Delaware Restores Balance and Provides Greater Certainty for Fiduciaries and Stockholders Alike
On March 25, 2025, Delaware enacted amendments to the Delaware General Corporation Law ("DGCL") that provide much-needed clarity, promote predictability for the benefit of stockholders and fiduciaries alike, and appropriately empower disinterested decision-makers to act in good faith for the benefit of corporations and their stockholders.
In mid-February 2025, a bipartisan group of lawmakers proposed so-called "SB 21" in the wake of public reincorporation announcements by some companies, as many other companies privately explored departures from Delaware or initially incorporating elsewhere. That potential exodus—"DExit"—was prompted by growing concerns by many that recent developments in Delaware law increased transaction uncertainty and litigation risk.
SB 21, as enacted, is intended to address those concerns. Among other things, SB 21 provides the following amendments to guide corporate fiduciaries and to honor disinterested decision-making for the benefit of corporations and their stockholders:
- Safe harbor for transactions involving conflicted directors, officers, or controlling stockholders. Under amended § 144 of the DGCL, certain affiliate transactions (other than a going-private transaction involving a controller) will not be subject to equitable relief or give rise to liability if: (i) approved by a fully informed committee of a majority of independent directors, (ii) ratified by a majority of disinterested stockholders in a fully informed vote, or (iii) fair to the corporation.
- Stockholder approval. Under amended § 144, a going-private transaction involving a controlling stockholder must be conditioned on a disinterested stockholder vote only at or before it is submitted to stockholders for their approval, not at some earlier point in time.
- Definition of non-majority controller. Under amended § 144(e)(2), a non-majority stockholder must own at least 33.3% of the voting power of outstanding stock and have the power to exercise managerial authority to be deemed a controlling stockholder.
- Exculpation. New § 144(d)(5) eliminates liability for controllers or control groups for breaches of care.
- Heightened presumption of independence. Section 144(d)(2) codifies a presumption of director independence that can be rebutted only with substantial and particularized facts.
- Scope of "books and records." Amended § 220 limits those materials that a court may order a corporation to produce in a proceeding brought by the stockholder to compel an inspection of books and records, absent a showing of compelling need and clear and convincing evidence that additional records are necessary and essential to the stockholder's purpose.
