Delaware’s Court of Chancery, founded in 1792, is one of the oldest legal institutions in America. The state’s reputation as a site for incorporation was already growing in the 19th century. Today, its well-defined legislation makes it a respectable state for the resolution of complex legal disputes.
A remarkable two-thirds of Fortune 500 companies are currently incorporated in Delaware. But only two months into 2025, Meta, DropBox, and SpaceX all followed Tesla in moving their Delaware incorporation. The momentum behind a Delaware exodus is growing as Elon Musk looks to defend his “unfathomable” $100 billion in bonuses. But why are Musk’s bonuses worth so much, and why did a Delaware judge rule to void them?
Why did Musk receive the Packages?
In 2018, the Tesla board granted Elon Musk the largest corporate pay package in history. Its maximum value was around $55 billion. The package was based on Tesla’s performances. Starting with a salary of $0, he would only receive the full $55 billion payout if all targets were met. This included growing Tesla’s value above $600 billion. Musk’s share in Tesla, at the time, was around thirty per-cent.
The bonus was already the subject of a lawsuit in 2018. The package was voided, then recently reapproved by the Tesla board. But in December 2024, it was voided again by Kathaleen McCormick, the chief judge of Delaware’s Court of Chancery. Now, the total bonuses are worth up to $100 billion. On Feburary 17, Delaware enacted the bipartisan Senate Bill 21 to address the issues raised by the case. Tesla’s law firm, in response, drafted their own bill that would allow Musk to receive the packages.
Defending a package that would make the richest man on earth $100 billion richer is certainly a challenge. Musk’s companies, mostly SpaceX, have received approximately $21 billion in government funding and contracts since 2008. While his DOGE department is cutting government spending, Trump has pledged a further $76.7 million from the government to Musk’s companies. When acquiring Twitter, Musk spent $13 billion of the total $44 billion from his own pocket. In the case of his bonuses, Tesla shareholders are expected to front his historically valuable pay package.
But if shareholders agreed to the package beforehand, where exactly is the problem?
Why did Delaware void the package?
The judge found that the package had been approved by shareholders who were misled by the materials provided before voting.
The court ruled that Tesla’s disclosures to shareholders conveyed they had more to lose by voting in favour the package. Whether shareholders were influenced for or against the proposal, the court will automatically rule the materials as misleading if found to be “materially flawed.” Although a statement in Tesla’s materials noted that a court might find their proposal unfair to stockholders, the court found this inclusion was not substantive within the “total mix of information” of the materials.
The court also saw that Musk’s 21.9 per-cent equity interest meant he would receive around $10 billion for every $50 billion increase in Tesla’s growth, without any bonus compensation.
McCormick ruled that Musk’s control over the Tesla board allowed him to negotiate a much larger package than was fair. A leading director voting on the package had a 15-year business relationship with Musk. Another had a twenty-year relationship with Musk that included going on holidays together. Another was Musk’s former divorce lawyer, who reportedly held back tears at his admiration for Musk during his deposition and departure from Tesla in 2019.
Other factors in the ruling included Musk dictating the timeline of the process. The court heard that substantive elements of the proposal were immediately altered before significant meetings. Musk’s “superstar CEO status” also provided him with a level control that was disproportionate to the number of his shares.
Under the new bill, a shareholder will require one third of the company’s shares to be a controller. This puts Musk’s thirty per-cent just short of controller status. The bill would provide “safe harbor procedures for acts or transactions in which one or more directors or officers as well as controlling stockholders and members of control groups have interests or relationships that might render them interested or not independent.”
However, the bill would also insulate directors and controller-shareholders, limiting the records shareholders can access when building their cases in lawsuits. Some lawyers claim it will ultimately diminish the power of shareholders to file lawsuits.
#LeaveDelaware
A quick search of #LeaveDelaware on X shows a sizeable movement emboldened by Musk. The billionaire has been critical of Delaware since moving his companies’ states of incorporation. But Judge McCormick is no stranger to Musk. In 2022, McCormick ruled to refuse Musk’s bid to back out of his $44 billion takeover of Twitter. Some of McCormick’s rulings, prior to Musk, also sided with minority shareholders and against corporations backing out of mergers.
On one hand, the bill tells corporations that powerful members will not be allowed to reward themselves with impunity. The case, in this way, marks a significant moment in recent Delaware legislature.
But on the other hand, it can be argued that Musk’s fair payment has been wrongly confiscated. Defendants pointed to hyperbole in the chancellor’s ruling. It made reference to a prior Delaware ruling which included terms such as “supine servants” and“overwhelming master.”
Others noted that the judge’s ruling was based on Musk’s earnings being too high. This, they argued, should not hold up in court. To defend the position, the judge resorted to hyperbole and ties to voting members in order to justify the ruling.
They also argue that Delaware’s judicial system benefits law firms who profit from drawn out legal procedures. Tesla shareholder Richard Tornetta, who filed the lawsuit, also received a settlement of $13 million dollars. Tesla shareholders collectively won $345 million in settlements.
The Politics of Musk’s Delaware Deal
Delaware, which is Biden’s home state, is now a battleground between advocates and adversaries of corporate regulation.
“It’s really important we get it right for Elon Musk,” says Matt Meyer, the democrat governor of Delaware. Significantly, Meyer is speaking on behalf of a state represented also by two democrat senators.
One senator, Lisa Blunts Rochester, found herself trapped in the capitol building during the January 6 attack. Sean Coons, also a democrat, is outspoken in his adversary to Trump. He criticises the Trump Administration’s “cruel policies, [Trump’s] nationalist, anti-immigrant rhetoric, and his proposal to build a wall along the southern border.”
This case’s battle between corporate self-governance and government regulation skips past a dispute about bureaucracy, and strikes at the heart of a national battle between democrats and republicans. The judge’s decision actively dispels and diffuses a decision that was made by a corporation’s board and which was supported by seventy-two per-cent of its shareholders. On the other hand, it ensures that in such cases voting members are deemed to be sufficiently independent and reliably informed about the proposal on which they are voting.
The state’s ruling is placed above the company’s decision. Government authority outweighs corporate governance. In the wake of a Trump victory, the ascent of DOGE, and deregulation being the policy-of-choice post-Biden, McCormick’s decision is even more significant for those who demand higher regulatory standards for corporations and billionaires
What will Trump do?
The story is far from over. Donald Trump is not one to fear court battles, or to exert his presidential authority over the states. Trump has signed over 70 executive orders since returning to office. Just this week, he threatened to withhold federal funding from the state of Maine over a row with its democrat governor, Janet Mills.
Trump, as of yet, has not commented on the ruling. But if the president feels the authority of his closest colleague has been undermined, he might feel justified in taking action.
Author: Sean Maguire
#ElonMusk #Tesla #SpaceX #Delaware #CorporateGovernance #DelawareLaw #TexasMove #LeaveDelaware
See Also:
Elon Musk crushes Tesla’s union using his control over Twitter | Disruption Banking
