Elon Musk has announced plans to move Tesla’s legal incorporation from Delaware to Texas following a judge’s decision to annul his whopping $55.8 billion compensation package.

In a post on his social media platform X on Thursday (Feb 1), Musk said Tesla will immediately hold a shareholder vote to shift the electric vehicle maker’s state of incorporation from Delaware, where many major U.S. firms are registered due to favorable tax and business laws.

The billionaire also directly stated on Wednesday, “Never incorporate your company in the state of Delaware” in response to the ruling by Kathaleen McCormick, the Delaware Court of Chancery judge. She found that Tesla’s board of directors was “perhaps starry-eyed” over Musk’s celebrity status when they negotiated the pay package in 2018, leading them to not fully disclose necessary details to shareholders.

The compensation deal, the largest ever granted an American CEO, helped boost Musk’s net worth to an estimated $220 billion in November 2023, making him the world’s richest person. A title he has recently lost after Tesla stock, which makes up a considerable portion of Musk’s net worth, was routed in January.

How Elon Musk was thwarted by one man with nine Tesla shares

The pay package ties Musk’s compensation to Tesla meeting certain stock price and profit goals rather than granting him a salary.

Shareholder Richard Tornetta sued to have the deal rescinded despite owning just nine shares in Tesla. He argued it was an overpayment not properly vetted by the board.

In 2021, Tesla had already moved its corporate headquarters from California, where Musk had criticized the state’s taxes and regulations, to Texas. The shift of legal jurisdiction would further align Tesla with its operational base in Texas.

An X poll posted by Musk showed over 87% of more than 1 million votes supported moving Tesla’s legal HQ to Texas. “The public vote is unequivocally in favor of Texas!,” Musk wrote.

Delaware is a popular state for incorporating thanks to business-friendly laws and policies as well as an efficient court system specialized in corporate issues. However, Elon Musk’s negative reaction shows the risks companies face if deals are later challenged in the state’s courts.

Musk has a following of 170 million on X, the platform he bought for $44bn in 2022, and has huge support on there.

Former Republican Presidential candidate Vivek Ramaswamy was extremely critical of the Delware ruling saying “courts shouldn’t second-guess the business judgments of boards to maximize shareholder value.”

Featured image:  Marcin Paśnicki from Pixabay

Sam Shedden

Managing Editor

Sam Shedden is an experienced journalist and editor with over a decade of experience in online news. A seasoned technology writer and content strategist, he has contributed to many UK regional and national publications including The Scotsman, inews.co.uk, nationalworld.com, Edinburgh Evening News, The Daily Record and more. Sam has written and edited content for audiences whose interests include media, technology, AI, start-ups and innovation. He's also produced and set-up email newsletters in numerous specialist topics in previous roles and his work on newsletters saw him nominated as Newsletter Hero Of The Year at the UK's Publisher Newsletter Awards 2023. He has worked in roles focused on growing reader revenue and loyalty at one of the UK's leading news publishers, National World plc growing quality, profitable news sites. He has given industry talks and presentations sharing his experience growing digital audiences to international audiences. Now a Managing Editor at Readwrite.com, Sam is involved in all aspects of the site's news operation including commissioning, fact-checking, editing and content planning.