No founder-led startup (or public company) should incorporate in Delaware — its courts hate founder control. I experienced this firsthand at Zynga. Now, the industry is starting to catch on.

For the last century, Delaware has been the default for incorporating a business, with 66 percent of the Fortune 500. 80 percent of 2024 IPOs were Delaware-based. Businesses incorporated in Delaware account for nearly a third of the state’s revenue. (Soon, we will say it ‘used to’ be a third.)

Delaware’s primary draw? Predictability. Its Court of Chancery is a non-jury trial court, meaning that Chancellors (judges) who are experts in corporate law decide cases unilaterally. The Court’s lack of juries and century of case law precedent are meant to give businesses a clear and consistently applied legal framework.

But Delaware’s reputation as the go-to state for incorporation has been eroding for the past few decades, starting with its 1985 Smith v. Van Gorkom decision, when it found that directors can be personally liable for their decisions. And since former Legal Aid Society activist attorney Kathaleen McCormick took over the Court in 2021 after being appointed as Chancellor, its rulings have been — at times — egregiously hostile to founders. It was McCormick who refused Tesla’s board-approved attempt to reinstate Elon’s $56 billion pay package, even after shareholders voted for it twice (in response, Musk reincorporated both Tesla and SpaceX in Texas and moved Neuralink to Nevada). Chamath redirected incorporation of his last four companies to Nevada (“Activism has a price and DE will pay it,” he said on X); Ackman reincorporated Pershing Square in Nevada; TripAdvisor, TransPerfect, and Dell have all left; Brian Armstrong and Paul Grewal have both recently railed against the state’s “activist judges.” Now, Meta is planning on reincorporating in Texas.

Why? Because at every turn, Delaware’s activist court seems hellbent on kneecaping founders simply trying to do what they do best — build great companies and deliver value to shareholders.

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No founder wants to take their company public. But when they do — while employees and investors are popping champagne — founders face a climb up Mount Everest while carrying a bunch of public investors on their back. And when founders finally succumb to IPO pressure, most realize that the only way their company will survive is by maintaining voting control. That’s why, when Zynga went public in December 2011 (we were forced to do so by a now-changed SEC rule), I held onto a separate class of super voting stock, knowing that control would be critical to Zynga’s long-term success.

In April 2012, Facebook changed its newsfeed algorithm, which caused Zynga to lose a third of our players in a day. By June, our stock had dropped 50 percent. Soon after, we were hit with lawsuits — companies almost always get sued after a big stock drop; there is, in fact, an entire industry of securities litigation firms that specialize in suing companies whenever their stock price drops significantly.

The lawsuits compounded our issues, but they weren’t the real problem. The real issue was navigating the whims of the Delaware Court. They wanted us to prove that all major decisions at Zynga were driven by our independent directors — board members who weren’t affiliated with the company’s management, executives, or major shareholders — because, the Court believed, if independent directors approved a decision, it’s more likely to align with shareholders. So despite being Zynga’s largest shareholder, the lawsuits effectively sidelined me from key committees, like compensation and M&A. The Court also decided that directors I trusted and knew well could not be considered “independent” because they either owned too much stock or had past business dealings with me.

This led to the greatest missed opportunity of my career in late 2012. I had a handshake deal with the CEO of Supercell, a Finnish developer which has created some of the most successful mobile games of all time (e.g. Clash of Clans), to buy the company for $400 million. My board rejected the deal — “We want to see you manage what you’ve got first,” they said — and when I asked my lawyer why I couldn’t just use my voting control to push the deal through, he explained that to do so, I’d have to fire and replace my board, which would expose me to personal liability. Supercell went on to make $464 million in pretax profit the next year. Eventually, Tencent took a majority stake in the company for $10.2 billion. In effect, Delaware’s Court of Chancery had deprived our shareholders of something like a 21x return.

At the time, we were also getting inbound acquisition offers, but I wasn’t allowed to weigh in on them — even though I was the CEO and biggest shareholder. Our lawyers kept repeating, “The Delaware court just doesn’t like founder control.” Eventually, I converted my voting shares to common since I couldn’t exercise my control anyway, and hoped I could gain more influence over my board.

