Friday's ruling on the pay package once worth $US56 billion ($A85 billion) overturns a decision that had prompted a furious backlash from Musk and damaged Delaware's business-friendly reputation.
The pay package was by far the largest ever until Tesla shareholders approved a new, even larger pay plan in November.
The ruling means that Musk can finally get paid for his work since 2018, when he transformed Tesla from a struggling startup to one of the world's most valuable companies.
The 2018 pay deal provided Musk options to acquire about 304 million Tesla shares at a deeply discounted price if the company hit various milestones, which it did.
Tesla estimated in 2018 that the plan was potentially worth $US56 billion ($A85 billion), although given the rise in the stock price, the value ballooned to around $US120 billion ($A182 billion) by early November. The options represent around nine per cent of Tesla's outstanding stock. Musk never collected his stock options because soon after shareholders approved the 2018 compensation, the board was sued by Richard Tornetta, an investor with just nine Tesla shares.
In 2024, after a five-day trial, Delaware Judge Kathaleen McCormick concluded Tesla's directors were conflicted and key facts were hidden from shareholders when they voted to approve the plan. She ordered that the 2018 plan be rescinded.
Musk accused Delaware judges of being activists who are hostile to tech founders and he urged businesses to follow Tesla and reincorporate elsewhere. Dropbox, Roblox , The Trade Desk and Coinbase were among the handful of large companies that moved their legal homes to Nevada or Texas. However, Delaware remains by far the most popular legal home for US public companies.
Tesla's board has warned that Musk, the world's richest person who also leads the SpaceX rocket venture and artificial intelligence startup xAI, could leave the electric car company if he does not get the pay he wants and an increase in his voting power.
In November, shareholders approved a new pay package that could be worth $US878 billion ($A1.3 trillion) if Tesla meets targets for self-driving vehicles, a robotaxi network and sales of humanoid robots.
Tesla has taken steps to reduce the risk that a shareholder could tie up the 2025 package in the courts.
The Austin-based company is now incorporated in Texas, which allows Tesla to require that any investor or group of investors must own three per cent of the company stock before suing for an alleged corporate law violation. A stake of that size would be worth around $US30 billion ($A45 billion) and Musk is the only individual with that much stock.
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