Musk Moves Ahead With Plan to Incorporate Tesla in Texas

Elon Musk wants to deepen his links to Texas after a loss in court 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.

WATCH; Elon Musk’s $55 billion pay package at Tesla was struck down by a Delaware judge after a shareholder challenged it as excessive. Ed Ludlow reports.

Source: Bloomberg

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.

Greg Abbott

18: (EDITORIAL USE ONLY) Texas Governor Greg Abbott announces the reopening of more Texas businesses during the COVID-19 pandemic at a press conference at the Texas State Capitol in Austin on Monday, May 18, 2020. Abbott said that childcare facilities, youth camps, some professional sports, and bars may now begin to fully or partially reopen their facilities as outlined by regulations listed on the Open Texas website. (Photo by Lynda M. Gonzalez-Pool/Getty Images) Photographer: Lynda M. Gonzalez/Pool/Getty Images

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.

Growing Footprint

If Musk makes good on his threat to move Tesla’s incorporation to Texas, it would strengthen his growing footprint in the nation’s second-largest state. Back in 2003, SpaceX bought land in the tiny town of McGregor, 100 miles southwest of Dallas, to test rocket engines. Over the subsequent two decades, his ties to the state have only grown.

He’s moved his charitable foundation and his right-hand man, Jared Birchall, to the state since the start of the pandemic. Birchall is listed on about a dozen limited liability companies registered in Texas since the start of 2020, according to public records.

Musk’s latest nonprofit endeavor is a new school with eventual plans for a university in Austin, according to filings with the Internal Revenue Service. He’s also planning a 100-person office in the state capital to help enforce content and safety rules on X.

In addition, he has planted his flag in Boca Chica at the southern tip of Texas along the US-Mexico border, where SpaceX is building a massive deep-space rocket called Starship. Musk’s 2021 plea for people to move there to work has transformed the city’s identity to the “gateway to Mars.”

Local establishments flaunt portraits of Musk and spaceships on merchandise, or create products like a five-pound “SpaceX burger” that’s “out of this world.” New businesses are given names such as Launchpad Crossing and The Moon Rock.

Political Ties

Musk’s political donations in Texas have been modest relative to his fortune, which is valued at $205 billion including the pay package Delaware voided. He’s only given $97,000 to candidates in the state since 2010, according to Texas Ethics Commission records.

In his largest contributions, he made $10,000 donations in 2014 to Dan Patrick’s campaign for lieutenant governor and to Joe Straus, then the speaker of the Texas House of Representatives. Musk’s last political donation came in 2016, and he’s never donated to Abbott.

After the governor said in 2021 that Musk “likes the social policies in Texas,” Musk said on social media that he “would prefer to stay out of politics.”

More recently, though, the two have had a warmer relationship on X. Less than a day after Abbott’s tweet this week urging Musk to incorporate Tesla in Texas, the governor posted a patriotic drawing of the state saying “Stand With Texas” — an apparent reference to its standoff with the federal government over immigration enforcement on the border.

Musk replied by saying “Yes!”

(Updates with Musk’s latest comment)

--With assistance from Sophie Alexander, Jef Feeley, Bill Allison, Dana Hull and Loren Grush.

To contact the reporter on this story:
Madlin Mekelburg in Austin at mmekelburg@bloomberg.net

To contact the editors responsible for this story:
Misyrlena Egkolfopoulou at megkolfopoul@bloomberg.net;
Pierre Paulden at ppaulden@bloomberg.net

Brendan Case, Vlad Savov

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