Why a16z is Leaving Delaware for Nevada - And You Should Too

Why a16z is Leaving Delaware for Nevada - And You Should Too

Andreessen Horowitz, perhaps the most influential venture capital firm of the past two decades, recently announced its decision to abandon Delaware as its jurisdiction of choice for new portfolio company incorporations. This represents a seismic shift in Silicon Valley’s long-standing corporate formation orthodoxy. Their reasoning illuminates fundamental structural flaws in Delaware’s corporate governance regime that have grown increasingly problematic for modern technology companies.

The Delaware Doctrine Unravels

For generations, Delaware’s Court of Chancery has been the undisputed epicenter of American corporate law. Law schools teach Delaware corporate law as gospel. Investment banks insist on Delaware incorporation. Yet a16z’s analysis reveals that Delaware’s supposed advantages have morphed into liabilities for contemporary startups.

The firm’s primary critique centers on Delaware’s approach to stockholder disputes. The Court of Chancery, originally designed to provide swift equitable relief in the pre-digital era, now enables a cottage industry of professional plaintiffs who weaponize derivative litigation against growth companies. These suits, often filed within days of any material corporate event, impose millions in legal fees and management distraction on companies that should be focused on innovation and growth.

Nevada’s Superior Framework

Nevada offers a compelling alternative that addresses Delaware’s structural deficiencies while providing enhanced protections for both companies and legitimate stockholders. The Silver State’s corporate code reflects decades of refinement aimed at creating the most business-friendly jurisdiction in America.

Consider Nevada’s treatment of director and officer liability. While Delaware permits broad indemnification, Nevada goes further by allowing complete elimination of personal liability for breaches of fiduciary duty, excepting only intentional misconduct or knowing violations of law. This protection enables boards to make bold strategic decisions without the specter of personal financial ruin hanging over every choice.

Nevada’s approach to stockholder inspection rights demonstrates similar pragmatism. Unlike Delaware’s expansive interpretation of inspection rights that can burden companies with fishing expeditions, Nevada requires demonstrable proper purpose backed by credible allegations. This balanced approach protects legitimate stockholder interests while preventing abusive discovery tactics.

Tax Advantages Compound the Benefits

The tax implications of Nevada incorporation extend beyond the headline-grabbing absence of state income tax. Nevada imposes no franchise tax on income, no personal income tax, no unitary tax, and no inventory tax. For a typical technology startup that generates no profit in early years but carries substantial equity value, Delaware’s franchise tax can reach $200,000 annually based solely on authorized shares and assumed par value. Nevada’s business license fee, by contrast, remains a modest $500 regardless of authorized capital structure.

Privacy Protections Matter

Nevada’s privacy regime provides meaningful advantages in an era of increasing concern about data security and corporate espionage. The state permits the use of nominee officers and directors, enabling companies to shield actual management from public databases that competitors, recruiters, and hostile actors routinely mine. Delaware’s public records, by contrast, create a roadmap for those seeking to poach talent or gather competitive intelligence.

The Venture Capital Seal of Approval

When Andreessen Horowitz declares that its new investments will incorporate in Nevada absent compelling reasons otherwise, it signals a tectonic shift in venture capital orthodoxy. This firm didn’t achieve its position by following conventional wisdom—it got there by identifying superior strategies before competitors. Their exhaustive analysis of Nevada’s advantages, conducted by teams of the nation’s premier corporate lawyers, should prompt any serious entrepreneur to reconsider reflexive Delaware incorporation.

The Path Forward

The legal academy will undoubtedly resist this shift. Thousands of law review articles analyze Delaware corporate law. Hundreds of professors have built careers on Delaware expertise. But path dependence is not legal principle, and tradition is not strategy. Nevada has spent decades constructing a corporate law framework optimized for modern business realities rather than nineteenth-century precedents.

For companies considering where to incorporate or reincorporate, the analysis has shifted decisively. Unless your business model specifically requires Delaware’s particular features—perhaps you’re planning a complex merger requiring Court of Chancery precedents—Nevada now represents the superior choice. Lower costs, stronger protections, reduced litigation risk, and enhanced privacy combine to create a compelling value proposition that even the most prestigious venture capital firm in Silicon Valley can no longer ignore.

The Delaware era is ending. The Nevada era has begun.