Shares of Tesla (NASDAQ: TSLA) rose modestly on Thursday as Elon Musk proposed moving company incorporation to Texas.
On Thursday, Tesla CEO Elon Musk revealed plans to hold a crucial shareholder vote on relocating the company’s state of incorporation from Delaware to Texas. This decision follows a court ruling invalidating Musk’s colossal $56 billion pay package.
Delaware judge Kathaleen McCormick criticized the 2018 share-based pay package, labeling it as “an unfathomable sum” that unfairly favored Musk at the expense of shareholders. She pointed out that the deal was negotiated by directors seemingly under Musk’s influence.
Following the court’s decision, Musk took to social media platform X (formerly known as Twitter) with a tweet advising against incorporating companies in Delaware.
“Never incorporate your company in the state of Delaware.”
This tweet hinted at Musk’s dissatisfaction with the ruling and his potential eagerness to make a change.
However, Musk’s plan to shift Tesla’s state of incorporation to Texas might face challenges. Legal experts warn that such a move could lead to lawsuits from investors, especially if it’s perceived as an attempt to safeguard Musk’s pay package rather than benefiting Tesla.
Dan Coatsworth, an investment analyst at AJ Bell, commented on Musk’s approach, saying,
“Elon Musk’s plan to change Tesla’s state of incorporation from Delaware to Texas is typical behavior for the entrepreneur who always looks for an alternative if he can’t get what he wants.”
The path ahead is not smooth for Musk, as winning shareholder approval poses another significant challenge.
Keith Donovan, an independent business adviser, said,
“Shareholders need to take a hard look at how transitioning out of Delaware might impact their rights and the company’s governance.”
Tesla (NASDAQ: TSLA) Stock Reaction
TSLA stock rose 0.52% on Thursday. The traders had exchanged hands with 86,811,411 (86.81 million) shares compared to the average daily trading volume of 117.61 million.