Elon Musk has announced that Tesla will promptly initiate a shareholder vote to decide on relocating the company’s legal domicile from Delaware to Texas.
This decision follows a recent judgment in Delaware that nullified Musk’s $55.8 billion Tesla pay package, making it the largest pay deal in the history of US corporations.
Musk took to social media after the ruling, advising against incorporating companies in Delaware, a state known for its favorable tax environment and where many major corporations, including Amazon, are registered.
Judge Kathaleen McCormick, presiding over the case, found that Tesla directors involved in negotiating the pay package in 2018 were potentially swayed by Musk’s “superstar appeal” and may not have adequately informed shareholders.
She deemed the deal “unfathomable” and ordered its cancellation. This ruling significantly impacted Musk’s net worth, estimated to be between $198 billion and $220 billion by Bloomberg and Forbes in November 2023, making him the world’s wealthiest individual.
Elon Musk’s compensation at Tesla was tied to performance targets, such as the company’s share price and profitability, with no fixed salary.
The legal challenge was brought forth by a shareholder named Richard Tornetta, who contended that the payment was an excessive overpayment. Despite holding only nine Tesla shares, Tornetta initiated legal action to annul the award.
In response to the ruling, Musk conducted a poll on his social media platform X (formerly Twitter), proposing a potential change in Tesla’s state of incorporation to Texas.
The poll garnered over 1.1 million votes, with more than 87% favoring the relocation. Musk, acknowledging the public sentiment, declared, “The public vote is unequivocally in favor of Texas!”
Notably, Tesla had already moved its corporate headquarters from Palo Alto, California, to Austin, Texas, in 2021. Musk’s decision to relocate was fueled by criticism of California’s tax policies and regulations, along with disagreements during the early stages of the Covid-19 pandemic when he reopened Tesla’s factory in Fremont.
Texas also houses Tesla’s electric car “gigafactory,” which the company plans to expand.
This legal setback in Delaware is not the first for Musk in the state. The same judge, Kathaleen McCormick, presided over a lawsuit in July 2022 related to Musk’s attempt to back out of a contract to purchase Twitter for $44 billion.
Despite Musk’s arguments, the judge rejected them, and he ultimately proceeded with the acquisition, rebranding Twitter as X.