📶 Elon vs. the state of Delaware

Our quick thoughts on the Elon payout ruling and what it could mean for the future of incorporating DE C-corps

Author

Clay Norris
February 06, 2024 • Estimated Reading Time: 8 minutes

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Good morning 👋

If you’ve ever gotten stiffed on a pay stub, you and Elon Musk have something in common.

Last week, he learned that his $56 BILLION compensation package from Tesla was getting overruled, and the company would have to figure out a different sum to pay him for his work. That’s going to create some changes (and drama).

We break down the entire and our two cents in this week’s piece.

TL;DR:

NEWS
Elon vs. DE 🥊

Last week, a Delaware court decided to overrule ~$56 billion pay package for Elon Musk. He quickly went to Twitter and is already setting up a shareholder vote to change incorporation status to Texas.

Why it matters: 

Quick context …

In 2018, Musk agreed to work 10 years without pay, in exchange for stock options worth $55.8b if Tesla achieved a $650b valuation. That turned out to be a good great deal, and Musk hit 12 milestones before passing the $650b market cap in 2023.

Tesla argued that the payout was needed to ensure Musk’s ultimately beneficial focus remained on the company (valid concern). But that wasn’t enough, and now shareholders are suing.

According to them:

  • This incentive package is way too big

  • Musk was too close with the board members who agreed to the plan (his brother was one of them)

  • The board didn’t receive enough info before giving it the ‘OK’

So that leads us to today.

A Delaware judge recalled Musk’s compensation package, and now, Tesla has to figure out another way to pay him.

What happens next: 

We don’t know. This is way out of scope for the type of news that we typically look at.

We’re more interested in the shakeout from all of this and the precedence it sets, especially in the state of Delaware.

For those who don’t know, the majority of venture-backed businesses are told early on to convert and become a DE C-corp. We won’t get into why (this will), but one of the main reasons C corps appeal to VCs is because Delaware law allows for two or more classes of stock. A handful of other states allow for the same, but DE has been the default choice for venture-backed companies for some time now.

Will this change that? Maybe. Time will tell.

Let us know what you think in this week’s poll section.

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P.S. Here are the results from our poll question in last week’s piece:

When do you think the IPO window will open again?

🟨🟨🟨⬜️⬜️⬜️ Summer 2024 (8)

🟨🟨🟨🟨🟨⬜️ Fall 2024 (15)

🟨🟨🟨⬜️⬜️⬜️ Winter 2024 (9)

🟨🟨🟨⬜️⬜️⬜️ Some time in 2025 (10)

🟩🟩🟩🟩🟩🟩 Not until 2026 (16)

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