Texas lawmakers have passed legislation that would significantly reduce small shareholders’ influence over corporations, potentially offering companies like Tesla Inc. TSLA a shield from legal challenges that have plagued them in Delaware.
What Happened: Two bills awaiting Governor Greg Abbott‘s signature – Senate Bill 29 and Senate Bill 1057 – would make it harder for shareholders to sue companies and raise requirements for bringing resolutions at annual meetings, reported Business Insider on Friday. Abbott has previously signaled support for SB 29.
“How can you have confidence in Delaware judges?” said Eric Lentell, Archer Aviation‘s top lawyer, who testified in favor of SB 29, referencing a Delaware court’s decision to strike down CEO Elon Musk‘s pay package at Tesla. “A shareholder vote was essentially ignored.”
Sen. Bryan Hughes (R-Texas), who backed SB 1057, described the legislation as “Dexit,” highlighting the growing exodus of companies from Delaware.
Why It Matters: Tesla reincorporated in Texas following its Delaware court battle, while the New York Stock Exchange recently announced plans to establish NYSE Texas in Dallas.
Chris Babcock, who helped draft SB 29, defended the legislation as balanced, saying it was shaped by “a wide array of businesses and experts,” according to the BI report. The bills have received support from AT&T, Nasdaq, and the Texas Stock Exchange.
SB 29 would apply to major Texas-incorporated companies like Tesla and Southwest Airlines, while SB 1057 could affect businesses merely headquartered in the state, according to the BI report. Hughes said the legislation was partly inspired by hedge fund Engine No. 1‘s successful campaign to reshape ExxonMobil‘s board in 2021.
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