Behind the Money

Why Elon Musk is breaking up with Delaware

Feb 14, 2024

Exploring Delaware's popularity for company incorporation among Fortune 500 companies, particularly Elon Musk's frustration after a Delaware court annulled his $56 billion pay package from Tesla. The significance of Delaware's Court of Chancery in attracting companies, ruling on shareholder lawsuits, efficiency in M&A and proxy fights, and its historical roots. The implications of Elon Musk moving Tesla's incorporation to Texas and the challenges for the Texas Business Court. Elon Musk's decision to relocate Neuralink's incorporation to Nevada and its implications for Delaware and Nevada's reputation for controlling shareholders.

15:44

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Quick takeaways

Delaware's Court of Chancery, with its fairness and efficiency, has established predictability and reliability in corporate laws, attracting businesses seeking stability.

Elon Musk's dissatisfaction with Delaware's court system highlights potential doubts about the legitimacy of its courts, but Delaware's long-established reputation and commitment to fairness are expected to keep it dominant for corporate law.

Deep dives

Delaware: The Top Destination for Incorporating Publicly Traded Companies

Delaware has become the preferred choice for incorporating publicly traded companies, with over 300 of the Fortune 500 companies being incorporated there. The state's Court of Chancery, known for its fairness and speed, plays a significant role. Its judges, or chancellors, possess expertise in law, business, and finance, and are known for rendering decisions efficiently. The extensive case law and precedents established over centuries in Delaware have led to predictability and reliability in corporate laws and governance, attracting businesses seeking stability. However, Elon Musk's recent loss in a Delaware court suggests that the state's courts can deviate from the usual dynamics in exceptional cases.

Introduction

2min

Delaware's Court of Chancery

5min

Why Elon Musk's Situation Led to a Change in Scrutiny and the Decision to Move Tesla's Incorporation

2min

Tesla's Move to Texas and the Texas Business Court

3min

Elon Musk's decision to move Neuralink: Implications for Delaware and corporate law

4min

A Delaware court recently struck down Elon Musk’s $56 billion Tesla pay package. Soon after, Musk took to his social network X and offered some advice: “Never incorporate your company in the state of Delaware.” But will anyone take it? The FT’s Wall Street editor Sujeet Indap explains how Delaware became the favourite place for big companies to incorporate and why that’s unlikely to change.

Clips from BBC, WFAA

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For further reading:

Can Elon Musk derail Delaware?

Texas is throwing down a legal challenge to Delaware

Delaware versus Elon Musk

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On X, follow Sujeet Indap (@sindap) and Michela Tindera (@mtindera07), or follow Michela on LinkedIn for updates about the show and more.

Read a transcript of this episode on FT.com

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