DISCLAIMER: Things I am not: an accountant, a lawyer, a fiduciary to any reader, or a registered advisor. I’m just a guy writing a newsletter so none of this constitutes any tax, accounting, legal, life, or investment advice.

Revisiting our first issue

I was planning to provide a brand new issue today on Fiduciary Duty but ended getting home late and don’t have enough time to put out a high quality all original issue. Instead I’m re-sharing the first ever issue of The AGM, originally published on February 20th.

There are more than four times as many subscribers now as I had when I published this first issue hence for many of you this is likely brand new content.

For my OGs I’ve compiled some additional context, including parts from #2 and #6, as well as some more recent context from the past week. I’ve also updated the original with a few minor tweaks and some headings to make it a tad easier to read.

Also this was originally an “In The News” issue but I realize it also addresses risk at its core, and likely fits just as well under our “Risks” category, so this issue will be categorized as “Risks” on The AGM website where you can read Issues all the way from #1 to #14 and any number (except for 4…that was a subscriber exclusive) in between.

What’s New

Since originally published there are a few updates.

First, and most recently, Tesla is now running its vote again, and spending heavily on advertising to try to convince investors it was a judicial overreach. I’ll let you make that determination yourself, but I can’t say I agree with that characterization. However I am neither a Tesla shareholder nor a lawyer.

Secondly, as covered in The AGM Issue #6, TripAdvisor has been allowed to leave Delaware based on the judge’s determination that a remedy of specific performance (in this case forcing the company to stay/return in/to Delaware) is not necessary and that should the plaintiffs prevail and show damages, that any damages can be remedied purely monetarily.

Finally, It was also brought to my attention that I should’ve talked more about the concept of case law. In Delaware there are hundreds of years of business disputes and tens of thousands of rulings. This sets precedent which informs judges as they adjudicate cases. It is an important component to why companies should stick around in Delaware…though as we know, precedent can always be broken…but I won’t even begin to discuss starre decisis.

Now that you’re up to date I present to you a reprint of Issue #1 of The AGM: Don't let your portcos move to Nevada or Texas

In The News / Risks

For our first topic we’ll cover the oft talked about Delaware C-Corp and the flight of some well known DE C-Corps to Texas. You may have read about it as SpaceX has filed to move from Delaware to Texas, TripAdvisor is trying to move to Nevada and, the writing is on the wall for Tesla to do the same after a judge in Delaware Chancery Court rejected an executive compensation package citing “entire fairness” test for controlling and related party transactions.

Two of these three instances focus on just one individual for whom herds are known to follow and emulate. Because of that, it’s important to consider the potential that this has to become a real issue going forward for investors with holdings who may be led stubborn and/or control minded founders. Particularly those who are successful at maintaining board control through to later stages of a company’s life.

Domicile

Remember — we’re not talking about where a company has its corporate offices— the focus of this mailing is solely about where the top company in the corporate structure is headquartered as a matter of law — many Delaware companies don’t have any presence in Delaware.

We’re also only talking about entities with multiple non-related shareholders — Nevada and Wyoming are actually generally considered great states for vehicles that are closely held and this is likely a topic I’ll explore in a future newsletter.

If you’re a VC or an LP, this movement outside of Delaware is undoubtedly a very bad thing. I’ve seen some takes on LinkedIn and X that this either doesn’t matter or, is the beginning of a new wave of changes in tech (including one that says it will lead to Texas’s secession from the union  🙄)

Status Quo

Even though we as LPs invest in VC looking to find disruptors, legally we all generally want some form of status quo. In todays world the status quo as a limited partner in a fund or an equity holder in a direct investment is that you hold equity in a Delaware C-Corp and disputes are adjudicated in chancery court.

Chancery Court is unique in that it features well compensated judges who are experts in contracts and used to handling these types of disputes. Their higher level of knowledge of contract law leads to informed interpretation of said law, which as written affords rights to minority holders. Delaware is a safe place to invest in companies.