Lucky loopholes
Dodging taxes in Delaware
Good morning, avid accountants. This is your Stock Market Rundown for February 29th, 2024. Thanks for tuning in. Let’s get moving:
TODAY’S TOP STORY: AVOIDANCE ARTISTRY IN THE SCRAPPLE STATE
Unless you’re into visiting military museums, Delaware isn’t exactly a tourist magnet. So why are more than 60% of Fortune 500 companies incorporated in the state?
Well, the second-smallest state is really nice to public companies. So nice, in fact, CEOs should get tattoos of the state flag. It gives them low taxes, legal protections, and a court system specializing in corporate law—the Court of Chancery—that resolves big-biz lawsuits like a well-oiled machine.
But recently, a legal kerfuffle with Elon Musk has thrown some shade on Delaware’s rep as a business-friendly locale. In response to a lawsuit from a Tesla shareholder, a Delaware court ruled that Tesla must rescind Elon Musk’s $56 billion pay package.
The presiding judge called the compensation “an unfathomable sum” and said the board wasn’t independent due to their personal ties with Musk. Example: one of the board members is Elon’s brother Kimbal. Think of Elon and Kimbal as the Mario and Luigi of sloppy corporate governance.
Elon was miffed about the public public slap in the face, grousing on Twitter: “Never incorporate your company in the state of Delaware.” He promptly moved the domicile of his other businesses, SpaceX and Neuralink, out of Delaware to other states.
Will other companies follow suit? Probably not—Delaware just has too many perks. And they continue even after you’re dead: Delaware has no inheritance taxes, so your little heirs and heiresses won’t have to give up any slice of the family wealth.
What do you think of Elon’s duel in the Diamond State? Sound off in the comments:
SO WHAT ELSE IS GOING ON?
Farewell for today, team. Can't wait to dive into more with you tomorrow morning. Yours in capitalism, The Axe
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