Tesla’s CEO Elon Musk announced on Thursday that the company will hold a shareholder vote to transfer its state of incorporation from Delaware to Texas after a judge invalidated his $56 billion pay package at the electric vehicle maker.
Delaware judge Kathaleen McCormick called the 2018 share-based pay package “an unfathomable sum” that was unfair to shareholders and found it was negotiated by directors who appeared beholden to Musk. Musk’s plan to change Tesla’s state of incorporation from Delaware to Texas is not without risk, as legal experts suggest he may be sued by investors if the move is seen as an attempt to secure his pay package rather than obtain some benefit for Tesla.
More than 65% of Fortune 500 companies and over half of all US publicly traded companies are incorporated in Delaware, making it cheaper for Delaware companies to raise capital. Musk has also recently said he would be uncomfortable growing the automaker to be a leader in artificial intelligence and robotics without having at least 25% voting control of the company, nearly double his current stake.