Musk and Tesla will also be required to pay $20 million in penalties each.
Tesla did not immediately respond to a request for comment.
Tesla and the board of directors are fully confident in Elon, his integrity, and his leadership of the company, which has resulted in the most successful US auto company in over a century.
Musk has driven the company to the verge of profitability with a costly ramp-up of production of its Model 3 sedan over the past year.
The Tesla CEO is getting sued by the Securities Exchange Commission for misleading shareholders by tweeting that he had "secured funding" for taking Tesla private.
Tesla's share price has suffered recently given controversy around Musk.
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"It's going to be a very long and challenging period for him and the company", Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of DE, told ABC News.
Elon Musk has been fined $20million and will be forced to resign as chairman of Tesla after reaching a settlement on fraud charges.
"But what has kept Tesla's stock hoisted is the perpetual tweets and promises from Elon Musk, promises that he hasn't met", Johnson said.
There were signs of progress in the months after that, and investors cheered in June after Musk said Tesla was about to hit its goal of making 5,000 Model 3s a week.
That's a 44 per cent decline from where the shares ended just hours after Musk tweeted over the summer that he had secured funding for a buyout.
"Elon is Tesla and Tesla is Elon and that's great when Elon is scoring touchdowns and grand slams but not so great when there are negative things tied to him", said Karl Brauer, executive publisher at auto research firm Kelley Blue Book. "The consequences of not settling it are a lot worse, and this is a pretty straightforward case for the SEC". In its lawsuit, the SEC is also seeking to ban him from serving as a director or officer.
Regulators said Musk had barely formed a take-private proposal when he tweeted that it was all but certain in early August, sending Tesla's stock soaring on the promise of what would have been one of the largest private-buyout deals in corporate history.
The cost of insuring Tesla debt against default rose to its highest price ever on Thursday and the plummeting share price attracted new short sellers, who bet against the stock.