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 public vote is unequivocally in favor of Texas!
Tesla will move immediately to hold a shareholder vote to transfer state of incorporation to Texas. https://t.co/ParwqQvS3d
— Elon Musk (@elonmusk) February 1, 2024
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.
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Shareholder Richard Tornetta sued to have the deal rescinded despite owning just nine shares in Tesla.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