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The Delaware Court began turning against founders in the 80s. In Smith v. Van Gorkom (1985), probably the most controversial corporate law decision in the state’s history, the Delaware Supreme Court found that directors are personally liable for their decisions. This paralyzed founders, who were held back by risk-averse boards and tedious documentation. In response, Delaware’s lawmakers passed a bill effectively neutralizing Smith.

Since then, a string of rulings have challenged founder (and headstrong CEO) control, concentrating even more power in the hands of independent directors at their expense. A 1986 case involving Revlon found that when a company is for sale, directors must take the highest bid — even if its controller or founder is opposed. In 2005, a judge railed against the CEO of Disney for unilaterally hiring and firing an executive within the span of a year, saying he’d “enthroned himself as the omnipotent and infallible monarch of his personal Magic Kingdom.” In 2010, when Craig Newmark tried to defend Craigslist against minority stakeholder eBay, which had just launched a competing classifieds site (Newmark tried a poison pill and staggered board strategy) the Court ruled Newmark had acted against shareholder interest. In 2016, the same judge who presided over the Zynga disaster forced TransPerfect, a highly profitable language translation company, to sell against its founders’ wishes because the two cofounders were caught in a governance dispute. The company hated the decision so much that it reincorporated in Nevada.

Since her appointment, Kathaleen McCormick — a former activist attorney with the Legal Aid Society — has issued even more explicitly anti-founder and anti-controller decisions. Last year, the Court ruled that TripAdvisor’s chairman and controller, Gregory Maffei, was not allowed to reincorporate in Nevada because it would disadvantage minority shareholders (Delaware’s Supreme Court overruled the decision, letting TripAdvisor leave the state). Soon after, a Vice Chancellor on McCormick’s Court invalidated part of a shareholder agreement with the investment bank Moelis & Company, ruling that its namesake founder, Ken Moelis, had too much power over his board. Then, citing the Moelis case as precedent, the Court invalidated an agreement between Lowry Baldwin (founder of an insurance company) and his shareholders, ruling that it gave Baldwin too much control.

Delaware lawmakers fought back, passing a bill to override the Moelis and Baldwin decisions and restore (some) protections for founders. McCormick wrote a letter to the Bar criticizing the move, and her Vice Chancellor took to LinkedIn to complain that the bill weakened boards and gave too much power to individual investors — especially founders.

Clearly, Delaware’s activist judges are fighting its lawmakers, and the state’s legal climate is no longer “predictable.” Worse, Delaware’s judges don’t think founder control aligns with shareholder value. This begs the question: in such a volatile environment, why would founders even consider the risk of incorporating in Delaware?

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My number one advice to founders is keep control of your company at the expense of all else. I tell them: ‘You need to protect investors from themselves.’

I’ve added a new rule: incorporate in a state that’s founder friendly. I’m incorporating all new projects in Texas. Unlike Delaware, it has no corporate income tax. Its fees are lower, and generally it has a simpler, more business-friendly regulatory environment. And, crucially, it’s not plagued by activist judges. Nevada is a strong alternative for similar reasons.

The worst part is that Delaware’s activist judges like Kathaleen McCormick are appointed for 12 year terms. These lengthy terms for judges used to be a selling point for “predictability,” but when you appoint an activist judge, nothing is predictable. Kathaleen McCormick still has eight more years to wreak havoc on founders. (In Texas and Nevada, they’re appointed for two and six-year terms, respectively.)

Thinking back to my experience at Zynga, I want to be clear: I had a terrific board, given all the rules I had to follow. But as the founder, I should have been able to maintain control and surround myself with “interested parties” to lead discussions around compensation and M&A. That’s what Delaware gets wrong: in founder-controlled companies, the most important decisions should be driven by the founder and the most interested parties, not the least.

Founders operating in Delaware are living in blissful ignorance. Get out now.

— Mark Pincus