by Tesla Makes It Harder for Shareholders to File Lawsuits
Recently, Tesla amended its corporate bylaws, significantly complicating shareholders’ ability to sue management for breaches of duty. Now, to file a lawsuit, an investor must own at least 3% of the company’s shares, which at the current market value amounts to over $34 billion. This decision was made after a shareholder with just nine Tesla shares previously managed to challenge Elon Musk’s record-breaking $56 billion compensation package.
Why Did Tesla Change the Rules?
The company took advantage of its reincorporation from Delaware to Texas, where corporate laws are more lenient. Experts note that such changes allow Tesla to limit the number of potential lawsuits from small investors. However, this also significantly narrows shareholders’ ability to defend their interests in court.
“Tesla is fully leveraging Texas’s more favorable laws, which allow companies to restrict shareholder lawsuits,” said corporate law attorney Ann Lipton.
Controversy Over Musk’s Compensation
Elon Musk continues to fight to reinstate his compensation package, which was voided by a Delaware court. In 2018, he declined a salary in favor of stock options contingent on the company achieving certain milestones. Although shareholders supported this deal twice, the judge deemed it unfair due to the board’s dependence on Musk. Nevertheless, Tesla is not backing down and is seeking new ways to defend its decisions.
These events demonstrate how large corporations can manipulate legislation to their advantage, limiting the influence of small investors. At the same time, they raise questions about the balance between management and shareholder interests, especially in companies with charismatic leaders like Musk. Further developments could impact corporate policies not only at Tesla but also at other major companies.
