Musk Says Tesla Shareholders Will Vote on Moving Company From Delaware to Texas

Elon Musk, Tesla CEO, attends the opening of the Tesla factory Berlin Brandenburg in Gruenheide, Germany, March 22, 2022. Patrick Pleul/Pool via AP

Elon Musk said he’s fed up with Delaware after a court there nullified his $56 billion pay package, with the tech entrepreneur saying that Tesla would hold a shareholder vote on moving the carmaker’s state of incorporation to Texas.

A Delaware judge voided the payment package to Mr. Musk on Jan. 30 as part of a lawsuit filed five years ago by Richard Tornetta, a Tesla shareholder, who claimed the pay package was marred by conflicts of interest and other factors.

Chancery Court Judge Kathaleen McCormick wrote in her 200-page ruling that the electric carmaker’s board of directors had failed to prove “that the compensation plan was fair.”

Mr. Musk responded to the ruling in a post on X: “Never incorporate your company in the state of Delaware.”

Tesla was incorporated in Delaware before Mr. Musk joined the company. Delaware is a common destination for incorporation because of its business-friendly laws and low corporate taxes.

But for Mr. Musk, Delaware has been a place of clashes with courts, including when he was sued by Twitter to force him to go through with his pledge to buy Twitter, now X, for $44 billion.

Elon Musk's photo through a Twitter logo on Oct. 28, 2022. Dado Ruvic/Illustration/Reuters

In a follow-up post on the platform, the tech entrepreneur launched a poll asking X users, “Should Tesla change its state of incorporation to Texas, home of its physical headquarters?”

The poll had amassed 1.1 million votes at the time of publication, with over 87 percent voting “yes.”

Reacting to the results of the poll, Mr. Musk wrote: “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.”

Mr. Musk then urged other businesses to follow suit.

“Change your state of incorporation out of Delaware before they lock the doors,” he wrote in a post on X, while claiming that businessman John Malone, a fellow billionaire and chairman of Liberty Media, was being blocked from changing his incorporation from Delaware to Nevada.

Mr. Musk added that for most companies, Nevada would be the best state to incorporate in, but since Tesla is physically headquartered in Texas, that “makes sense” for Tesla.

“I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters,” he said in another post.

A giant cowboy hat is on display outside the Tesla Giga Texas manufacturing facility during the "Cyber Rodeo" grand opening party on April 7, 2022 in Austin, Texas. Suzanne Cordiero/AFP via Getty Images

Delaware Court Pay Snub

Tesla granted Mr. Musk a $56 billion pay package in 2018, prompting a lawsuit by Mr. Tornetta, who argued that it should be voided for being excessive.

The shareholder also claimed misleading disclosures on the part of Tesla. He argued that the key milestones Mr. Musk had to achieve in order to receive the pay package—which were described in proxy disclosures as very difficult to achieve—were in reality widely expected to be achieved.

Mr. Tornetta’s lawsuit further argued that a proxy statement issued by Tesla wrongly characterized the board’s Compensation Committee and the board as “independent when they were not,” and claimed that the compensation plan—the largest in U.S. corporate history—was devised by Mr. Musk himself.

The Delaware judge agreed, writing in the ruling that the company’s board of directors not only failed to prove that the pay plan was “fair” or to show any evidence that they “ever discussed or negotiated” the compensation package with Mr. Musk.

“In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit. The process arrived at an unfair price,” the judge wrote.

An aerial view of tech entrepreneur Elon Musk (L) livestreaming while visiting the Texas-Mexico border in Eagle Pass, Texas, on Sept. 28, 2023. John Moore/Getty Images

Judge McCormick also criticized the process that led up to the approval of Mr. Musk’s compensation plan as deeply flawed.

“In addition to his 21.9 percent equity stake, Musk was the paradigmatic ‘Superstar CEO’ who held some of the most influential corporate positions (CEO, Chair, and founder), enjoyed thick ties with the directors tasked with negotiating on behalf of Tesla, and dominated the process that led to board approval of his compensation plan,” the judge wrote. “At least as to this transaction, Musk controlled Tesla.”

Judge McCormick concluded by instructing Mr. Tornetta to collaborate with Mr. Musk’s legal team to draft an order implementing her decision. They should jointly identify all issues, including fees, for resolution at the trial level.

It’s unclear whether Mr. Musk plans to appeal the ruling to the Delaware Supreme Court.

The Pay Package

Mr. Musk, who does not receive a salary from Tesla, agreed to the $56 billion pay package in 2018 to cover a period of 10 years.

Under the deal, whenever Tesla achieved a key milestone in terms of operations and financials, Mr. Musk would receive stock worth around 1 percent of Tesla stock. By 2023, Mr. Musk had hit all 12 targets set out in the deal.

Lawyers for Tesla argued that the pay package was designed to incentivize Mr. Musk—who also heads space exploration firm SpaceX and social media platform X—to deliver results for the electric carmaker.

Currently, Tesla has a market capitalization of around $601 billion.

Katabella Roberts contributed to this report.