Texas’s incoming business courts have prompted interstate companies to inquire about incorporating and growing their operations locally to take advantage of a litigation system tipped to align with its pro-business politics. 

It is an early sign that the courts, which start operating in September, could encourage more firms to follow in Elon Musk’s footsteps and move their incorporation from Delaware and consolidate their presence in the business-friendly state.

Texas is the US’s biggest recipient of FDI, fDi Markets data shows. Business groups that lobbied the government to introduce business courts did so with the goal of attracting even more foreign and interstate business.

“I'm already seeing that,” says Byron Egan, partner at law firm Jackson Walker in Dallas, who has received requests about the business courts from large interstate firms thinking about forming companies in Texas, converting to Texas entities or expanding operations there. “It's an influential factor… when they hear about the business court, they are excited about coming.”

The courts will handle complex business disputes valued at $10m or more — plus corporate law issues between shareholders, the board and management — when the parties have sufficient nexus to Texas, such as incorporation or a principal place of business. Specialist judges are expected to resolve cases more quickly and astutely than Texas’s generalist courts, or the overloaded Delaware Court of Chancery, which is the country’s pre-eminent business court. 

Their introduction comes as the prospect of firms moving their incorporation out of Delaware gathers steam, amid Mr Musk’s reincorporation of his private firms in Nevada and Texas and his ongoing attempt to reincorporate Tesla in the Lone Star state. “He’s a profile that you read about, but there are lots of other people that are [considering moving incorporations] to Texas,” says Mr Egan. “They’re uncomfortable with some of the Delaware [court] decisions … our business courts give an alternative forum.” 

Glenn Hamer, CEO of the Texas Association of Business (TAB), says Texas is aware of firms’ dissatisfaction with Delaware and that “part of the thinking behind the business courts is we want to be the place where litigation is going to happen”. 

More on the UK:

• Texas and Florida biggest winners from US relocations
• Opinion | Tesla shareholders should resist Musk's cowboy push
• Oklahoma rides Texas's megalopolis effect

Incorporation or investment?

The US Chamber of Commerce has stated that the courts “should serve as a compelling reason for businesses looking to expand to business-friendly states”. On the courts’ prospect of attracting inbound business, Mr Hamer says: “We want both [headquarters and incorporations]. We want it all.” 

Yet despite early interstate interest, University of Georgia law professor Greg Day says the link between business courts, incorporations and investment is “tricky”, echoing other commentators which query Texas’s corporate law prowess. Mr Day says this uncertainty is compounded by Texas being the 30th US state to introduce some type of business court. “If everyone offers it, how much of an advantage is it?” he wonders.

But Mr Egan notes that the investment pull of Texas’s courts is increased by its $2.4tn economy. “The expectation is that with the business courts, people will be comfortable being in Texas as a Texas entity, so they can do business here.”

A recent Kearney survey of 516 business leaders found that legal and regulatory processes are the second biggest factor when choosing where to invest. Despite its pro-business regulations and government, dispute resolution has been a missing piece of Texas’s investment ecosystem. It ranked a lowly 38th in the US Chamber of Commerce’s latest Lawsuit Climate Survey Ranking of States. 

Political clout 

Michal Barzuza, a University of Virginia law professor, says Texas’s courts may spark inbound investment from star founders and large companies which expect to benefit from favourable rulings. “Firms manage to have more influence in their [headquarters] state,” she says. “You pay salaries and taxes, so you also have political clout on the court, governor [and] laws,” she adds, pointing to Texas governor Greg Abbott’s courting of Elon Musk. 

Indeed, the fact that judges will be appointed by the governor — not elected like in Texas’s other courts — is considered a risk to the impartiality of its decisions. But Mr Hamer says: “I can guarantee that he will appoint jurists that will handle cases fairly, impartially and according to the law."