Elon Musk leaves after a gathering with Indian Prime Minister Narendra Modi at Blair House, in Washington, D.C., U.S., February 13, 2025.
Nathan Howard | Reuters
A law firm that represents Tesla and Elon Musk has written proposed laws that will alter Delaware corporate law, in line with an individual directly aware of the drafting of the bill who asked to stay unnamed with a purpose to speak concerning the matter.
The proposed laws, drafted by Richards, Layton & Finger, or RLF, would amend Delaware General Corporation Law, and if adopted, could pave the way in which for the reinstatement of Musk’s 2018 CEO pay package at Tesla, value tens of billions of dollars in options.
RLF confirmed its involvement to CNBC.
“Statutory changes are vital to revive the core principles which were the hallmark of Delaware for over a century and make sure that Delaware stays the preeminent jurisdiction for incorporation,” Lisa Schmidt, president of RLF, said in a press release.
A spokesperson for the law firm said RLF’s role within the laws draft was not done on behalf of any specific client.
The bill was introduced within the Delaware General Assembly on Monday and would require approval by the state’s two chambers in addition to Gov. Matt Meyer before it could grow to be law.
The bill didn’t undergo the traditional procedures for laws that seeks to alter Delaware corporate law, in line with Boston College corporate law professor Brian JM Quinn. For a long time, such laws has been drafted, debated and reviewed by the Delaware State Bar Association’s Corporation Law Council before it goes to the legislature, he said. The council, which incorporates attorneys with a wide selection of clients and interests, was not consulted on this bill before it was filed, Quinn said.
After CNBC published this story, Delaware Secretary of State Charuni Patibanda-Sanchez said in an e-mailed statement that Meyer has requested a review of the proposed laws and “looks forward to viewing a final product that meets the evolving needs of all our stakeholders.”
Sen. Elizabeth Warren, rating member of the Senate Banking Committee, called the drafted laws Musk’s “latest plan to tear off the American people to make himself and his fellow billionaires richer.”
“Musk wants to jot down his own laws to take tens of billions of dollars from Tesla shareholders after the courts said he couldn’t,” Warren, D-MA, told CNBC in a press release on Wednesday. “Corporate law protects minority shareholders’ rights in order that greedy controlling shareholders like Musk cannot take away safeguards for Essential Street investors.”
Musk’s clash with Delaware
The pay package Tesla granted to Musk in 2018 was the biggest CEO compensation plan in public corporate history, with a possible $55.8 billion maximum value, however the Delaware Court of Chancery in early 2024 ordered it to be rescinded.
In her ruling, Chancellor Kathaleen McCormick wrote that the pay plan was inappropriately set by Tesla’s board, which was controlled by Musk, and that it was approved by shareholders who were misled by Tesla’s proxy materials before they were asked to vote on it.
Under the proposed laws, Musk might not be considered a “controller” of Tesla, Quinn said. That is because Musk doesn’t currently hold one-third of Tesla’s voting securities, which could be the requirement under the proposed laws. Those transactions range from going-private deals, to mergers and acquisitions, to board and executive compensation decisions.
“The true role of corporate law is to guard minority investors,” Quinn said. “With this bill, the legislature is saying, ‘Now, you understand what? Protect them less.'”
The proposed laws would also limit the sorts of documents that minority stakeholders are in a position to obtain through “books and records” inspection requests, Quinn said. Those stakeholders could be limited to formal items similar to a certificate of incorporation or minutes of stockholder meetings but they’d lose access to informal communications similar to emails or other messages between board members and executives, Quinn said.
After the Court of Chancery’s ruling last yr, Musk began a campaign to steer firms not to include in Delaware and moved the location of incorporation for his businesses out of the state. He has aimed his ire at McCormick with repeated and disparaging posts about her on X, his social network.
Other business leaders have also criticized the Delaware judiciary. Pershing Square CEO Bill Ackman and Coinbase CEO Brian Armstrong each complained about Delaware’s “activist judges” earlier this month on X.
“Delaware has taken some heat for supposedly being too hard on controller transactions,” said Renee Zaytsev, partner at Boies Schiller and co-chair of the firm’s securities and shareholder dispute practice.
“These amendments appear to be a course correction that will make it significantly easier for boards and controllers to avoid judicial scrutiny of their transactions,” she said.
Tesla and Musk didn’t reply to requests for comment.
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