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Tesla (NASDAQ:TSLA) shareholders on Thursday voted to reincorporate the electric-vehicle maker in Texas, a move that some see as an effort by Chief Executive Elon Musk to challenge Delaware’s dominance among U.S. companies, The Wall Street Journal reported Sunday.
Musk had asked shareholders to vote for the move after he lost a case in a Delaware court over a pay package recently valued at about $46 billion.
It remains to be seen whether other public companies will follow Musk’s example, but Tesla’s (TSLA) vote may bolster the opinion that Delaware’s shareholder protections are excessive.
About two-thirds of companies in the Standard & Poor’s 500 stock index are incorporated in Delaware, even if they are headquartered elsewhere. Part of the appeal is the state’s chancery court, which specializes in business matters and has an extensive record of legal precedents.
But Texas has worked to win over businesses with assurances of lower taxes and the recent establishment of its own specialized court system for businesses. In addition, several investors have banded together to create a Texas Stock Exchange that promises to offer an alternative to the perceived liberal agenda of markets in New York.
Among S&P 500 companies, Southwest Airlines (LUV), CenterPoint Energy (CNP), Atmos Energy (ATO) and Camden Property Trust (CPT) are incorporated in Texas. Other big companies have incorporated elsewhere: PepsiCo (PEP) in North Carolina; Abbott Laboratories (ABT) in Illinois; International Business Machines (IBM) in New York; and Target (TGT) in Minnesota.
Microsoft (MSFT) originally was incorporated in Washington state, and reincorporated in Delaware to prepare for its initial public offering in 1986. It moved back to Washington in 1993 after the state revamped its business laws.
Tripadvisor (TRIP) is in a legal battle to shift its incorporation from Delaware to Nevada.
Delaware has a significant advantage in its precedents for nearly every aspect of corporate law, which helps company boards and lawyers to discern the possible outcomes of legal disputes. By comparison, “it’s much harder for anybody to predict how Texas courts are going to rule,” Stephen Bainbridge, a law professor at the University of California, Los Angeles, told the Journal.
