Neuralink, the brain implant company founded by Elon Musk, has recently made a significant move by changing its legal corporate home from Delaware to Nevada. This decision comes after a Delaware judge invalidated Musk’s $55.8 billion pay package as CEO of Tesla, prompting him to express his dissatisfaction with incorporating companies in Delaware. Neuralink’s physical headquarters remain in Fremont, California, but the company’s legal home is now listed as Nevada in both state records and Delaware records.
Musk took to X, formerly known as Twitter, to share his thoughts on the matter. In one post, he advised against incorporating companies in Delaware, stating, “Never incorporate your company in the state of Delaware.” He further recommended Nevada or Texas as preferable options for those who want shareholders to have a say in decision-making processes.
The reason behind most corporations choosing Delaware as their legal home is due to the state’s favorable laws for corporations. However, legal experts argue that Delaware’s business-friendly environment primarily benefits company management rather than shareholders. Erik Gordon, a business and law professor at the University of Michigan, explains that Delaware’s reputation as a preferred state of incorporation is built on its friendliness towards company management.
The recent ruling by Delaware Chancellor Kathaleen St. Jude McCormick on January 30th invalidated the pay package established for Musk by Tesla in 2018. McCormick deemed the process “flawed” and the price “unfair,” leading her to describe the package as “the largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude.” This ruling not only stripped Musk of his position as the wealthiest person according to Forbes but also highlighted the lack of independence between Tesla’s board and Musk.
Musk’s lawyers argued that the extravagant pay package was necessary to incentivize him to remain with Tesla. However, McCormick dismissed this reasoning, stating that the board failed to question whether such a plan was even necessary for the company to retain Musk and achieve its goals. The judge criticized the board for being swayed by the allure of “all upside” and Musk’s superstar appeal.
Supporters of Musk argue that he should not be compensated like other CEOs because he is not like other CEOs. They believe that his integral role in Tesla’s growth and his unique contributions to the company justify his exceptional pay. Musk’s influence and star power have propelled Tesla to become the most valuable automaker globally, with the company selling more electric vehicles than any other in the previous year. Additionally, Musk’s public persona garners significant free publicity, reducing the need for extensive advertising. His success has also compelled other players in the auto industry to expedite their plans for electric vehicles to keep up with Tesla’s remarkable progress.
McCormick’s ruling comes five years after shareholders filed a lawsuit against Musk and Tesla directors, accusing them of breaching their duties. The lawsuit claimed that the pay package resulted from sham negotiations with directors who lacked independence from Musk. In response, the defense argued that the compensation committee, composed of independent members, had fairly negotiated the pay plan, incorporating ambitious performance milestones.
In a separate development, Musk announced on X last month that Neuralink had successfully implanted its first device in a human patient. However, he did not provide any further details regarding this groundbreaking achievement.
As Neuralink relocates its legal home to Nevada, it remains to be seen how this decision will impact the company’s operations and future endeavors. With Musk at the helm of both Neuralink and Tesla, his influence and vision continue to shape the landscape of technology and innovation.