Elon Musk announced plans for Tesla to hold a shareholder vote to relocate its state of incorporation from Delaware to Texas after a judge invalidated his $56 billion pay package.
Musk’s move stems from a Delaware judge’s criticism of the pay package and the state’s legal framework.
Musk wrote, “Never incorporate your company in the state of Delaware.”
Independent business adviser Keith Donovan said, “Shareholders need to take a hard look at how transitioning out of Delaware might impact their rights and the company’s governance.”
Brian Cheffins, a professor of corporate law at Cambridge University, said, “Musk must believe that Texas judges are more ‘business friendly’ than their Delaware counterparts… Musk must be assuming that Texas judges will…take a more relaxed approach to the issue than Delaware judges.”
“It is far from clear Texas judges will do so,” he continued.
However, transitioning out of Delaware may face challenges, including potential investor lawsuits and the need for shareholder support.
Thomas Martin, senior portfolio manager at shareholder Globalt Investments, asked, “What’s more concerning is he has a lot of AI efforts in Tesla, and if he doesn’t get his way with his pay package, what will he do in terms of those efforts diminishing in Tesla and going somewhere else?”
“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,” wrote Musk.
Musk’s interest in Texas is not new, as he previously moved Tesla’s headquarters there and has other business operations in the state.
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