In seeking shareholders support for reincorporation to Texas, Tesla’s Board assured shareholders that “the rights of stockholders under [Delaware law] and [Texas law] are substantially equivalent….” They also advised that “there was no reason to believe that Texas law would provide substantially lesser litigation rights than Delaware in areas where it is currently silent.”
On May 14, 2025, Texas enacted changes to its law to allow (but not require) Texas corporations to set a threshold of up to 3% ownership before a shareholder can enforce their rights in a shareholder derivative suit. For Tesla, whose market capitalization was approximately $997 billion as of July 10, 2025, that requires a $30 billion holding. Only four current Tesla shareholders appear to satisfy the 3% ownership threshold: Elon Musk, Vanguard Group, Blackrock Inc., and State Street Corporation.
The very next day, Tesla’s Board amended the Company’s bylaws to the maximum allowable 3% ownership threshold, effectively insulating the Company’s directors and officers from accountability to shareholders.(1) We believe this bait-and-switch effectively was an effort to pull the wool over shareholders’ eyes. We believe that amending Tesla’s bylaws to remove the 3% ownership threshold will restore both faith in the Board’s accountability and shareholders’ ability to raise legitimate legal concerns about corporate governance.
Shareholders depend upon the fiduciary duties established in corporate law that require directors and officers to act in shareholders’ best interests. These duties represent a high standard of trust and responsibility that have a long and storied history. In the corporate law context, shareholders invest in a company with the knowledge that the company’s officers and directors are legally required to place the shareholders’ interests above all other interests. This concept is known as “shareholder primacy” and is fundamental to the American capital market structures that have created the world’s most dynamic and robust capital markets.
When directors or officers violate their fiduciary duty, the backstop—the last resort for shareholders to enforce their rights—is the shareholder derivative suit. In this legal action, shareholders step into the corporation’s shoes to sue officers and directors who have violated their fiduciary duty.
Tesla’s decision to insulate its Board and officers from almost all accountability and responsibility for violations of fiduciary duty is egregious and should not be allowed to stand.