In a recent legal development, a Delaware judge ruled against the $55 billion pay package previously approved for Tesla CEO Elon Musk by shareholders in 2018. Delaware Judge Kathaleen McCormick deemed the sum “unfathomable” and declared Musk not entitled to such compensation. In response, Musk is now contemplating relocating Tesla’s incorporation from Delaware to Texas, where regulations on CEO pay are reportedly more permissive.
Delaware, known for its business-friendly legal framework and tax advantages, hosts over half of all publicly traded companies in the U.S. as their state of incorporation, according to Harvard Business Services. Despite this reputation, Musk, facing potential setbacks in light of the ruling, took to criticizing Delaware on social media, advising followers against incorporating their companies in the state.
Encouraged by Texas Governor Greg Abbott and an online poll, Musk swiftly announced Tesla’s intention to hold a shareholder vote for the relocation of the company’s incorporation to Texas. However, legal experts caution that such a move should genuinely benefit Tesla, as any perception of it being a scheme solely to secure Musk’s pay package might lead to legal consequences from investors.
While Texas is recognized for its business-friendly environment, questions linger about the attitudes of Texas judges in handling corporate matters. Musk has previously turned to Texas for his ventures, relocating Tesla’s headquarters from Palo Alto, California, to Austin in 2021, citing grievances with California’s regulations and restrictions during the COVID-19 pandemic.
If Tesla proceeds with incorporating in Texas, it comes at a time when the state has implemented a new law establishing business courts to handle commercial disputes, set to commence operations on September 1. This potential move follows a pattern of Musk turning to Texas for support when faced with challenges elsewhere, emphasizing the dynamic landscape of corporate decisions and their impact on regulatory environments.