People will say this is about Musk and his pay package. Sure. But the more worrying precedent for someone like Drew Houston at Dropbox or Mark Zuckerberg who both have founder voting control is West Palm Beach Firefighters’ Pension Fund v. Moelis & Co.—a Delaware case with nothing to do with Musk.
In Moelis, the Delaware Court of Chancery ruled that provisions in a Stockholder Agreement giving a founder control over board decisions were invalid under DGCL § 141(a). This could embolden challenges to founder controlled companies with a dual-class share structure.
[Adding context because, at first glance, it’s easy to lump these actions into a familiar narrative—some mix of a broader shift to the right, political pandering, or just another corporate move to dodge taxes. But this one is more interesting than that. Delaware—the place where almost every major U.S. corporation is incorporated precisely because it’s supposed to be business-friendly—is suddenly making some weird choices.]
The fun thing about the Moelis case is that the Delaware Court of Chancery in 2024 sided with a minority shareholder against Ken Moelis. Which is kind of wild when you think about it. You’re a minority shareholder. You invest in Moelis & Company, an investment bank that Ken Moelis—yes, that Ken Moelis (https://en.wikipedia.org/wiki/Ken_Moelis), the famous dealmaker whose name is literally the brand—controls through majority voting power and ownership. And then you go, “Wait a second, Ken Moelis has too much control over the board of Moelis & Company!” Yeah, that’s sort of the whole point.
And this is where people start saying, “Huh, maybe this court is getting a little too activist.” Wasn’t the whole idea of incorporating in Delaware that it’s business-friendly? That it streamlines governance and makes it easier to run a company?
Thanks. I had to read it a number of times before I understand where the Musk Reference was coming from. I got mixed up with where the HQ of a company and where they are incorporated. In DropBox case their HQ is in California.
TL;DR ( Correct me if I am wrong ): Most companies incorporate in Delaware. Also a standard for YC as well. There was recently a case where Delaware's court rejected Musk's pay package which was overwhelmingly passed by Tesla shareholders. And if that is not ridiculous enough. The Moelis case mentioned above is far worst. Someone might as well be a minority shareholder in every single Fortune 500 companies and start playing the system.
From a high level view. It seems the centuries of Delaware reputation is being destroyed in only a few months.
I wonder if YC has a position or backup as to where they suggest to reincorporate.
Edit: And now I just read They are trying to stop companies from leaving because The Chancery Court is saying it could be a breach of fiduciary duty to leave in the TripAdvisor litigation. Holy.....
You've highlighted the core issue perfectly—Delaware courts suddenly seem to be changing long-established rules that companies have relied on for decades. The Moelis case is especially wild because it suggests that any minority shareholder can challenge a founder control structure, even when it was fully disclosed and priced into the stock.
And for what? Why now? Maybe this is about protecting shareholders. Maybe it’s just a gift to plaintiff-side litigators.
In Moelis, the Delaware Court of Chancery ruled that provisions in a Stockholder Agreement giving a founder control over board decisions were invalid under DGCL § 141(a). This could embolden challenges to founder controlled companies with a dual-class share structure.