Tesla CEO Elon Musk is fed up with Delaware after a state court ruling overturned his $55.8 billion salary. Musk said last night that Tesla would hold a shareholder vote on moving the electric car maker's state of incorporation to Texas.
Musk had posted a poll on X (formerly Twitter) asking whether Tesla should “change its state of incorporation to Texas, where its headquarters are located.” After more than 87% of people voted yes, Musk wrote“The public vote is unequivocally in favor of Texas! Tesla will immediately hold a shareholder vote to transfer the state of incorporation to Texas.”
Tesla was incorporated in 2003 before Musk joined the company. Its founders chose Delaware, a common destination due to the low corporate tax rate and business-friendly legal framework. The Delaware government says more than 68% of Fortune 500 companies are registered in the state and 79% of U.S. IPOs in 2022 were registered in Delaware.
One reason Delaware was chosen is the state's Court of Chancery, where cases are decided not by juries but by judges who specialize in corporate law. On Tuesday, Chancery Court Justice Kathaleen McCormick governed that Musk's $55.8 billion compensation package was unfair to shareholders and should be reversed.
McCormick's ruling in favor of the plaintiff in a shareholder lawsuit said most of Tesla's board members “were indebted to Musk or had compromising conflicts.” McCormick also concluded that Tesla's board gave shareholders inaccurate and misleading information in order to gain approval for Musk's “unfathomable” compensation plan.
Musk fan of Texas and Nevada
Musk yesterday sharing an article claiming that McCormick's decision “is another clear example of the Biden administration and its allies using the American legal system as a weapon against their political opponents.”
McCormick previously oversaw the Twitter lawsuit that forced Musk to complete a $44 billion purchase despite his attempt to break a merger deal. After Musk became the owner of Twitter, he merged the company with X Corp., registered in Nevada.
“Never incorporate your business in the State of Delaware,” Musk wrote in a post after the Delaware court ruling. “I recommend incorporating in Nevada or Texas if you prefer to have shareholders decide the issues,” he also wrote.
Last year, Texas promulgated a law create business courts that will hear business cases. The courts are expected to begin operating on September 1, 2024. Musk clearly hopes that the new Texas courts will show more deference to Tesla when it comes to executive compensation if the company is sued again after its next plan. agreed remuneration.
Tesla shareholders who will be asked to vote on the company's move to Texas “should carefully consider the impact that the transition out of Delaware could have on their rights and on the governance of the company”, Reuters cited as business consultant Keith Donovan said.
Reuters cited Dan Coatsworth, an investment analyst at AJ Bell, who said that “Elon Musk's plan to change Tesla's state of incorporation from Delaware to Texas is typical behavior for the entrepreneur who is still looking an alternative if he can’t get what he wants.”