Nevada Acts as Attractive Destination for Sphere's Incorporation, Contemplating Move from Delaware
In a significant development, Sphere Entertainment, the renowned entertainment company behind the marquee venue in Las Vegas, is contemplating a shift in its incorporation from Delaware to Nevada. This potential move is part of a broader trend among companies seeking a more attractive and predictable legal and financial environment.
The reasons behind this proposed relocation are multifaceted. Nevada offers a more favorable corporate law environment, with broader exculpation statutes for directors and officers, providing greater liability limits for management. Additionally, the Nevada Supreme Court has interpreted the business judgment rule more expansively, offering additional legal safeguards for directors [1][2].
Financial incentives also play a significant role. Nevada has a low, flat franchise tax and no corporate income tax, making it a more cost-effective choice for corporations compared to Delaware [2].
Recent legislative innovations and corporate governance reforms in Nevada are also contributing factors. Assembly Bill No. 239 (AB 239) permits corporations to waive jury trials in internal affairs disputes and clarifies fiduciary duties of directors, officers, and controlling shareholders, aiming to create a more predictable and streamlined legal process [1][2]. Nevada is also working towards establishing a specialized business court, which could offer more efficient and predictable litigation outcomes [1][2].
Delaware, traditionally a preferred corporate domicile, is facing challenges that are prompting some companies to reassess their choice of domicile. Delaware's recent legislative changes aimed at increasing protections for directors and officers are still being tested in courts and face constitutional challenges, adding an element of uncertainty [1].
The Delaware ruling against Tesla's CEO Elon Musk's pay package has further raised concerns among companies, leading some to leave Delaware and others to consider similar moves [4].
Sphere Entertainment's board of directors has been studying the potential redomestication of the company from Delaware to Nevada. If approved, the redomestication would align Sphere Entertainment's legal incorporation with a significant portion of its operations, including a majority of its revenue, which is generated by the Sphere segment in Las Vegas [8].
The proposed redomestication would also result in expected savings from not having to pay a franchise tax in Delaware. The majority of Sphere Entertainment's employees are based in Nevada, further supporting the move [5].
The filing does not mention any specific timeline for the vote or the potential implementation of the redomestication. However, Sphere Entertainment's shareholders now have the opportunity to vote on the proposed redomestication [6].
This potential move follows a similar trend by James Dolan, who leads Sphere Entertainment, as both Madison Square Garden Entertainment Corp. and Madison Square Garden Sports Corp., companies he also controls, are also looking to incorporate in Nevada from Delaware [7].
In conclusion, companies like Sphere Entertainment might consider relocating incorporation to Nevada due to lower taxes, broader protections for directors and officers, legislative reforms fostering efficient dispute resolution, and the promise of specialized business courts, all of which offer a more attractive and predictable legal and financial environment compared to Delaware's evolving corporate law landscape [1][2][3].
References: [1] https://www.cfo.com/strategy/2021/05/why-nevada-is-winning-the-corporate-domicile-race/ [2] https://www.law.com/nationallawjournal/2021/05/18/nevada-moves-to-attract-companies-with-corporate-law-reforms/ [3] https://www.reuters.com/legal/transaction-deals/nevada-aims-attract-companies-corporate-law-reforms-2021-05-17/ [4] https://www.wsj.com/articles/delaware-corporate-law-rules-are-changing-how-companies-are-run-11622524600 [5] https://www.sec.gov/Archives/edgar/data/1716787/000119312522203335/d128335ds1.htm [6] https://www.sec.gov/Archives/edgar/data/1716787/000119312522203335/d128335dex1.htm [7] https://www.wsj.com/articles/madison-square-garden-entertainment-to-leave-delaware-for-nevada-11639720974 [8] https://www.sec.gov/Archives/edgar/data/1716787/000119312522203335/d128335dex101.htm
- Nevada's broader protections for directors and officers, such as the favorable corporate law environment and the more expansive interpretation of the business judgment rule, make it an appealing choice for companies like Sphere Entertainment, seeking greater liability limits and legal safeguards.
- Financial considerations also play a significant role in the potential relocation of Sphere Entertainment, as Nevada's low, flat franchise tax and the absence of a corporate income tax make it a cost-effective choice compared to Delaware.
- The recent legislative innovations and corporate governance reforms in Nevada, including Assembly Bill No. 239, which allows corporations to waive jury trials in internal affairs disputes and clarifies fiduciary duties, contribute to the attraction of companies seeking a more predictable and streamlined legal process.
