Texas Reacts to Delaware Musk Beef, Delays Business Court Growth

Texas lawmakers gave mixed signals in their bid to become the country’s king for corporate governance, proceeding with a proposal to prevent the kind of shareholder challenge that caused Elon Musk and Tesla to flee Delaware, but backing off a plan to expand the state’s fledgling business court system.

The shareholder bill is off to Gov. Greg Abbott’s (R) desk after the Texas Senate gave it final approval Wednesday.

The bill, known as SB 29, “will establish Texas as a meaningful alternative to legal incorporation in Delaware, whose law has ceased to be predictable and clear in light of growing activism by the Delaware courts and legal community,” read a statement from three groups pushing the legislation, Texans for Lawsuit Reform, Texas Stock Exchange, and Alliance for Corporate Excellence.

Notably, the bill would amend state law to prohibit a shareholder from bringing suit unless they own more than 3% of a corporation’s shares.

Musk moved some of his companies to Texas in 2024 after a Delaware Chancery Court blew up his record $56 billion Tesla pay package opposed by an investor who held nine Tesla shares when he sued in 2018. He encouraged others to leave as well, prompting Delaware lawmakers to scramble to remain competitive by strengthening the presumption that directors are independent of management and controlling stockholders. Gov. Matt Meyer (D) signed the law in March.

While Texas’ S.B. 29 seeks to capitalize on Delaware’s vulnerabilities, the state’s business courts system needs more seasoning to wage a rivalry against Delaware’s prestigious Chancery Court. Lawmakers in the House and Senate agreed to abandon a House proposal to expand the system to rural areas during this legislative session, Sen. Bryan Hughes (R) told Bloomberg Law.

Now, the earliest an expansion could happen is 2028.

“We believe the business court divisions already functioning in the state will prove the value of the court, and the success of the court will result in the rural divisions being funded and activated,” in the future, said Lee Parsley, president of Texans for Lawsuit Reform.

Houston and Dallas, the busiest divisions in the system’s first eight months, would each get a third judge under the nearly identical proposals. The Senate and House are also aligned in lowering the minimum amount-in-controversy threshold in a qualified transaction from $10 million to $5 million.

Hughes presented his proposal, SB 2883, to a Senate committee Wednesday. The House plan, HB 40, passed out of committee on April 15 but hasn’t been scheduled for a floor vote.

The session ends June 2. Abbott has until June 22 to sign or veto bills.