Tesla CEO Elon Musk announced on Thursday that the company plans to conduct a shareholder vote to change its state of incorporation from Delaware to Texas.
This decision comes in the wake of a recent court ruling that invalidated Musk’s $56 billion pay package, with a Delaware judge, Kathaleen McCormick, criticizing the massive compensation as unfair to shareholders and suggesting that the directors involved were overly influenced by Musk.
In response to the court ruling, Musk took to social media to express his displeasure and advised against incorporating companies in Delaware.
However, his plan to shift Tesla’s incorporation to Texas is not without risks, as legal experts warn that investors could potentially sue him if they perceive this move as primarily aimed at securing his pay package rather than benefiting Tesla.
Dan Coatsworth, an investment analyst at AJ Bell, commented on Musk’s approach, stating that Musk often seeks alternatives when faced with obstacles.
Brian Cheffins, a professor of corporate law at Cambridge University, noted that Musk may be banking on the idea that Texas judges would take a more lenient stance on executive pay compared to Delaware judges.
Nevertheless, Texas is not guaranteed to provide a more favorable environment, and it remains uncertain whether judges in the state would be more permissive.
Delaware has long been a favored destination for corporations due to its business-friendly legal framework and tax policies.
Over 65% of Fortune 500 companies and over half of all publicly traded U.S. companies are incorporated in Delaware, attracted by its courts and investor protections.
Musk’s decision to relocate Tesla’s corporate headquarters from California to Texas in 2021 reflects his ongoing interest in the state.
Tesla already has a gigafactory in Texas, with plans for a significant expansion and a lithium refinery to support electric vehicle production.
Musk’s other ventures, such as SpaceX and The Boring Company, also have operations in Texas.
Musk conducted a poll on social media, where a significant 87% of 1.1 million votes favored the move to Texas.
n response, he announced the intention to hold a shareholder vote to transfer the state of incorporation. Tesla’s shares experienced a 1% increase in trading following Musk’s announcement.
Overall, the decision to shift Tesla’s incorporation from Delaware to Texas is a significant strategic move for Elon Musk and the company, though it comes with potential legal and financial risks that will need to be carefully managed.