Why is Elon Musk changing where all of his companies are incorporated?
On January 31, 2024 a Delaware court judge ruled that Elon Musk’s $56 billion dollar Tesla compensation package was voided, due to it being unfair to shareholders. The judge also criticized Tesla’s board for in her opinion failing to provide oversight of Elon Musk while he also was the CEO of several other companies, in effect saying his attention was not being spent in the best interest of Tesla shareholders.
In other words the judge thinks Elon Musk is too distracted to justify his record-breaking $56 billion Tesla pay package.
Cathie Wood, who runs Ark Invest, thinks Elon Musk is right in wanting to move Tesla’s incorporation from Delaware, where it is currently incorporated, to Texas, which would give more power to Tesla’s board to make their own decisions in the best interest of shareholders.
And Tesla isn’t the only Elon Musk owned company that he’d like to change the state in which the company is incorporated.
Already, Elon Musk has begun making moves to change the incorporation of his private company Neuralink from Delaware to Nevada, and both SpaceX and X (formerly known as Twitter) from Delaware to Texas.
During a video interview with Julie Hyman on Yahoo! Finance, Cathie Wood said the judge’s ruling was “basically taking the vote away from us, the shareholder.” and that the ruling was “un-American. It’s anti-investor. And it’s an insult to the board of directors of Tesla.”
She’s not wrong.
As a long time Tesla shareholder I don’t like the idea of a Delaware judge ruling that the board of a company I’m an investor in can’t decide to compensate the head of the company who has increased the value of the company for shareholders, which is one of the key tenets of what CEOs and their board of directors are tasked with doing for shareholders.
Will this create a stampede of companies leaving Delaware to incorporate in Texas?
Probably not, but hopefully it will raise awareness of the rights of corporations to empower their board of directors to make decisions for shareholders without having to worry about what a judge might think of the compensation packages they put together to motivate their leadership to increase shareholder value.
SpaceX files to move incorporation site from Delaware to Texas