Elon Musk has announced that Tesla will hold a shareholder vote to transfer its state of incorporation from Delaware to Texas, just days after a Delaware judge invalidated his massive $56 billion compensation package. The move comes after Judge Kathaleen McCormick ruled that Musk’s pay deal, the largest ever awarded to an American CEO, was negotiated by directors who appeared “beholden” to him and was unfair to shareholders.

An indignant Musk took to social media to urge companies not to incorporate in Delaware. He also started a Twitter poll asking if Tesla should move to Texas, which received over 1.1 million votes in favor of the relocation.

Why Does Elon Musk Want To Leave Delaware?

Elon Musk
Elon Musk

Elon Musk had harsh words for Delaware after the pay ruling, tweeting “Never incorporate your company in the state of Delaware” shortly after McCormick’s decision. It should be noted that Tesla has already moved its corporate headquarters from California to Austin, Texas back in 2021. This latest proposed move is focused specifically on changing Tesla’s legal state of incorporation from Delaware to Texas instead. 

The judge’s rebuke of his pay package is not the first time Musk has clashed with Delaware’s courts. McCormick was also the judge who oversaw Twitter’s lawsuit against Musk when he initially tried to back out of purchasing the company last year.

Musk appears to believe he will find a more favorable legal environment in Texas. He tweeted that he recommends incorporating in Texas or Nevada “if you prefer shareholders to decide matters.”

Also Read: Elon Musk Faces Financial Nightmare as Judge Throws Out his Obscene $56 Billion Tesla Salary For Being “Unfair

What Are the Benefits for Tesla in Moving?

Elon Musk - The Destructiveness of DEI
Elon Musk via Dailywire

For Tesla, the move builds on the company’s expanding Texas presence since relocating from California in 2021. Musk has been critical of California regulations and taxes in the past.

One of Tesla’s gigafactories is already located in Texas, along with plans for a $750 million factory expansion. A new Tesla lithium refinery to produce battery materials is also under construction.

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As an added benefit, shifting incorporation to Texas would align with Tesla’s new Austin headquarters. However Musk still faces challenges in getting shareholder approval. Fans were happy from the decision, here are a few reactions: 

Shareholders and Tesla fans alike seem pleased with Musk’s decision, judging by the overwhelming 87% support in his Twitter poll. Many loyal fans praised the move to leave “unfriendly” Delaware behind and complete Tesla’s transition to Texas on social media. Musk’s considerable follower base rallied behind their visionary leader’s break from the state that recently rejected his record pay package deal.

How Would Moving Impact Shareholders?

Elon Musk - Dealbook Summit
Elon Musk – Dealbook Summit

According to Reuters, some experts warn that the move could reduce shareholder influence while giving Musk more control. Delaware corporate law offers shareholders strong protections not found in states like Texas. Tesla investors may file lawsuits against a reincorporation vote, arguing the motives are designed to reassert Musk’s power rather than benefiting shareholders.

Musk would also need 40-60% shareholder support to approve changing Tesla’s state of incorporation. With an under 20% ownership stake, he faces substantial opposition. Over 50% of publicly traded U.S. companies and 65% of the Fortune 500 are incorporated in the business-friendly state of Delaware. Corporations are drawn by investor-friendly case law, tax incentives, and efficient courts.

By contrast, relatively few major public companies are incorporated in Texas instead of preferred destinations like Delaware. The legal risks of relocating Tesla away from established Delaware law remain hazy.

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But Elon Musk has once again demonstrated his willingness to shake up the status quo in pursuit of his ambitions for Tesla’s future growth, even in the face of legal repercussions. While it remains uncertain if Tesla will complete a move to Texas incorporation, the proposal itself signals Musk’s estrangement from Delaware after critical rulings against his personal finances.

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