Elon Musk exerts substantial control over the companies he leads. While he already holds the title of “TechnoKing” at Tesla, he’s a true authority at SpaceX, one of the most valuable companies in the world.
Musk’s control over SpaceX was revealed in the company’s IPO filing released on Wednesday.
After the IPO, Musk will be SpaceX’s CEO, CTO, and board chairman. His 85% voting power will decrease but remain above 50%, allowing him to appoint directors and essentially protecting him from being fired.
The company has set restrictions on shareholder legal challenges and benefits from a regulatory environment in Texas, a state Musk influenced by moving Tesla’s incorporation there from Delaware.
SpaceX informs potential investors in the filing: “This will limit or preclude your ability to influence corporate matters and the election of our directors.”
Tech founders have gained more control over public companies over the past two decades with dual-class shares, especially firms like Google and Meta.
According to Ann Lipton, a law professor at the University of Colorado, Musk and SpaceX are pushing this further.
Lipton explained in a blog last Friday that Musk is removing three key levers used by shareholders to influence a company’s executives.
The first is voting. SpaceX has a dual-class structure, with Musk holding 93.6% of the Class B super-voting shares not available to the public.
Even as SpaceX aims for the largest IPO in history, Musk will maintain over 50% voting power, categorizing it as a “controlled company” and exempting it from rules requiring independent oversight.
SpaceX states in its IPO filing that shareholders (holding Class A shares) “will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq.”
Musk’s voting control empowers him in shareholder-related decisions, including mergers and acquisitions. If Musk were to merge or acquire Tesla, as speculated, SpaceX shareholders shouldn’t expect to have a say.
Voting control differentiates Musk’s power at SpaceX compared to Tesla, where he holds around 20% voting control and frequently pressures the company for more stock, as seen with Tesla’s $1 trillion compensation package for him approved by shareholders last year.
The second lever constrained by SpaceX is shareholders’ ability to sue.
By incorporating in Texas, SpaceX restricts shareholders from filing a “derivative suit” unless owning at least 3% of the company’s shares. With an anticipated $1.75 trillion valuation, this would mean possessing shares worth about $52 billion.
Derivative suits involve shareholders suing directors on behalf of the company, like the suit over Tesla’s $56 billion pay package for Musk in 2018.
Additionally, SpaceX’s bylaws direct most lawsuits to the new Texas Business Court or through mandatory arbitration.
Lipton told TechCrunch: “Forget it, that’s it. There isn’t going to be a lawsuit” in most cases.
This differs from before Musk moved Tesla from Delaware to Texas, Lipton noted.
Delaware was increasingly examining controlled companies like SpaceX. Dual-class shares allowed outsized voting power but required more oversight by Delaware’s court system.
The final lever SpaceX has dismantled is shareholders’ ability to sell shares and exit.
SpaceX persuaded Nasdaq to ease rules on how and when companies join its Nasdaq 100 index, which comprises large-cap companies deemed “fundamentally sound and innovative.”
Previously a months-long process, it’s now expected SpaceX will join the list within weeks.
Joining indexes like the Nasdaq 100 or S&P 500 leads to automatic purchases by large institutions (e.g., 401k providers).
Lipton argues that the impending inclusion will elevate SpaceX’s stock price as traders buy before institutional investors enter and raise the price further.
“Typically, if you can’t vote or sue, you can sell and lower the price, which damages the controller and executives paid in stock. But even that is being manipulated now,” Lipton said.
Chan Ahn, former executive at Goldman Sachs and JPMorgan and current CEO of private equity company Tessera, agrees rapid inclusion in Nasdaq 100 could raise the price.
He told TechCrunch shareholders can still “vote with their feet” and sell, but it may have less impact.
“You don’t have to buy, and if you hold it, and don’t like it, you can sell,” he said.
Moreover, Musk stands to gain substantial wealth from SpaceX moving forward.
The IPO might make him the world’s first trillionaire and he received a compensation package of 1 billion Class B shares.
These shares vest once SpaceX reaches a $7.5 trillion valuation and establishes a human colony on Mars with at least one million inhabitants.
While the Mars colony goal seems unattainable to many, Musk can still derive significant value from these shares long before SpaceX reaches Mars.
SpaceX’s IPO filing reveals Musk can vote with these shares before they