No 'DExit': Delaware's New Statutory Corporate Law Loosens the Restrictions on Controlling Shareholder Transactions in Response to Corporate Outlash Following Tornetta v. Musk

Authors

• Reid A. Manabat

Abstract

The recent Tornetta v. Musk decisions caused upheaval in the Delaware corporate community. Throughout 2024, shareholder executives have left or threatened to leave Delaware to incorporate elsewhere in a move termed “DExit.” The threat did not go unnoticed by Delawareans and lawmakers who contemplated a two-billion-dollar loss to the state’s tax revenue. Despite the courts’ willingness to require heightened scrutiny for conflicted-controller transactions, in recent years lawmakers have lowered the bar. I argue that Delaware’s new statutory corporate law does not adequately protect minority shareholders from conflicted controllers. First, the new statutory cleansing mechanisms ignore the unique dangers of conflicted-controller transactions. Second, the new statutory definition of “controlling shareholder” is easily avoided by becoming a “quasi-controller” through the deployment of a shareholder agreement. Third, the definition of “controlling shareholder” is underinclusive because the minimum equity ownership requirement is too high and exempts so-called “superstar CEOs,” for whom stock ownership is not necessarily representative of power.

Recommended Citation

Reid A. Manabat, No 'DExit': Delaware's New Statutory Corporate Law Loosens the Restrictions on Controlling Shareholder Transactions in Response to Corporate Outlash Following Tornetta v. Musk, 13 Emory Corp. Governance & Accountability Rev. 261 (2026).
Available at: https://scholarlycommons.law.emory.edu/ecgar/vol13/iss2/3