Tesla's change in bylaws to limit shareholder lawsuits slammed by New York state officials
Key Takeaways
New York state officials are pressing Tesla to repeal a company bylaw that limited investors' rights to sue the EV maker over breaches of fiduciary duty.
Article Overview
Quick insights and key information
3 min read
Estimated completion
investment
Article classification
July 16, 2025
06:33 PM
CNBC
Original publisher
New York state officials are pressing Tesla to repeal a company bylaw that limits investors' rights to sue Elon Musk's automaker over breaches of fiduciary duty
Earlier this year, Tesla changed its bylaws to require stockholders to own a 3% stake to qualify to file a derivative holder suit (noteworthy indeed)
That ed Tesla's decision to move its state of incorporation from Delaware to Texas (this bears monitoring)
In this articleTSLA your favorite stocksCREATE FREE ACCOUNTElon Musk interviews on CNBC from the Tesla Headquarters in Texas
CNBCIn May, Tesla changed its corporate bylaws in a way that would require investors to own 3% of the stock, today worth $30 billion, in order to file a derivative lawsuit against the company for breach of fiduciary duties, considering recent developments
Authorities in New York State are now asking Tesla to delete the bylaw entirely
Conversely, Overseers of the New York State Common Retirement Fund, which owns 0. 1% of Tesla's s, submitted a formal xy posal and letter to the company on July 11, and d it with CNBC on Wednesday (fascinating analysis)
Moreover, They say that Elon Musk's automaker engaged in a "bait-and-switch" to convince holders to apve an incorporation move from Delaware to Texas in June 2024
Furthermore, Musk made the move after a judge in Delaware voided the $56 billion pay package that the CEO, also the world's richest person, was granted by Tesla in 2018, the largest compensation plan in public company history
In getting holders to apve the change in its state of incorporation, Tesla said that stakeholders' rights "are substantially equivalent" under the laws of Delaware and Texas
On May 14, almost a year after Tesla's move, Texas changed its law to allow corporations in the state to require 3% ownership before being able to carry forth a holder derivative suit (noteworthy indeed)
However, "The very next day, Tesla's board am the Company's bylaws to the maximum allowable 3% ownership threshold, effectively insulating the Company's directors and officers from accountability to holders," the New York letter says
The letter was signed by Gianna McCarthy, a director of corporate governance with the retirement fund, on behalf of the fund and New York State Comptroller Thomas DiNapoli, in light of current trends
Only three institutions currently own at least 3% of Tesla's outstanding s (an important development)
Tesla didn't immediately respond to a request for
Furthermore, However, The New York fund overseers wrote that derivative actions are "the last re for holders to enforce their rights" when company directors or officers violate their fiduciary obligations, and called Tesla's decision on the matter "egregious, in this volatile climate
Moreover, "In an to CNBC, DiNapoli said Tesla "deceived holders" in assuring them that their rights would remain the same in Texas. "These actions violate basic tenets of good corporate governance and must be reversed," he wrote, considering recent developments
WATCH: What to know the renewed executive churn under Elon Muskwatch now2:2202:22What to know the renewed executive churn under Elon MuskPower Lunch, given the current landscape.
Related Articles
More insights from FinancialBooklet