Musk seeks Tesla shareholder vote on moving incorporation to Texas

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, after a judge invalidated his $56 billion pay package at the electric vehicle (EV) maker.

Delaware judge Kathaleen McCormick had on Tuesday 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.

But getting shareholders on board could be a hurdle for Musk, should he go through with the vote. He would almost certainly face investor lawsuits, particularly if it was seen as a move to secure his pay package, legal experts said.

“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.

There could also be some dispute over the level of support Musk would need to change Tesla’s governing rules for the move.

Some specific changes require two-thirds of shareholders to back. If Tesla were to adopt a Texas charter that did not change the provisions that require a super majority, it would likely be able to move to Texas with a simple majority, said Ann Lipton, a professor at Tulane University Law School.

It would take at least 40 to 60 days to organize a shareholder vote, although the U.S. Securities and Exchange Commission could slow the process by requiring additional disclosures, she said.

Tesla shares closed about 1% higher on Thursday. After more than doubling in 2023, the stock has lost roughly a quarter of its value this year due to growing concerns of soft EV demand.

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.

“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,” 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 at least 25% voting control of the company, which is nearly double his current stake.

“”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?” said Thomas Martin, senior portfolio manager at shareholder Globalt Investments.

Musk has more than a small interest in Texas.

He shifted Tesla’s corporate headquarters to the state from California in 2021 after criticizing California’s regulations and taxes, and 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, like 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, Samrhitha Arunasalam and Akash Sriram in Bengaluru, Tom Hals in Wilmington and Martin Coulter in London; Editing by Saumyadeb Chakrabarty, Sayantani Ghosh and Arun Koyyur)