Elon Musk has made his fortune zigging while others zagged.
Investing in private space travel at the same time the U.S. government winds down tax payer-funded space exploration has resulted in a twelve-figure valuation for SpaceX. The majority of Musk’s astronomical wealth, however, stems from his early involvement in Tesla (TSLA) – Get Free Report before a viable mass market for electric vehicles existed.
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But Musk’s net worth took a big hit Tuesday after a judge ruled that the nearly $56 billion compensation package that Tesla’s board of directors approved way back in 2018 be unwound.
One shareholder in particular wasn’t happy with the package, which is the largest pay package in corporate America, and brought a suit against Tesla to get it nullified. According to Reuters, the 10-year payment plan would be worth about $51 billion at Tuesday’s Tesla closing price.
Musk reacted to Chancellor Saint Jude McCormick’s ruling in the Delaware Court of Chancery on X, formerly known as Twitter.
Never incorporate your company in the state of Delaware
— Elon Musk (@elonmusk) January 30, 2024
He followed that up by asking his loyal subjects on X to help him decide whether to have Tesla’s change its incorporation state to Texas.
The First State for business
If Musk does decide to leave Delaware, it will be another instance of him zagging in a different direction than his peers.
Despite the state’s non-descript national profile, more than 65% of all Fortune 500 companies and more than half of all U.S. publicly-traded companies are incorporated in the state of Delaware, according to Harvard Business Services, a firm specializing in Delaware business formations.
There are more corporations, from all over the world, incorporated in Delaware (1.5 million) than there are citizens of the state (1.003 million).
A lax tax code for corporations is probably the biggest draw for businesses to the first of the 13 colonies to achieve statehood. Corporations registered in Delaware that do not actually do any business in the state do not have to pay corporate income tax.
Delaware is very friendly to corporations.
“Delaware also des not have a sales tax, investment income taxes, inheritance taxes or personal property taxes. While companies do have to pay a franchise tax to register in Delaware, this can be pennies compared to the income tax other states would charge,” according to Forbes.
Delaware’s corporate laws are known around the world for being business friendly and the Delaware Court of Chancery is the oldest business court in the country. The court eschews a trial and jury system in favor of a system governed by judges who specialize in corporate law.
Elon Musk isn’t feeling the love
Despite the friendly relationship Delaware has with big corporations, Elon Musk lost a lot this week.
The nullification of the pay package dropped Musk out of the world’s richest person slot, according to Forbes. Musk’s $184.3 billion fortune now has him behind LVMH CEO Bernard Arnault of the Forbes’ List.
“Was the richest person in the world overpaid? The stockholder plaintiff in this derivative lawsuit says so. He claims that Tesla, Inc.’s directors breached their fiduciary duties by awarding Elon Musk a performance-based equity-compensation Plan,” McCormick said in the 201-page decision against Musk.
But Musk’s travails in Delaware are far from over.
The court’s decision can still be appealed to the Delaware Supreme Court once Tesla and the shareholder who sued the company agree on a final order and on fees for the shareholder’s attorneys, for which Tesla is on the hook.
“Good day for the good guys,” Greg Varallo, an attorney for Tesla shareholder Richard Tornetta who brought the suit, told Reuters.
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