Elon Musk moves ahead with plan to shift Tesla domicile to Texas

By Madlin Mekelburg | Bloomberg

Elon Musk wants to deepen his links to Texas after losing a rare court fight elsewhere over his compensation at Tesla Inc.

He’s already expanded a SpaceX launch site in South Texas, moved Tesla’s home office to Austin from Palo Alto, California, relocated himself and his charity and befriended state political leaders, including Governor Greg Abbott.

Now Musk plans to summon Tesla shareholders for a vote on shifting the company’s incorporation to Texas from Delaware, after a judge in the tiny state voided his $55 billion pay package. As he often does with controversial business decisions, Musk turned to his followers on X and asked them to vote on what he should do.

By Wednesday evening, Texas had won about 87% of the 1.1 million votes, and Musk said Tesla will “move immediately to hold a shareholder vote.”

Before the poll closed, Abbott declared a landslide victory for Texas in a post on X, which Musk also owns.

If Tesla follows through, such a move would amount to another win for a state that has used its ties with him to burnish its pro-business credentials. Texas has been luring CEOs and their companies for years by touting its low taxes and light regulatory touch. Being home to Tesla’s legal incorporation would dovetail with a more recent state initiative: developing its own business-court system in a challenge to Delaware.

Trying to chip away at Delaware’s dominance in the US incorporation business may be a tall order, but it’s in line with Abbott’s efforts to bolster economic development by offering a distinctively Texan brand of capitalism. Texas is known for business-friendly lawmakers, and it doesn’t tax income or capital gains for individuals.

More controversially, Texas lawmakers recently banned public universities from maintaining offices of diversity, equity and inclusion, taking on a subject that Musk has often criticized as well. The state has also sought to punish Wall Street banks for policies that limit work with gun and fossil-fuel industries, drawing a rebuke last year from JPMorgan Chase & Co.’s Jamie Dimon, who said those moves were putting the state’s business-friendly reputation at risk.

Ditching Delaware and moving Tesla’s legal incorporation to Texas would certainly carry risks. The First State has long been the destination of choice for companies seeking to incorporate, due to a well-developed set of corporate-governance laws and 125 years of case decisions out of state courts that provide robust protections for board directors and executives.

Chancery court judges in the state are recognized as business-law experts who can hear cases on a fast-track basis. Most high-profile merger-and-acquisition disputes are litigated in Delaware in non-jury cases. Even foreign companies come to the state to have corporate disputes decided.

Texas Courts

The same hasn’t been true in Texas, where business law disputes are routinely pushed to make way for emergency criminal cases or family law matters. As a result, business cases sometimes take years to resolve. Moreover, the outcomes can be unpredictable, and the state courts have been known to grant huge awards for plaintiffs suing companies.

In an effort to streamline such proceedings, state leaders moved last year to establish dedicated business courts in major cities. Judges will be appointed to two-year terms by the governor and have smaller dockets limited to certain business disputes. That means cases can be expedited, helping companies keep a lid on litigation costs.

The courts won’t open until September, and much about how they will operate has yet to be established. Moreover, Texas is struggling to recruit judges with 10 or more years of experience in complex civil business litigation due to its refusal to boost pay. The starting salary for a judge on the business courts would be $140,000. By comparison, a Delaware chancery judge starts at almost $185,000.

Still, a fresh slate at newly established courts may be exactly what Musk is looking for. The billionaire has faced two legal setbacks in Delaware, including the latest ruling threatening his pay package. It’s also where Musk gave up his efforts to back out of his $44 billion offer to buy Twitter Inc., which is now known as X.

Musk moved the social-media company’s state of incorporation from Delaware to Nevada, where laws offer more protections from investor suits against executives.

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