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Did Elon Musk Kill Delaware for Businesses? – Episode 428

Adam Talks

On this episode of Adam Talks, Adam Bergman, Esq. discusses a Delaware Court case involving Elon Musk’s pay package at Tesla and what it means for Delaware Businesses.

Did Elon Musk Kill Delaware for Businesses?

On this episode of Adam Talks, Adam Bergman discusses a Delaware Court case involving Elon Musk’s pay package at Tesla, valued at around $51 billion. Initially approved in 2018 amid doubts about Tesla’s future, the pay package required Musk to meet challenging performance thresholds to receive shares instead of salary or bonuses. A shareholder with only nine shares sued, claiming the pay package was excessive and not properly vetted by the board. Despite majority shareholder approval, the recent court ruling favored the board over Musk, causing speculation about its impact on Delaware’s status as a business-friendly state.

Delaware’s appeal to businesses lies in its lack of corporate tax, ease of setup, and the renowned Court of Chancery known for its business-friendly environment and experienced judges. The ruling’s unexpected outcome against Musk has raised concerns about Delaware’s attractiveness for businesses, with Musk expressing interest in moving Tesla to Texas. This shift could potentially prompt other companies to consider alternative states with favorable tax laws and business regulations, such as South Dakota, which also lacks corporate tax.

Mr. Bergman criticizes the ruling as anti-business, emphasizing Musk’s achievements and the shareholder and board support for his pay package. He questions the judge’s decision and speculates on potential political influences due to Delaware’s connection to President Biden. Despite the ruling, he believes Musk has leverage to renegotiate with the board or even consider relocating Tesla to a more tax-friendly state like Texas, where corporate franchise taxes are minimal.

Bergman highlights Musk’s entrepreneurial success and willingness to take risks, defending the pay package as deserved given Tesla’s growth under his leadership. He expresses disappointment in the court’s decision going against shareholder and board approval, viewing it as detrimental to corporate capitalism and potentially damaging to Delaware’s reputation as a business hub. The possibility of businesses leaving Delaware in favor of states with more favorable tax structures is raised, signaling a potential shift in corporate preferences.

The implications of the court ruling on Delaware’s status as a business-friendly state and the potential exodus of companies to other tax-friendly states like Texas are significant points of concern. Musk’s success and the controversy surrounding his pay package underscore the complexities of corporate governance and the challenges faced by businesses operating in different jurisdictions. Bergman’s critical analysis of the ruling reflects broader discussions on the balance between corporate interests, shareholder rights, and regulatory oversight in shaping the business landscape. The outcome of this case may influence future decisions by businesses considering Delaware as their state of incorporation.

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