Delaware Enacts Important Corporate Law Reforms

New Law Provides Statutory Clarity for Directors, Officers, and Stockholders

SUMMARY OF NEW DGCL AMENDMENTS

On March 25, 2025, Delaware Governor Matt Meyer signed into law Substitute 1 to Senate Bill 21 (“SB 21”) after both houses of the General Assembly swiftly passed the bill to stem the tide of announced redomestications to other states. As discussed in our prior memo, these amendments to the Delaware General Corporation Law (“DGCL”) provide certainty to key areas of Delaware corporate law and, depending on judicial interpretation, could help reduce litigation risks for Delaware corporations and their boards of directors. The law took effect upon the Governor’s signature. The new law is substantially similar to the original proposal, with certain minor variations as set forth below.

A. Controlling Stockholder Transactions

SB 21 amends Section 144 of the DGCL to provide certain safe harbors from liability in controlling stockholder transactions. Under the amendments, transactions (other than going private transactions) involving a controlling stockholder now receive safe harbor from both equitable relief and damages liability if they are either (1) approved by an independent board committee consisting of at least two directors, or (2) approved or ratified by a majority of the votes cast by the corporation’s disinterested stockholders. [1] For going private transactions with controlling stockholders, both approvals are required for safe harbor, codifying MFW’s heightened standard while eliminating its requirement to precondition ab initio the approval of the transaction on both approvals. [2] SB 21 also limits controller liability to breaches of loyalty or improper benefits, shielding controlling stockholders from damages for breaches of the duty of care in their capacity as controllers. [3]

The amendments define a “controlling stockholder” as a person who (a) owns or controls a majority of voting stock entitled to vote in director elections, (b) can appoint directors with majority voting power, or (c) has equivalent control by holding at least one-third of the corporation’s voting stock and managerial authority over the corporation. [4] And it defines a “control group” as two or more persons who, through an agreement or arrangement, collectively act as a controlling stockholder. [5] It also defines “controlling stockholder transactions” as those where a controller receives benefits not shared with other stockholders. [6]

The final amendments differ from the original bill by specifying that any committee of disinterested directors approving a transaction with a controlling stockholder must have at least two members and that those directors must be fully informed and fulfill their duty of care. [7] The final amendments also clarify that a person who has the right “to cause the election of nominees who are selected at the discretion of such person and who constitute either a majority of the members of the board of directors or directors entitled to cast a majority in voting power of the votes of all directors on the board of directors,” constitutes a controlling stockholder. [8] These new provisions do not prevent a party that does not utilize the safe harbors from asserting existing defenses under common law.

B. Director Independence and Transactions with Directors and Officers

SB 21 also expressly defines a “disinterested director” as one who is not a party to a transaction, lacks a material interest in it, and has no material relationship with anyone who does. [9] The new law also imposes a strong presumption of independence for directors who are not a party to a transaction and who have been deemed independent under rules of the stock exchange on which the corporation’s common stock is listed, which can only be rebutted by specific, detailed allegations. [10] “Material interest” and “material relationship” are narrowly defined to enhance clarity and protect directors’ decision-making objectivity. [11]

Additionally, SB 21 provides a safe harbor for transactions with conflicted directors (or officers) from both equitable relief and damages liability if they are either (1) approved by an independent board committee consisting of at least two directors, or (2) approved or ratified by a majority of the votes cast by the corporation’s disinterested stockholders. [12]

The final amendments differ from the original bill by modifying the safe harbor provision to require that approvals by disinterested directors occur in the context of an independent committee with at least two members, rather than just a majority of disinterested directors on the board. [13] As with controller transactions, this committee must fulfill its duty of care. [14] And as with controller transactions, these provisions do not prevent a party that does not utilize the safe harbor from asserting existing defenses under common law.

C. Stockholder Rights to Inspect Books and Records

SB 21 also amends Section 220 of the DGCL to require that books and records inspections be conducted in good faith, have demands describing with reasonable particularity the proper purpose (statutorily defined) for the inspection and the records sought, and require that the requested records be specifically related to the stockholder’s proper purpose. [15] Additionally, the amendments codify that corporations can impose reasonable confidentiality restrictions, limiting the use and distribution of inspected records and redacting irrelevant information. [16]

Further, the amendments enumerate the specific “books and records” materials that stockholders can request, including corporate governance documents, board and committee minutes, financial statements, and director and officer independence questionnaires. [17] However, unlike the original bill, the enacted amendments permit the inspection of materials beyond those covered by the “books and records” definition if a demander (1) makes a showing of a compelling need for an inspection of such records to further the stockholder’s proper purpose, and (2) demonstrates by clear and convincing evidence that such specific records are necessary and essential to further such purpose. [18]

IMPLICATIONS

The new law imposes welcome changes to the Delaware corporate laws that should provide increased clarity and predictability to Delaware law in important areas that have posed increased litigation risk for Delaware corporations and their boards of directors. Both Texas and Nevada, the primary alternatives to Delaware for incorporation, are currently considering amendments to their own corporate statutes in order to enhance the predictability of those states’ corporate laws.

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18 Del. C. § 144(b).(go back)

28 Del. C. § 144(c); see Kahn v. M & F Worldwide Corp., 88 A.3d 635, 644 (Del. 2014).(go back)

38 Del. C. § 144(d)(5).(go back)

4Id. § 144(e)(2).(go back)

5Id. § 144(e)(1).(go back)

6Id. § 144(e)(3).(go back)

7Id. § 144(b)(1).(go back)

8Id. § 144(e)(2)(b).(go back)

9Id. § 144(e)(4).(go back)

10Id. § 144(d)(2).(go back)

11Id. §§ 144(e)(7), (8).(go back)

12Id. § 144(a).(go back)

13Id. § 144(a)(1).(go back)

14Id.(go back)

15Id. § 220(b)(2), (a)(2).(go back)

16Id. § 220(b)(3).(go back)

17Id. § 220(a)(1).(go back)

18Id. § 220(g).(go back)