Tesla blocks stockholders with less than 3% shares from suing officers on its behalf

Tesla blocked shareholders who own less than 3% of its shares from suing its directors or officers on behalf of the electric vehicle maker for breach of duties, according to a filing with the U.S. Securities and Exchange Commission on Friday.

Three percent of Tesla's shares amounts to about 97 million shares worth about $34 billion as of Friday's close. That is far higher than the nine shares owned by Richard Tornetta when he sued Tesla's CEO Elon Musk and several of its directors over his $56 billion pay package in 2018. Tesla was at the time incorporated in Delaware, where such a threshold does not exist. Musk filed an appeal in March to restore his pay package after a Delaware judge last year invalidated it, siding with Tornetta and calling it unfair to Tesla shareholders.

The amendment on Thursday to the bylaws of Tesla, now incorporated in Texas, follows a new law in the state this week that allows companies to set a threshold of up to 3% shareholding for derivative lawsuits as part of "restrictive new provisions to limit abusive shareholder litigation."


A derivative lawsuit is brought by a shareholder or group of shareholders on behalf of the company, against its directors or officers, alleging a breach of their fiduciary duties.