Elon Musk’s SpaceX, the renowned rocket company, has recently made a significant move by transferring its incorporation from Delaware to Texas. This decision comes shortly after a Delaware judge invalidated Musk’s $55.8 billion pay package as the CEO of Tesla, which led the billionaire to express his dissatisfaction with the state on social media. Musk even urged other companies to follow suit and leave Delaware. In a post on Tuesday, Musk announced the move, stating, “SpaceX has moved its state of incorporation from Delaware to Texas! If your company is still incorporated in Delaware, I recommend moving to another state as soon as possible.”
The catalyst for Musk’s frustration stems from a lawsuit filed by a Tesla shareholder named Richard Tornetta back in 2018. Tornetta accused Musk and Tesla’s board of directors of breaching their fiduciary duties by approving a multibillion-dollar pay plan that allegedly resulted in Musk’s unjust enrichment. Despite Tesla’s failed attempts to dismiss the lawsuit, Musk testified in November that he had no involvement in determining the terms of the payout. However, in January, Delaware Chancery Court Judge Kathaleen McCormick ruled against the record pay package, deeming the negotiation process “flawed” and the price “unfair.”
Following this ruling, Musk took to X to express his dissatisfaction, advising others, “Never incorporate your company in the state of Delaware.” He later recommended incorporating in Nevada or Texas if shareholders’ opinions mattered. This sentiment prompted Musk’s brain implant company, Neuralink, to relocate its legal corporate home from Delaware to Nevada earlier this month.
Musk’s intention to have Tesla shareholders vote on transferring the company’s corporate listing from Delaware to Texas gained momentum due to overwhelming public support. Texas is widely regarded as one of the most corporation-friendly states in terms of its laws. However, legal experts have expressed differing opinions on whether Texas would truly provide a more favorable legal environment for Tesla. Erik Gordon, a business and law professor at the University of Michigan, stated that Delaware’s preference for company management over shareholders contributed to its status as the leading domicile for U.S. and international corporations. On the other hand, University of Nevada law professor Benjamin Edwards warned that Texas would not want a reputation as a state where billionaires always win, as it would undermine investor trust.
Despite the legal battles and corporate relocations, Tesla’s shares experienced a 5% increase on Tuesday. This move by SpaceX to shift its incorporation to Texas marks another chapter in Elon Musk’s ongoing quest for a more favorable legal environment for his companies. As the billionaire continues to navigate the complexities of corporate governance, the future of Tesla and SpaceX remains uncertain.