Elon Musk is stirring up new questions about where big American companies should set down roots.

A new California law — the first in the nation to ban schools from informing parents when their minor children change gender identification — prompted the billionaire this past week to announce that he would relocate both social-media platform X and rocket maker SpaceX to Texas.

That came roughly one month after he also won shareholder approval to move the incorporation of his electric-vehicle maker Tesla (TSLA) to the Lone Star state from Delaware, after a judge in that state invalidated his $56 billion pay package.

Texas is embracing its recent victories, arguing that companies in other states are gravitating to its lower taxes and friendlier regulations.

Between 2018 and 2023, Texas attracted 209 of 465 companies that publicly announced a corporate headquarters move, according to commercial real estate firm CBRE, with many settling in Austin, Dallas and Houston.

Most of those new entrants were from California, topped by 79 corporate relocations from the Silicon Valley markets of San Francisco and San Jose.

Texas governor Greg Abbott, a Republican, celebrated Musk's recent announcement by posting on X that “teXas is the HQ for business." Ted Cruz, the US senator from Texas, added that "we’re proud you call Texas home."

Whether Musk inspires more companies to leave either California or Delaware due to recent legal decisions in those states is still an open question.

'Who knows?'

Delaware remains a dominant place for new incorporations, currently home to 67% of Fortune 500 companies.

And new incorporations in that state increased by 2% in 2023 to 59,729, according to the Delaware Secretary of State's office. That reversed a 6% decline in 2022.

One new piece of legislation in Delaware that could complicate these decisions in the years to come is an amendment to the state’s corporate law signed last week by the governor. It allows companies to enter shareholder agreements that cede shareholder power to a single person or entity.

Dozens of law professors joined in an open letter opposing it, calling the adjustments “the most consequential changes to Delaware corporate law of the 21st century.”

The group cautioned that the change would strip more control from minor shareholders in favor of major investors.

Its too early to know how companies may react.

Andrew Baker, an assistant law professor at UC Berkeley School of Law, predicted that Delaware's new law would make companies less likely to leave Delaware because of the additional control it opens up for executives and large investors.

"I think that the wildcard is if Elon turns Delaware into some kind of cause célèbre for a large set of retail shareholders, given his platform," Baker said. That could happen and become a reason people choose not to incorporate in Delaware, he said. "But who knows?"

Case Western Reserve University corporate law professor Anot Alan-Beck said the potential for controversial laws to spur more widespread corporate exodus is not high, at least not yet.

“I know that critics are questioning whether [Delaware’s] once unrivaled allure as the corporate capital of America is beginning to wane,” Alan-Beck, said. “But, according to my research, don't hold your breath.”

Beck’s forthcoming research shows that even among unicorns — startups that reach $1 billion valuations — 97% still incorporate in Delaware.

Eric Talley, an economist and professor at Columbia University Law School, agreed that it’s too soon to tell if controversial state laws will prompt other companies to follow Musk’s lead.

Abandoning California’s ecosystem of technology workers could pose significant risk for any of Musk’s companies, given the potential for competitors to steal them away.

That, for the near term, Talley said, entrenches California with authority over the entities since state taxes are assessed in locations that drive the bulk of an entity's economic activity.

Over time, a more significant shift to Texas could bring tax benefits to the companies and employees due to Texas' zero corporate tax and personal income tax structure. Texas instead assesses only a franchise tax on corporations.

Even if other companies were to follow, Talley said, a change in corporate headquarters for SpaceX and X are mostly symbolic for now because, like changing the state of incorporation, it doesn't shift factors that are critical to bottom line: workforce and economic nerve centers.

SpaceX and X, Talley said, would be hard pressed to immediately move California-based workers to Texas.

“That doesn't mean it can't happen,” Talley added, noting Musk’s proven ability to upend status quo.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

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