SEC Commissioner Atkins commends Texas Business Court amid corporate ‘Dexit’ concerns

ies and Exchange Commission chair Paul Atkins discussed the increasing trend of companies relocating from Delaware to Texas, leading to the emergence of the term “Dexit.” Atkins commended Texas for its efforts in creating a Business Court in 2023, which has attracted companies seeking a more favorable business environment compared to Delaware.

At the Corporate Law Symposium hosted by the Texas A&M School of Law at the Federal Reserve Bank of Dallas, Atkins highlighted the significance of Senate Bill 29 in codifying the business judgement rule and offering protections against shareholder lawsuits. He noted that Texas has strategically positioned itself to entice companies to re-incorporate in the state, challenging the dominance of the Delaware Chancery Court, which has been the go-to destination for corporations for over a century.

As prominent companies like Coinbase, Dilliard’s, Tesla, and SpaceX have chosen to move to Texas, the “Dexit” trend poses a growing concern for Delaware. Despite concerns about the lack of historical precedent and infrastructure in the Texas Business Court, the state’s efforts mark a shift in the corporate landscape. While a significant portion of the Fortune 500 companies remains in Delaware due to its well-established legal framework, the competition from Texas serves as a stimulus for modernization and innovation in the corporate governance space.

Atkins emphasized the positive impact of competition on the U.S. capital markets, noting that it encourages the evolution of existing systems and drives states to adapt and improve. The evolving regulatory landscape, particularly in terms of corporate disclosures governed by Regulation S-K, calls for a dynamic balance between shareholder and corporate interests. Referencing Louis Brandeis’s concept of states as “laboratories” of democracy, Atkins underscored the importance of state corporate laws in shaping the economic strength of the country.

By fostering competition among states and enabling experimentation in corporate governance, Atkins believes that shareholders can be protected without hindering companies’ operational agility. The evolving business environment, marked by relocations to Texas and other states, is reshaping traditional corporate norms and incentivizing states to refine their legal frameworks to attract and retain business entities. Through this dynamic process of innovation and adaptation, the U.S. capital markets are poised to benefit from increased transparency, efficiency, and accountability in corporate governance.