By Byron F. Egan

This article is part six of six articles in the “DExit to Texas: What You Need to Know About Reincorporating in the Lone Star State” series, which covers why Delaware companies are considering redomiciling in Texas and the primary differences between the two states.

The Internal Affairs Doctrine

The internal affairs doctrine is the foundational conflict of laws principle that governs DExit transactions. It recognizes that only one state should have the authority to regulate a corporation’s internal affairs. Both Delaware and Texas subscribe to this doctrine, which provides that the law of the state of organization of an entity governs its internal affairs, including the liability of an owner or governing person for actions taken in that capacity.

What this means in practice is that once a company redomiciles from Delaware to Texas, its internal affairs — governance, director and officer duties, shareholder rights, and related matters — are governed by Texas law, not Delaware law. The company’s historical Delaware case law and statutory framework will no longer control these areas.

Tax Implications

Companies reincorporating in Texas will no longer be subject to Delaware’s corporate income tax of 8.7% of federal taxable income allocated and apportioned to Delaware. They will also eliminate the Delaware franchise tax, which can reach $200,000 (or $250,000 for large corporate filers) under the Authorized Shares Method alone. Texas has no corporate income tax and no franchise tax based on equity capitalization. Texas’s franchise (margin) tax is calculated based on gross receipts reportable for federal income tax purposes, reduced by the greatest of 30% of gross revenue, $1 million, certain W-2 compensation, or cost of goods sold, multiplied by an apportionment formula based on Texas gross receipts as a proportion of aggregate gross receipts, at a rate of 0.75%.

The Bottom Line

Companies with substantial Texas operations, boards seeking stronger business judgment protections, and shareholders focused on cost savings and litigation risk reduction will find the Texas framework increasingly attractive. The combination of the new Texas Business Court, the strengthened Texas Business Organizations Code (TBOC), and a favorable tax environment make Texas a compelling alternative to Delaware for incorporation.

Jackson Walker’s corporate team is at the forefront of advising companies considering reincorporation in Texas. Our attorneys—including Byron F. Egan, one of the architects of Texas’s modern business entity statutes, and the TBOC amendments driving the DExit movement—are uniquely positioned to guide your company through every step of the process.

The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice. For more information, please contact Byron F. Egan or a member of the Corporate & Securities practice.

Meet Byron

Byron F. Egan regularly handles business combinations of corporations, limited liability companies, and partnerships, including mergers and acquisitions, purchases and sales of stock, and other equity interests, and sales and exchanges of assets. He also handles the related entity governance and structure issues. In 2025, Byron published the fifth edition of EGAN ON ENTITIES: Corporations, Partnerships and Limited Liability Companies in Texas, a treatise on Texas, Delaware and other entity laws. Byron is the only attorney to have received the Burton Award for Legal Achievement four times and is consistently recognized among the top corporate and M&A lawyers in Texas by several publications.

Byron has consistently been recognized by Who’s Who Legal for over 15 years, including as a “Recommended” attorney in M&A and Corporate Governance and as a “Thought Leader” for M&A. He has also been named among The Best Lawyers in America since 1993 in the areas of Corporate Compliance Law, Corporate Governance Law, Corporate Law, and Mergers and Acquisitions Law.