Texas lawmakers have passed legislation that significantly reduces the influence of small shareholders over corporations. This move is expected to provide a shield for companies like Tesla Inc. from legal challenges that have plagued them in Delaware.
Key Developments
Two bills, Senate Bill 29 and Senate Bill 1057, are awaiting the signature of Governor Greg Abbott. These bills make it harder for shareholders to sue companies and raise the requirements for bringing resolutions at annual meetings. Governor Abbott has previously signaled his support for SB 29.
Background
The legislation is partly a response to a Delaware court’s decision to strike down Elon Musk’s pay package at Tesla. Eric Lentell, Archer Aviation’s top lawyer, testified in favor of SB 29, citing the Delaware court’s decision as an example of why Texas needs to take action. “How can you have confidence in Delaware judges?” Lentell asked, referencing the fact that a shareholder vote was essentially ignored.
Support and Opposition
The legislation has received support from major companies, including AT&T, Nasdaq, and the Texas Stock Exchange. Chris Babcock, who helped draft SB 29, defended the legislation as balanced, saying it was shaped by “a wide array of businesses and experts.” However, some critics argue that the legislation will reduce shareholder influence and make it harder for investors to hold companies accountable.
Impact
The new laws are expected to have a significant impact on companies incorporated in Texas, including Tesla and Southwest Airlines. SB 29 would apply to major Texas-incorporated companies, while SB 1057 could affect businesses merely headquartered in the state. The legislation is seen as part of a broader trend of companies leaving Delaware and incorporating in Texas, with the New York Stock Exchange recently announcing plans to establish NYSE Texas in Dallas.
Why It Matters
The legislation is significant because it highlights the growing trend of companies leaving Delaware and incorporating in Texas. This trend, dubbed “Dexit“ by Senator Bryan Hughes, is expected to continue as companies seek more business-friendly environments. The new laws are also expected to have a major impact on the way companies interact with their shareholders, making it harder for investors to bring lawsuits and resolutions.
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