Elon Musk Says Shareholders Will Vote On Reincorporating Tesla In Texas

Elon Musk is picking up and moving to Texas...again.

Having already moved Tesla's manufacturing to the Lone Star state and in the wake of a Delaware Chancery Court ruling this week that saw Musk's $55 billion pay plan voided, Musk is now seeking to reincorporate Tesla in Texas. 

Musk held a poll on his X account this week asking his followers whether or not the company should reincorporate in Texas. The response was an overwhelming 'yes', prompting Musk to write: "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."

The move could be risky, Reuters reported on Thursday. If Musk proceeds with the vote, it carries inherent risks. Legal authorities suggest that Musk would likely face lawsuits from investors if he attempts to relocate Tesla's state of incorporation to Texas. This is especially true if the move is perceived as a tactic to protect his compensation package rather than to gain advantages for Tesla.

Dan Coatsworth, investment analyst at AJ Bell, commented: "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."

Another business adviser told Reuters: "Shareholders need to take a hard look at how transitioning out of Delaware might impact their rights and the company's governance."

As we wrote earlier this week, a Delaware judge voided Elon Musk's $55 billion pay package after a Tesla shareholder brought a case to court claiming it was excessive. The consequences of the ruling could have major implications for Tesla's governance structure, but their implementation will hinge on a forthcoming appeal, according to Bloomberg. 

Delaware Chancery Court Chief Judge Kathaleen St. J. McCormick cited inadequate disclosures and board conflicts of interest in her ruling. Musk, whose wealth largely comes from Tesla, the top auto company globally, has seen stock options from this plan vest as performance goals were met, though he hasn't exercised them yet.

The judge wrote: “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. And through this litigation, the plaintiff requests a recall.”

“The most striking omission from the process is the absence of any evidence of adversarial negotiations between the Board and Musk concerning the size of the grant,” she continued.

The compensation case, which was launched by shareholder Richard Tornetta, argued that Tesla's board lacked independence in crafting Musk's pay, a view the judge supported.

"Never incorporate your company in the state of Delaware," Musk fired back on Twitter earlier this week. 

Tuesday's court verdict requires Tesla's board to put together a new executive compensation plan, at least temporarily overhauling the record-setting package previously awarded to Musk in 2018.

Looks like the company could be doing so in Texas...