Delaware

Delaware demonstrates how first-mover advantage in regulatory niches can define an entire economy. The "First State" hosts over two million incorporated business entities—68% of Fortune 500 companies and historically 80% of IPOs choose Delaware incorporation. This concentration isn't about Delaware's physical economy but about its legal infrastructure: the Court of Chancery's 150 years of corporate law precedent creates predictability that lawyers and executives value more than any tax incentive.

The state's business model resembles cleaner fish at a reef station: corporations arrive not to operate but to establish legal domicile, paying franchise taxes and incorporation fees that flow directly into state coffers. Delaware offers no corporate income tax, no inheritance tax on stock held by non-residents, no sales tax, and privacy protections for shareholders. These conditions constitute a specialized niche that other states struggle to replicate—the real product is judicial expertise accumulated over generations.

Yet 2025 revealed stress fractures in this dominant position. Following the Court of Chancery's invalidation of Elon Musk's $56 billion Tesla compensation package in January 2024, "DExit" accelerated—a threefold increase in news coverage of reincorporations. Delaware responded with Senate Bill 21, signed in March 2025, establishing safe harbors for conflicted transactions to stem the exodus. The state's economy depends on maintaining its regulatory moat: a significant decline in incorporations would create budget crises in a jurisdiction whose prosperity rests on being where companies exist on paper rather than in practice.