For decades, Delaware has been the default choice for businesses seeking a favorable jurisdiction to incorporate. However, recent developments have prompted a reevaluation of its supremacy. Amid criticism that Delaware’s standards of review expose directors and officers to heightened liability risks, several major corporations are evaluating their incorporation options.
The Delaware Supreme Court recently ruled that directors are not personally liable for approving a corporate relocation, further facilitating potential moves away from the state. Amendments to Delaware’s corporate statute, aimed at easing some of these liabilities, indicate that the state is responding to corporate discontent. Nevertheless, the proposals’ efficacy remains uncertain for businesses seeking different policy options (Delaware Legislative Bill).
While Nevada and Texas are frequently cited as alternatives, Ohio’s increasingly attractive statutory framework offers a compelling proposition for corporations contemplating departure from Delaware. Ohio stands out with its statute-based corporate law approach, enhancing predictability vis-à-vis the court-developed frameworks in other states like Delaware and Texas.
Ohio also provides broader director exculpation rights, allowing protections against liability for breaches of the duty of loyalty, provided such actions are not intentional or reckless. This contrasts starkly with Delaware’s requirement for companies to opt into exculpation provisions in their governing documents. Furthermore, Ohio directors can legally consider interests beyond those of shareholders alone, adding dimensions of flexibility not available in jurisdictions like Delaware.
Another distinctive feature is Ohio’s insistence upon a clear and convincing standard for proving director liability, offering a higher threshold than the preponderance of evidence standard used in Delaware, Nevada, and Texas. This high standard applies to both fiduciary duty claims and the requirement for directors to repay advancements of legal costs, reinforcing Ohio’s commitment to protecting directors from undue personal liability risks.
Corporate litigants also benefit from Ohio’s specialized commercial dockets in cities like Cincinnati, Columbus, and Cleveland. These dockets, although less seasoned than Delaware’s Court of Chancery, have been resolving complex business disputes for over 15 years, providing expertise and expediency in resolving commercial matters. With a robust business environment and active involvement from its corporate legal community, Ohio presents a favorable alternative to the traditional Delaware model (Bloomberg Law Article).
While Delaware’s developed legal framework may continue to appeal to many, companies exploring alternatives might find Ohio’s statutory predictability and business-friendly stance a persuasive proposition in the shifting terrain of corporate governance.