Elon Musk has abandoned his effort to take Tesla private, announcing the move in a post on Tesla's website late on Friday evening.

"Given the feedback I've received, it's apparent that most of Tesla’s existing shareholders believe we are better off as a public company," Musk wrote. "I knew the process of going private would be challenging, but it's clear that it would be even more time-consuming and distracting than initially anticipated."

It's obvious why Musk was attracted to the idea of taking Tesla private. Private companies are exempt from most of the transparency requirements imposed on public companies, and they tend to face less pressure to meet quarterly earnings targets than public companies. But it was always a bit of a mystery why Musk thought shareholders would want to go along with his plan.

It's not even clear Musk could have raised the money to take Tesla private. While Musk expressed confidence that Saudi Arabia's sovereign wealth fund was eager to finance the transaction, the Saudis were conspicuously silent on the topic. They did take a $2 billion stake in Tesla shortly before Musk's tweet, but they are also reportedly considering an investment in Tesla competitor Lucid Motors, which doesn't seem like the behavior of an investor that's planning to make a much bigger bet on Tesla.

Unfortunately for Musk, abandoning the plan to go private won't put an end to the legal headaches his proposal has spawned. Tesla is facing both shareholder lawsuits and an investigation from the Securities and Exchange Commission. These are likely to continue. Indeed, Musk's decision to abandon the proposal only underscores critics' contention that Musk wasn't telling the truth when he said he had "funding secured" to take Tesla private.

“No proven path”

As private company shareholders, investors would not be guaranteed regular updates about the company's financial situation. Even more significant, they would lose the liquidity benefits of holding a stock that's traded on public markets.

A public company shareholder can cash out at any time by selling shares on the stock market. Private shareholders, in contrast, can only sell their shares in limited circumstances determined by company management—and often they're unable to sell their shares for months or years at a time.

From Musk's perspective, limiting the liquidity of Tesla shares would be a feature, since it would eliminate the distraction of Tesla's volatile share price. But it's easy to see why many shareholders were unenthusiastic about the idea of trading in their highly liquid Tesla shares for a less-liquid version—especially since the reduced liquidity of privately held shares often causes them to fetch a lower price than equivalent publicly traded shares would.

Musk's proposal also faced another major roadblock. Musk said he was hoping to allow all of Tesla's existing shareholders to continue as shareholders in the private company. But Tesla has thousands of shareholders, and SEC regulations specifically prohibit privately held companies from having more than 2,000 shareholders. While a few companies have found ways to skirt this requirement in limited ways, experts told us that Musk would be wading into uncharted legal territory if he tried to use legal gimmicks to flout the clear purpose of public company laws.

"There is also no proven path for most retail investors to own shares if we were private," Musk conceded in his Friday blog post. "Although the majority of shareholders I spoke to said they would remain with Tesla if we went private, the sentiment, in a nutshell, was 'please don't do this.'"

"After considering all of these factors, I met with Tesla's board of directors yesterday and let them know that I believe the better path is for Tesla to remain public," Musk writes. "The board indicated that they agree."

Lawsuits and SEC investigation are likely to continue

By abandoning his go-private proposal, Musk is removing a major distraction for Musk and other Tesla management. However, abandoning the plan won't necessarily put an end to the legal headaches spawned by his original tweet announcing the plan.

Musk tweeted on August 7 that he had "funding secured" to take Tesla private. But it quickly became clear that he had had only preliminary discussions with Saudi Arabia's sovereign wealth fund and was far from having anything in writing.

""That's not what anyone in the financial markets thinks of when you say 'funding secured,'" said securities law expert Stephen Diamond in a recent interview with Ars.

The tweet caused Tesla's stock price to shoot up. And that could be a legal problem for Musk because securities laws make it illegal to manipulate the stock price with inaccurate information.

Within days, Musk was facing multiple lawsuits from shareholders who bought shares at inflated prices in the wake of Musk's tweet. Tesla is also facing an investigation from the Securities and Exchange Commission on the same issue. Musk's decision to abandon the plan will do nothing to stop either process; if anything, critics will argue that the decision to abandon the plan demonstrates that Musk did not actually have "funding secured."