Find out why not all of Tesla’s founders became billionaires – and how to prevent something similar from happening in your business.
What Happened?
According to a Forbes report (link), all five founders of Tesla started with equal standing in the company.
Like any business, Tesla needed to grow and attract investment.
With capital available, Elon Musk was the investor and founder who best leveraged the situation, consistently acquiring more Tesla shares.
“Ultimately, this also put Musk on the path to taking full control of Tesla, as he steadily increased his ownership stake through a series of nine financing rounds before the company’s IPO in 2010—each of which further diluted Eberhard and Tarpenning’s stakes.”
(FORBES)
In short, the more shares one holds, the greater their financial value and control over the company.
How to Prevent This from Happening to Your Business?
Through well-drafted contracts.
Yes, Tesla’s founders and investors certainly had contracts—perhaps even multiple agreements.
However, things could have been different with the use of properly structured clauses, particularly those designed to protect minority shareholders.
The dilution of ownership can be controlled contractually.
Corporate law, aiming to protect the social function of a company, allows for such controls. These mechanisms ensure, at the very least, that shareholders have the right of first refusal to acquire shares on equal terms.
Moreover, these provisions could have prevented the aggressive issuance of new shares, which ultimately diluted the ownership of the other founders.
With this safeguard, both the wealth and control of the company could have been better distributed.
That said, the broader business context must always be considered—because poorly drafted clauses could have also hindered Tesla’s growth and caused the company to miss out on opportunities.
Final Thoughts
Share this content with business owners so they can seek qualified legal counsel to review their contracts and protect their business interests.
