Musk seeks Tesla shareholder vote on moving incorporation to Texas

reuters | February 1, 2024

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By Shubham Kalia, Maria Ponnezhath and Samrhitha A

(Reuters) – Tesla CEO Elon Musk said on Thursday the company will hold a shareholder vote to transfer its state of incorporation to Texas from Delaware, days after a judge invalidated his $56 billion pay package at the electric vehicle (EV) maker.

On Tuesday, Delaware judge Kathaleen McCormick called the 2018 share-based pay package, the largest in corporate America, “an unfathomable sum” that was unfair to shareholders and found it was negotiated by directors who appeared beholden to Musk.

“Never incorporate your company in the state of Delaware,” Musk posted on social media X shortly after the ruling.

Musk’s idea, should he actually go through with the vote, is not without risk. Legal experts said Musk would almost certainly be sued by investors if he tried to move the state of incorporation to Texas, particularly if it was seen as a move to secure his pay package rather than obtain some benefit for Tesla.

“Elon Musk’s plan to change Tesla’s state of incorporation from Delaware to Texas is typical behaviour for the entrepreneur who always looks for an alternative if he can’t get what he wants,” said Dan Coatsworth, investment analyst at AJ Bell.

Getting shareholders on board could be another hurdle for Musk.

“Shareholders need to take a hard look at how transitioning out of Delaware might impact their rights and the company’s governance,” Independent business adviser Keith Donovan said.

The company’s shares reversed course to trade down 1.2%. They are down about 25% this year due to growing concerns of soft EV demand after more than doubling in 2023.

The ruling is not the first time that Musk has suffered a setback in Delaware.

McCormick was the same judge who oversaw Twitter’s July 2022 lawsuit against Musk after he tried to back out of his contract to buy the social media platform for $44 billion. The judge rejected his delaying tactics and Musk finally went through with the deal to buy the company.

“Musk must believe that Texas judges are more ‘business friendly’ than their Delaware counterparts … Musk must be assuming that Texas judges will, with the discretion they have to assess executive pay, take a more relaxed approach to the issue than Delaware judges,” said Brian Cheffins, a professor of corporate law at Cambridge University.

“It is far from clear Texas judges will do so.”

More than 65% of Fortune 500 companies and over half of all U.S. publicly traded companies are incorporated in Delaware, lured by the state’s business-friendly legal framework and tax policies, according to Harvard Business Services, a firm offering Delaware business formation services.

U.S. public companies look to incorporate in Delaware for access to the state’s courts. Its corporate law places greater restraints on management and is more protective of investors than states like Nevada, making it cheaper for Delaware companies to raise capital.

TripAdvisor and its parent company are currently defending a lawsuit by their shareholders, who have challenged the company’s plans to re-incorporate in Nevada from Delaware.

Musk has also recently said he would be uncomfortable growing the automaker to be a leader in artificial intelligence (AI) and robotics without having at least 25% voting control of the company, nearly double his current stake.

His stake was larger before his purchase of X, then known as Twitter, but he sold billions of dollars of shares in 2022 partly to help finance that $44 billion purchase.


Musk has more than a small interest in Texas.

He shifted Tesla’s corporate headquarters from Palo Alto, California to Austin, Texas in 2021 after criticizing California’s regulations and taxes, and also clashing with health officials at the start of the COVID-19 pandemic over reopening a factory in Fremont.

One of the EV maker’s gigafactories is in Texas, where it is also planning an over $750 million expansion. It is also building a lithium refinery in the state, aiming to produce enough for about 1 million EVs by 2025.

Musk’s other companies – SpaceX and The Boring Company – also have operations in Texas.

Musk, as he has done in the past, held a poll on X, and proclaimed that the 87% “yes” vote out of 1.1 million total votes was a deciding factor.

“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,” Musk said on X.

(Reporting by Maria Ponnezhath, Shubham Kalia and Samrhitha Arunasalam in Bengaluru, Tom Hals in Wilmington and Martin Coulter in London; Editing by Savio D’Souza and Saumyadeb Chakrabarty)