Tesla (NASDAQ:TSLA) just rewrote the rules of the gameagain. In a recent SEC filing, the company announced it will now block shareholders who own less than 3% of its stock from filing derivative lawsuits against its executives or board. That threshold? About 97 million shares, or roughly $34 billion at Friday’s close. This follows Tesla’s shift from Delaware to Texas incorporation, where a new law gives companies the green light to set their own barriers to such lawsuitssomething Delaware doesn’t allow.
The timing isn’t lost on anyone. Back in 2018, Richard Tornetta filed suit over Elon Musk’s massive $56 billion pay package, owning just nine shares. A Delaware judge sided with Tornetta last year, voiding the package and calling it unfair to shareholders. Musk is now appealing. But with Tesla’s new bylaw in place, future Tornettas might not even get through the door. It’s a preemptive shield, born in Texas, that could reshape how corporate power is challengedif it’s challenged at all.
For investors, this move could cut both ways. On one hand, it limits legal distractions and could streamline decision-making. On the other, it raises questions about checks and balances at one of the world’s most closely watched companies. If this approach catches on with other Texas-incorporated firms, it may mark the start of a broader shiftone where only the biggest shareholders get a seat in the courtroom.
This article first appeared on GuruFocus.
