According to the Financial Times, Tesla has proposed relocating its state of incorporation from Delaware to Texas, following a Delaware court’s nullification of CEO Elon Musk’s $56 billion compensation package earlier in the year.

Robyn Denholm, Tesla’s board chair, reached out to shareholders on Wednesday, seeking their approval for the move to Texas and the ratification of Musk’s pay package, initially endorsed in 2018.

Should the proposal gain approval, Musk will receive shares valued at $47.8 billion based on current share prices. Shareholders will vote on these matters during the company’s annual meeting scheduled for June 13.

Denholm disagreed with the Delaware court’s ruling, emphasising a belief that it does not align with corporate law. She told shareholders: “So we are coming to you now so you can help fix this issue.”

Furthermore, the approval of Musk’s pay package could potentially negate a $5 billion share payout to attorneys involved in the case. Lawyers representing shareholders who contested the original pay package in the Delaware court had sought a substantial share award as compensation.

The upcoming vote presents an opportunity for shareholders to reaffirm their support for Musk’s leadership, especially as Tesla grapples with declining sales amid a backdrop of diminishing demand and intensified competition. The company is slated to announce its first-quarter earnings next week, with investors anticipating a decrease in profitability.

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Tesla disclosed that four of its top 10 institutional shareholders had expressed discontent over the Delaware ruling. In response to the decision, Musk used his social media platform, X, to poll users on whether Tesla should relocate its domicile to Texas. Following an overwhelming 87% majority in favour, Musk pledged to initiate a shareholder vote for the relocation.

The shareholder letter sheds light on the board’s rationale behind the shift to Texas, asserting it as a governance-driven decision while accommodating Musk’s preference. It clarifies that the decision regarding re-domestication rests with the board, not solely with the CEO.