Tesla has introduced a new policy that prevents shareholders owning less than 3% of the company from filing lawsuits against its executives on behalf of the company.
This rule change was disclosed in a filing submitted to the U.S. Securities and Exchange Commission (SEC) on May 16, 2025. Under the new requirement, a shareholder would need to hold at least 3% of Tesla’s outstanding shares approximately 97 million shares to bring forward such legal action. At current stock prices, this stake would be worth around $34 billion.
The new rule represents a significant shift from past practices. For example, in 2018, investor Richard Tornetta filed a high-profile lawsuit against CEO Elon Musk over his $56 billion compensation package while owning just nine Tesla shares.
At that time, Tesla was incorporated in Delaware, where no ownership threshold was required to file derivative lawsuits. However, since relocating its incorporation to Texas, Tesla is now operating under a state law that allows companies to set up a 3% ownership requirement to limit shareholder lawsuits. This law is intended to reduce what companies consider “nuisance litigation” from small investors.
Critics argue that the rule could severely limit the ability of small shareholders to hold Tesla’s leadership accountable, especially in cases of potential mismanagement or abuse of power.
