By Mark Levy
HARRISBURG, Pa. (AP) — Delaware is trying to protect its global corporate capital status amid a fallout from a judge’s rejection of billionaire Elon Musk’s landmark Tesla compensation package, but critics say the quick-tracked law will tilt the arena for investors, including pensioners and intermediate savers.
The Delaware House Committee was expected to vote for the bill on Wednesday. This is supported by Democratic Gov. Matt Meyer, who says it will ensure that the nation will remain “the best home for us and the global business.”
Advocates say it modernizes the law and maintains a balance between corporate officers and shareholders in the state that has resolved all kinds of business disputes as a century of legal hubs for over two million business institutions, including two-thirds of Fortune 500 companies.
Critics, including institutional investors, pension funds and asset managers, say it will reduce the standards of corporate governance, curb shareholder rights, and thus limit the ability to hold corporate executives liable for decisions that violate the fiduciary’s obligations.
The bill passed the state Senate unanimously last week.
What happened with Elon Musk?
Last year, a Delaware judge overridden a mask compensation package from Tesla, which could be worth more than $55 billion. The shareholders’ lawyers were suing the package that Tesla’s board of directors awarded masks in 2018.
Prime Minister Kathaleen St. Jude McCormick said it was developed by directors not independent of Musk and approved by shareholders who were misleading and given incomplete disclosures in a power of attorney.
Domination slammed Musk from the top spot on Forbes’ list of wealthiest people, but he later climbed.
Musk and Tesla are suing before the state Supreme Court. However, the mask was dropped off in Delaware and said, “Never take your company into Delaware,” and instead recommended Nevada or Texas as their destination.
Now lawmakers are warned by corporate lawyers that their clients are considering heading to the exit – making a “dexit” as it’s dubbed – and startups are encouraged to incorporate it elsewhere.
What did the masks and others do?
Tesla’s company listing must be transferred to shareholder votes and Neuralink to Texas and Nevada to his company SpaceX and receive his own advice.
Supporters of the bill say corporate unrest has been simmering for the past few years with various Delaware Supreme Court decisions in corporate disputes cases and Musk inflamed frustration.
Fallout appeared to be accelerating in recent weeks when the Wall Street Journal reported that Metaplatform, the parent company of social media platforms Facebook, Instagram and WhatsApp, was considering moving its inclusion to Texas. Meta did not review the report.
Dropbox, an online file sharing platform, has moved its list of companies to Nevada, and Bill Ackman, founder of leading hedge fund Pershing Square Capital Management, said he will also be leaving Delaware.
On February 1, Musk took to social media platform X and said, “Companies are overflowing from Delaware.
That said, critics of the bill say there is no evidence that businesses are fleeing Delaware in any number.
What does the bill do?
That changes a few things.
One is to provide more protection in state courts in profit disputes such as salary packages for CEO or intercompany contracts when fighting shareholder litigation.
The second limits the types of documents that companies must prepare in court, making it difficult for shareholders to access internal documents and communications.
Eric Tully, a law professor at Columbia University, has compiled a running list of three dozen Delaware Supreme Court precedents in which law is changing.
Lawrence Hamermesh, a former professor at Delaware Law School at Widener University, disagreed. After Meyer asked him last month, Hamelmesh, who helped draft the law, said that perhaps only a few doctrines would be wiped out.
Legal challenges are widely expected if Meyer acquires the bill and signs the law. Meanwhile, institutional investors say such laws may encourage companies to promote their owned to incorporate elsewhere.
Why is this a big deal for Delaware?
money.
According to the governor’s office, about a third of Delaware’s state government revenue (approximately $2.2 billion) comes from corporate licensing fees and related tax revenues. This will help the state maintain a 0% sales tax and keep property tax relatively low. This is a great perk for the beach vacation home industry along the Atlantic coast.
Beyond that, Wilmington is home to the cottage industry that deals with corporate lawyers living, staying, dining and shopping around the state Supreme Court, and Chance Court of Delaware, who argue their case.
Follow Marc Levy on X: https://x.com/timelywriter.
Original issue: March 19, 2025, 1pm
