Elon Musk’s $100 billion Tesla pay dispute has escalated beyond the courtroom, drawing Delaware lawmakers into a race to prevent corporate flight.
As Tesla officially moved its incorporation to Texas following Musk’s legal defeat in the Delaware Court of Chancery, state legislators are pushing a bill aimed at retaining corporate America’s trust in its long-favoured legal system.
Delaware has long been the hub for US corporate law, with more than two-thirds of Fortune 500 firms incorporated in the state.
Musk’s repeated criticisms of the state’s legal system, following a judge’s ruling that voided his record-breaking compensation package, have coincided with a growing exodus of high-profile companies.
Now, a law firm that represented Tesla in its legal battle is behind a proposed amendment to Delaware’s corporate laws, designed to offer greater protections for controlling shareholders—like Musk.
While some argue the bill is necessary to maintain Delaware’s competitive edge, others say it is a rushed response to Musk’s threats that could undermine investor protections.
Delaware’s corporate dominance at risk
Delaware has enjoyed a century-long reign as the leading state for corporate law, generating billions in revenue through incorporation fees and legal services.
The state’s Court of Chancery is considered the gold standard in adjudicating corporate disputes, providing a predictable legal framework that companies and investors have relied on.
However, Tesla’s departure, along with threats from billionaire hedge fund manager Bill Ackman to reincorporate Pershing Square in Texas or Nevada, has fuelled concerns that Delaware’s corporate dominance is at risk.
Reports suggest that Meta, Dropbox, and TripAdvisor are among the firms weighing relocation.
These states, particularly Texas, have actively courted businesses by offering lower taxes, fewer regulations, and a legal environment perceived as more friendly to executives.
Governor Matt Meyer recently acknowledged that legislative changes were necessary to ensure Delaware remains the preferred destination for incorporation.
On Monday, lawmakers introduced a bipartisan bill, Senate Bill 21, which seeks to revise corporate statutes to provide greater protection for executives who also hold controlling stakes in their companies—like Musk, Ackman, and Meta CEO Mark Zuckerberg.
Law firm’s role in drafting the bill
A key player behind the proposed legislation is Delaware-based law firm Richards, Layton & Finger, which served as Tesla’s counsel in the pay package dispute.
The firm was instrumental in drafting Senate Bill 21, though it insists its involvement was not on behalf of Tesla or any specific client.
The bill’s authors include Lawrence Hamermesh, professor emeritus at Delaware Law School, and former judges William Chandler and Leo Strine, who previously led the Court of Chancery and Delaware Supreme Court, respectively.
The bill’s primary sponsor, State Senator Bryan Townsend, has denied that the proposal is a direct response to Musk’s departure, stating that its intent is to strengthen Delaware’s long-standing corporate governance framework.
Critics argue that the bill was drafted behind closed doors, bypassing the typical process in which the Delaware State Bar Association reviews corporate statute changes before they are submitted to lawmakers.
Charles Elson, founding director of the University of Delaware’s Weinberg Center for Corporate Governance, warned that weakening protections for minority shareholders—such as those who sued Musk—could deter institutional investors and further erode Delaware’s standing in corporate law.
Musk’s legal battle reshapes Delaware
Musk’s legal battle has had far-reaching implications beyond his $100 billion pay package.
His high-profile attacks on Chancellor Kathaleen McCormick, the judge who struck down his compensation deal, have intensified scrutiny on Delaware’s courts.
Meanwhile, other business leaders have seized the moment to challenge the state’s legal framework.
Phil Shawe, CEO of translation company TransPerfect, has spent millions on a campaign criticising Delaware’s judicial system after losing a high-profile legal battle.
Shawe also reportedly funded a $1.25 million political action committee to influence Delaware’s gubernatorial race.
Despite the criticism, Townsend and Hamermesh maintain that Senate Bill 21 is not designed to appease Musk or other vocal critics.
The bill is not retroactive, meaning it will not reverse the ruling on Musk’s pay package.
Its expedited introduction—just weeks before the next legislative session—suggests an urgent effort to retain corporate clients amid mounting threats of an exodus.
With proxy season approaching, businesses will soon vote on reincorporation decisions.
The outcome will determine whether Delaware’s legal system retains its status as the preferred venue for corporate America, or whether Musk’s fight has set off a broader shift in how companies approach their legal domiciles.
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