Tesla limits investors' ability to sue over breach of fiduciary duties

Core Viewpoint - Tesla has amended its corporate bylaws to limit shareholders' ability to sue the company for breaches of fiduciary duties, requiring a minimum ownership threshold of 3% of outstanding shares to initiate such lawsuits [1][2][3]. Summary by Sections Corporate Bylaws Change - The new bylaw took effect on May 15, establishing that shareholders or groups must hold at least 3% of Tesla's issued and outstanding shares to maintain a derivative proceeding [2]. - Tesla's current market capitalization exceeds $1 trillion, meaning a 3$30 billion [2]. Legal Context - The change leverages a Texas state law that allows corporations to impose ownership thresholds for shareholder lawsuits against insiders for fiduciary breaches [3]. - This law is particularly significant for Tesla, which is incorporated in Texas, as it creates a substantial barrier for potential lawsuits [4]. Historical Comparison - Previously, while incorporated in Delaware, a shareholder with just nine shares successfully initiated a lawsuit that led to the rescindment of Elon Musk's 2018 compensation package [4]. - The Delaware Chancery Court found that Musk had effectively controlled the company, and the board misled shareholders regarding the compensation plan [5]. Implications of Incorporation Change - Following the Tornetta decision, which prompted Musk to advise against incorporating in Delaware, Tesla moved its incorporation to Texas in June 2024 after receiving shareholder approval [6]. - Tesla is currently appealing the Tornetta decision, with the Delaware Supreme Court set to determine the fate of Musk's shares from the 2018 pay plan, valued at approximately $56 billion [7].