In January 2024, the Delaware Court of Chancery shocked the American business community when it ruled to cancel the $56 billion compensation package that Tesla had given Elon Musk since 2018. The reason: Tesla’s Board of Directors (BOD) was considered to lack independence, and Musk had too much influence in approving this huge compensation package.
It was a symbolic victory for those who believe in tightening the grip of corporate power. Delaware, which has been a legal haven for American corporations for more than a century, seemed to affirm that even Elon Musk is not above the law here.
But in March 2025, the state of Delaware had to change the law when Tesla and a series of corporations left, thereby showing the bitter consequences of fighting against large corporations.
The cards are up
Delaware, long known as the “corporate capital” of the United States, is home to more than 60% of Fortune 500 companies. The state has built a stable, business-friendly legal system that allows disputes to be resolved quickly and efficiently. However, this unique position has been severely shaken by a historic ruling in early 2024.
The ruling involved a $56 billion compensation package Tesla awarded to Elon Musk in 2018. The package included stock options that would be triggered when the company achieved a series of ambitious business goals.
The ruling was seen as a resounding victory for justice. It affirmed that even the richest and most powerful people must obey the law and that boards of directors must truly represent the interests of shareholders. But it was also the moment when the cards began to be laid bare, with results that Delaware may not have expected.
Just weeks after the ruling, Tesla announced that it would be leaving Delaware and moving its legal registration to Texas. The move was not only a political statement by Elon Musk — who has frequently criticized the government’s “overreach” in Tesla’s internal affairs — but also a strategic one.
Texas, with its recently passed corporate law, has created an almost insurmountable legal barrier for small shareholders to sue executives. Only those with 3% or more of the shares can bring a representative suit. In effect, this eliminates all possibility of litigation for small shareholders.
For Elon Musk, this is truly a free space for the CEO to manage Tesla as he wishes.
In addition, this is not only a symbolic decision but also a “retaliatory” blow to Delaware’s reputation and revenue. Tesla is not the only company. The domino effect is starting to spread, with a series of other large technology companies such as Dropbox and Meta also starting to consider leaving the state.
States like Texas and Nevada were quick to seize the opportunity, rolling out new laws that are friendlier to business leaders, promising easier payroll approvals, confidentiality of internal documents, and reduced risk of lawsuits.
As a result, the “golden promise” that Delaware used to attract business — a stable, friendly legal environment, but one that still upholds good governance principles — began to falter.
The exodus of companies has had a ripple effect. Legal experts warn that if the trend continues, Delaware could lose a significant portion of its revenue from taxes and corporate registration fees. This fear is not unfounded. A recent survey found that many executives have begun to consider relocating their businesses to states with more “friendly” laws, such as Texas and Nevada.
The bitter end
Faced with the prospect of losing billions of dollars in registration fees and corporate taxes, Delaware caved in. In March 2025, the state passed Senate Bill 21, a sweeping change to corporate law that would limit access to internal documents and narrow shareholder litigation, in a manner that is… a bit like Texas.
The new law makes it easier for companies to approve executive compensation packages and makes it harder for shareholders to sue. The move suggests that Delaware has realized that its tough stance has backfired and is forced to make changes to keep businesses in business.
But it was too late. Tesla, Elon Musk’s most iconic company, had left. More importantly, Delaware had made many businesses lose trust by interfering too deeply in the internal affairs of corporations, a taboo for CEOs as well as many business owners.
While Delaware struggles to retain its business, in September 2025, Tesla announced a new compensation package worth up to $1 trillion for Elon Musk — a shocking figure, but one that will almost certainly pass any legal hurdles in Texas.
Delaware won one battle (rejecting the $56 billion package), but lost the war. Not only did it lose Tesla, it had to change its laws in a way it had previously opposed, while also risking losing revenue from the exodus of businesses.
For Musk, this is a living testament to the philosophy of “if you don’t like the rules, change the playing field.”
The Delaware – Elon Musk case is a valuable lesson about the bargaining power of large corporations in the US federal system. When a state tries to tighten its laws to protect principles but hits businesses in the pocketbook, businesses can completely… pack their bags and move to another state. And here, Elon Musk played that game perfectly.
It is clear that in a competitive global environment, no state or nation can maintain its position without listening to and adapting to the needs of businesses. The power of an individual, especially one as influential as Elon Musk, has been able to challenge and change a legal system that has been built over decades.
Delaware’s cards have been turned, but can they regain their original position? Time will tell, but one thing is for sure, the confrontation with Elon Musk has left scars on their “crown”.
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