How Elon Musk will increase his power through the SpaceX IPO

Elon Musk has incredible influence over the companies he leads. And although he already calls himself “TechnoKing” at Tesla, he is the real ruler of SpaceX, who has unprecedented power in one of the most important companies in the world.

Musk’s monarchic grip on SpaceX was finally revealed in The company’s IPO filing was announced on Wednesday.

Post-IPO, Musk will serve as CEO, CTO, and chairman of SpaceX’s board. His current power of 85% will decrease following the IPO, but will remain above 50%, giving him the power to appoint directors as he wishes. He really can’t be fired.

The company has placed limits on how shareholders can handle legal challenges, and it will benefit from a liberal jurisdiction in Texas, its home state — a place Musk helped create when he successfully moved Tesla’s incorporation there from Delaware.

As SpaceX clearly tells prospective investors in writing: “This will reduce or prevent you from influencing the business affairs and decisions of our management.”

More control than Mark

Tech startups have enjoyed controlling public companies over the past two decades, especially as Google, Meta (then Facebook) and other tech companies went public with two divisions.

But Musk and SpaceX are making great strides, according to Ann Lipton, a law professor at the University of Colorado.

Lipton argued, in a blog published last Friday, that Musk is removing the three most powerful tools that owners can pull to pressure the head of a public company.

The first is voting. SpaceX operates two classes, Musk owns 93.6% of the highly rated Class B shares that are not available to the public in the offering.

Despite its bid to become the largest IPO in history, Musk will retain more than 50% of the voting power once SpaceX is listed. This makes it a “regulated company” by the standards of the stock exchange, and regulated companies are allowed to exempt themselves from the rules required for independent monitoring.

SpaceX says in its IPO documents that the owners of regular shares (which will consist of Class A shares) “will not have the same protections as those offered to the owners of companies that follow the full scope of the Nasdaq.”

Instead, Musk’s voting control means he will be able to decide anything that requires shareholder approval. This includes decisions such as mergers and acquisitions. If Musk eventually wants to merge with or acquire Tesla, as many believe, he won’t need to woo SpaceX’s shareholders.

Voting control is the biggest difference between Musk’s power at SpaceX versus Tesla. Musk controls only 20% of the voting power in Tesla and has been forced to pressure the company in recent years – including, at one point, threatening to give up everything – to be given more stock. (Tesla forced last year to make a $1 trillion shareholder-approved compensation plan.)

An official shield

The second lever SpaceX is reducing is the ability to sue.

By incorporating in Texas, SpaceX has ensured that owners cannot file what is known as a “source suit” unless they own at least three shares of the company. (At an estimate of $1.75 trillion, that would be a net worth of $52 billion.)

Lawsuits from other countries occur when owners sue the company’s management on behalf of the company – as a minority shareholder sued Tesla’s board over the $56 billion in compensation paid to Musk in 2018.

In addition, SpaceX has included language in its bylaws, adding more cases to the New Texas Business Court, which only began to operate in 2024, or through formal arbitration.

In other words, Lipton told TechCrunch: “Forget it, that’s it. There won’t be a case” most of the time.

That wasn’t the case before Musk pulled Tesla out of Delaware and moved to Texas, he said.

In fact, Lipton said that until a few years ago, Delaware looked closely at the true nature of the company being operated by SpaceX.

“You can have two divisions, and that would give you voting power, and it also means you’re subject to the Delaware courts,” he said.

Vote with your feet

The ultimate power-sharing solution that SpaceX has cracked, Lipton argued, is the ability to sell shares and walk away.

SpaceX has lobbied Nasdaq to loosen rules governing how it adds companies to its Nasdaq 100 index — a group of large companies billed as “good and innovative.”

This used to take months, but now it is expected that SpaceX will be added to the list in a matter of weeks.

When companies are added to these indexes such as the Nasdaq 100 or the S&P 500, they automatically buy from large financial institutions (such as 401k providers).

Therefore, Lipton says that the stock price of SpaceX will be raised in the first days of public trading of the upcoming merger, because investors will want to buy before investors come and raise the price.

“Typically, if you can’t vote, and you can’t sue, you can sell and lower the price, and that hurts,” Lipton said. “It hurts the manager (of the company), it hurts the executives who are paid in the store.

Chan Ahn, a former executive at Goldman Sachs and JPMorgan, and the current CEO of Tessera, said he agrees that a quick inclusion in the Nasdaq 100 could raise the price.

But, he told TechCrunch, shareholders will be able to “vote with their feet” and sell their stock – it may not have the same effect.

“You don’t have to buy it, and if you have it, and if you don’t like it, you can sell it,” he said.

All the money

On top of this authority, Musk stands to make countless profits from SpaceX going forward.

Not only did the IPO make him the world’s first billionaire, he was compensated with 1 billion Class B shares.

The shares will not be funded until Musk makes the company worth $7.5 trillion and, with difficulty, achieves “the establishment of a permanent colony on Mars with at least one million people.”

But while the need for a “Mars colony” may make this package seem impossible to many, Musk could extract tons of value from these units long before SpaceX reaches Earth.

In an award agreement that is included in the IPO filing, SpaceX indicates that Musk will be able to vote with the shares even before they exist. In addition, they can pledge them as collateral for a loan. It’s a popular move for the super-rich to cash in untaxed on unrealized earnings, and it’s something Musk has done several times in the past with his SpaceX and Tesla shares.

Although borrowing against these Mars shares requires board approval, Musk controls the board. Ultimately, the decision will be up to him.

These key shares become common stock if Musk sells them.

But there is one thing that is clear. Musk can put them in trusts to maintain high ratings, which means that it is possible that the king of SpaceX – who has at least 14 children that we know – is positioning himself to create a powerful administration.