in business and investor disputes. Elon Musk's Tesla and SpaceX moved their state of incorporation to Texas from Delaware after a Chancery judge last year ordered Musk's $56 billion pay package from Tesla to be rescinded.

Townsend said he'd like to move quickly on the bill, which he said was drafted with input from the state's recently elected Governor Matt Meyer, a Democrat. The bill was not drafted by the state's bar association, which typically oversees changes to the state's corporate law.

Townsend said the bill would not change the case challenging Musk's pay, which is on appeal before the Delaware Supreme Court. "This has nothing to do with Elon Musk. And I'll note that this legislation is not retroactive," Townsend said.

Townsend also introduced a bill that asked the state bar association to prepare a report on awarding attorneys fees. Delaware judges have awarded several fees that were among the largest ever in the past two years.

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