Tesla CEO Elon Musk has announced intentions to initiate a shareholder vote to relocate the company’s state of incorporation from Delaware to Texas. This decision comes in the aftermath of a Delaware judge’s nullification of Musk’s $55 billion compensation package, deeming it an “unfathomable sum” and unfair to Tesla shareholders. The judge highlighted deficiencies in the approval process, particularly scrutinizing Musk’s close ties with board members.
While the judge’s ruling doesn’t eliminate the possibility of Musk receiving the $55 billion, it necessitates a new shareholder vote on a compensation package that addresses the noted issues. Shortly after the court decision, Musk conducted a public poll on his social media platform, X, seeking input on whether Tesla should change its state of incorporation to Texas.
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With over a million votes within twenty hours, 87% favored the move. Confirming the public sentiment, Musk announced on social media that Tesla would “move immediately to hold a shareholder vote to transfer state of incorporation to Texas.”
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
Despite lacking business ties to Delaware, Tesla, along with major U.S. corporations like Walmart, Google, and Amazon, is incorporated in the state due to its favorable taxation and corporation-friendly legal framework. Shifting Tesla’s incorporation to Texas, however, is not a straightforward process, requiring board initiation rather than solely relying on the results of a public poll, according to legal experts.
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Brian Quinn, a law professor at Boston College, highlighted that the move wouldn’t alter the fundamental law underpinning the Delaware ruling. Texas, aiming to establish itself as a fair forum for business disputes, recently launched a new business court. Nevertheless, Musk’s expectations and approach to the move may pose challenges for Texas.
Acknowledging potential advantages and disadvantages, Musk’s decision prompts the need for clear communication by Tesla to shareholders before the vote. Ensuring a fully informed decision rather than a hasty agreement is crucial, considering the potential ramifications of relocating Tesla’s state of incorporation from Delaware to Texas.
