Tesla’s New Bylaws: Only Billionaires Can Sue

Tesla has quietly implemented a new bylaw change that effectively prevents most shareholders from suing company leadership.

From now on, an investor must own at least 3% of Tesla’s total shares to file what is known as a derivative lawsuit — a type of legal action in which shareholders seek to hold executives accountable for breaches of fiduciary duty.

Given Tesla’s current market valuation of over $1 trillion, 3% equates to more than $30 billion — a threshold that legal experts say effectively makes it impossible for ordinary investors to have their case heard.

“It’s a formidable barrier against any attempt to hold the leadership accountable,” said Ann Lipton, a corporate law professor at Tulane Law School, to CNBC. She believes Tesla is taking full advantage of a new Texas corporate statute.

Previously, a shareholder with just nine shares could bring a case — as happened in 2018, when a judge in Delaware ruled Elon Musk’s massive compensation package invalid.

The judge found that Musk effectively controlled the board and had played a key role in designing his own pay deal.

After the ruling, Musk stated: “You should never incorporate your company in Delaware.” Shortly afterward, Tesla moved its legal base to Texas.

The new 3% rule comes into effect just as that very case is being appealed and is now before the Delaware Supreme Court.

The outcome could determine whether Musk gets to keep stock worth $56 billion.

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