Delaware Enacts Senate Bill 21, Introducing Key Amendments to the Delaware General Corporation Law
April 2, 2025
Key Takeaways:
- New amendments to the Delaware General Corporation Law (DGCL) create new “safe harbor” provisions intended to cleanse conflict-of-interest transactions and narrow the scope of information afforded to stockholders under inspection rights.
- See below for a detailed look at critical updates — and their implications for corporations and stockholders.
- While these amendments provide increased legal certainty for corporate boards and officers, they also raise questions about the balance of power between stockholders and management. Contact your legal advisor to carefully assess the impact of these changes on your organization.
Key Contacts:
On March 25, 2025, Delaware enacted Senate Bill 21 (SB 21), introducing significant amendments to the Delaware General Corporation Law (DGCL). These changes create new “safe harbor” provisions intended to cleanse conflict-of-interest transactions and narrow the scope of information afforded to stockholders under inspection rights. Given Delaware’s prominence in corporate law, these amendments will have far-reaching effects for corporations, directors, officers, and stockholders. Below is an overview of critical updates and their implications for corporations and stockholders.
Key Amendments
Safe Harbor Procedures for Interested Transactions (Excluding Go-Private Transactions)
SB 21 revises DGCL § 144 to establish explicit safe harbor procedures for transactions involving directors and officers or controlling stockholders with potential conflicts of interest. Under the new framework:
- Transactions approved by a majority of disinterested directors cannot be invalidated solely due to conflicts if the board or committee was aware of the conflict and it is approved in good faith.
- The act or transaction may be approved or ratified by a vote of a “majority of the votes cast” by disinterested stockholders, provided the approval is made in good faith and after full disclosure.
- If neither approved by a majority of disinterested directors or a majority of votes cast by disinterested stockholders, the transaction would be subject to the “entire fairness doctrine.”
While the current Delaware case law required conflicted transactions to be approved by both a special committee and a vote of disinterested stockholders, the amended language to Section 144 only requires one or the other. In addition, established Delaware case law required that any special committee of directors be formed prior to the start of negotiations of a conflict transaction. The new provisions in Section 144(a), do not impose any such timing requirement.
Critics argue that these protections may unduly favor insiders, potentially limiting stockholder recourse in conflict-related disputes, while proponents contend the amendments clarify the procedural requirements to ensure proper oversight, including detailed documentation of deliberations and disclosure obligations.
Go-Private Transactions
As noted above, the new language to DGCL § 144 requires approval by a majority of disinterested directors or a majority of votes cast by disinterested stockholders. New DGCL § 144(c) requires a “going private” transaction to be approved by both a special committee pursuant to 144(a) and disinterested stockholders as required under 144(b) to provide a safe harbor. Absent such dual approval, the going private transaction will be subject to the “entire fairness” standard of review.
Refinement of Controlling Stockholder Definition
Amendments to DGCL § 144(e) refine the definition of “controlling stockholder” by specifying:
- A minimum percentage of voting stock ownership, generally interpreted as 50% or more, but also considering lower thresholds where a stockholder has significant influence.
- The actual exercise of managerial authority, assessed through factors such as board representation, contractual rights, and historical influence over corporate decisions.
Under the new Section 144(e) of the DGCL, a controlling stockholder is defined as a stockholder who (i) holds majority power, (ii) has the right (such as through a stockholders agreement) to appoint a majority of the board members, or (iii) possesses power equivalent to that of a majority stockholder by controlling (A) at least one-third of the voting power of the outstanding stock and (B) the authority to manage the corporation’s business and affairs.
By providing clear guidelines, these changes are expected to bring greater consistency in how courts evaluate controlling stockholder status in fiduciary duty cases, reducing ambiguity in corporate governance disputes.
Stockholder Inspection Rights
Revisions to DGCL § 220 introduce new limitations on the scope of documents stockholders can inspect, including:
- A presumption that only formal board materials, such as governing documents, meeting minutes, and resolutions, are subject to review, rather than informal communications such as emails and draft documents.
- Allowing corporations to impose reasonable confidentiality conditions when providing access to sensitive corporate information, ensuring that proprietary or strategic details are protected from misuse.
- Strengthening procedural requirements for stockholders requesting inspection rights, including demonstrating a proper purpose and potentially limiting repetitive or overly broad requests.
It is important to note that the revisions to DGCL§ 220 will not affect a stockholder’s right to seek discovery of other books and records if the stockholder is in active litigation. New Section 220(g) also introduces exceptions, making clear that a stockholder may obtain specific records if the stockholder can demonstrate those records are (i) necessary and essential to their purpose and (ii) makes a showing of a compelling need for an inspection of the records to further its purpose.
Investor advocacy groups have raised concerns that these restrictions may limit stockholders’ ability to monitor corporate governance effectively. However, corporate proponents argue that these changes will reduce the burden of excessive document production requests, allowing directors and officers to focus on governance without undue interference.
Looking Ahead
These amendments apply retroactively unless an action concerning the act or transaction is already pending or the Section 220 demand was made on or before February 17, 2025.
SB 21 represents a substantial shift in Delaware’s corporate governance landscape. While these amendments provide increased legal certainty for corporate boards and officers, they also raise questions about the balance of power between stockholders and management. Companies and their legal advisors should carefully assess these changes and adjust governance practices accordingly, particularly when considering amendments to corporate charters or bylaws in light of the new fee-shifting provisions.
Delaware remains the leading jurisdiction for corporate law, and these developments signal a continuing evolution in its approach to corporate regulation. Further refinements to the DGCL may emerge in response to ongoing legal challenges and stakeholder feedback, particularly regarding the scope and fairness of stockholder rights limitations.
For more information or guidance on how these changes may impact your organization, please contact Jason Arnold, Jessica Fairchild, Andrew Gilbert, Geoffrey Morgan, or another member of CFDB’s SEC, Corporate Governance & Business Counseling group.