Delaware is trying to protect its status as capital from world companies in the midst of the rejection of the rejection of a billionaire judge Elon Musklandmark Tesla compensation packageAlthough criticism say that accelerated legislation will incline the rules of the game against investors, including retirees and middle class savers.
A committee of the Delaware Chamber was to vote on Wednesday on the bill, which is supported by the Democratic Governor Matt Meyer who said that this will guarantee that the state remains the “leading house for American and global companies” to integrate.
Donors say that this will modernize the law and maintain the balance between business officers and shareholders in a state where the courts, for a century, have paid all kinds of commercial disputes as a legal center of more than 2 million business entities, including two thirds of Fortune 500 companies.
Critics – including institutional investors, pension funds and asset managers – say that this will reduce corporate governance standards, will limit shareholders’ rights and, consequently, will limit the possibility of keeping business agents responsible for decisions that violate their fiduciary obligation.
The bill adopted the State Senate unanimously last week.
What happened in the case of Elon Musk?
A Delaware judge last year invalidated the Package of Musk’s remuneration fromTeslaIt was potentially over $ 55 billion. The shareholders’ lawyers had continued on the package that the board of directors of Tesla awarded Musk in 2018.
Chancellor Kathaleen St. Jude McCormick said that she had been developed by administrators who were not independent of Musk and approved by shareholders who had received misleading and incomplete disclosure in a proxy declaration.
The decision hit Musk from first place on the list of richest people in Forbes, although he has sincelift.
Musk and Tesla are attractive to the Supreme Court of the State. But Musk discharged Delaware, saying “never incorporate your business in the state of Delaware” and rather recommended the competitors of Nevada or Texas as destinations.
Now, legislators are warned by business lawyers that their customers are planning to go to outings – by making a “dexit”, as has been nicknamed – and that startups are invited to incorporate elsewhere.
What did Musk and the others do?
Dust followed his own advice, move the list of Tesla companies in Texas after a vote by shareholders and its companiesSpacexin Texas andNeuralin Nevada.
Supporters of the bill say that the company’s disorders have simmered the last two years in various decisions of the Supreme Court of Delaware in the affairs of Conflict of Interests of Business and that musk has ignited dissatisfaction.
The benefits have seemed to speed up in recent weeks when the Wall Street JournalreportedThat Meta Platforms – The parent company of social media platforms Facebook, Instagram and WhatsApp – planned to move its incorporation to Texas. Meta did not confirm the report.
Dropbox, the online file sharing platform,movingHis business list in Nevada, and Bill Ackman, founder of Pershing Square Capital Management, a Grand Hedge Fund,saidHe would leave Delaware too.
On February 1, MuscCaught on his X social media platformTo piss off it, saying: “Companies dislocate from Delaware, because the chief judge of the militants of the Court of Delaware has no respect for the rights of shareholders.”
That said, criticism of the bill say that there is no evidence that companies flee from Delaware in every number.
What does the bill do?
It changes several things.
First, it gives societies more protections in cases of conflict of interest – such as a set of remuneration for a CEO or intersocated agreements – in state courts during the fight against shareholders.
Two, it limits the type of document that a company must produce in legal cases and makes it more difficult for shareholders to access internal documents orcommunicationIt could prove time and expensive to produce for a business – not to mention, damaging its case.
Eric Talley, professor of law at Columbia University, has compiled a list of three dozens of precedents from the Supreme Delaware Court that the legislation should change.
Lawrence Hamememe, former professor at Delaware Laware School at Widener University, did not agree. Hamemesh, who helped write the legislation after Meyer asked him last month, said only a few doctrines would be destroyed.
A legal dispute is widely provided if Meyer obtains the bill and sign it. Meanwhile, institutional investors say that such a law can encourage them to push the companies they have to incorporate elsewhere.
Why is this a big problem for Delaware?
Money.
According to the Governor’s office, around a third of the revenues from the state of the state of the Delaware – approximately 2.2 billion dollars – comes from corporate license fees and associated tax revenues, according to the Governor’s office. This helps the State to maintain a 0% sales tax and maintain relatively low land taxes, a nice advantage for the beach holiday home industry along its Atlantic coast.
Beyond that, Wilmington is home to a cottage industry which is aimed at lawyers of companies that live, remain, dine and shop around the Supreme Court of the State and the Chancellery of Delaware buildings where they plead their affairs.
This story was initially presented on Fortune.com
