Delaware Law Update – Recent Legislative Developments – April 2, 2025

On March 25, 2025, the Delaware General Assembly and Governor Matt Meyer adopted Senate Bill 21 (SB21), which amended Sections 144 and 220 of the Delaware General Corporation Law. Governor Meyer issued a press release the next day noting that “Delaware is the best place in the world to incorporate your business, and Senate Bill 21 will help keep it that way, ensuring clarity and predictability, balancing the interests of stockholders and corporate boards.”^[1] While the process leading to SB21’s adoption and its substance have been the subject of controversy, its adoption into law results in significant changes to Delaware’s statutory safe harbor provision for interested corporate transactions, as well as its provisions governing stockholder books and records demands.

New Section 144 creates a framework for directors, officers and controller shareholders to take steps that may avoid or secure early dismissal of breach of fiduciary duty claims based on an interested corporate transaction if they can satisfy the new requirements. Separately, New Section 220 specifies the categories of corporate books and records that a stockholder may inspect. It also sets forth conditions that the stockholder must meet and restrictions a corporation may impose on granting access to its records. This update offers five conclusions from different viewpoints about the amendments and then summarizes the new laws below. Readers are encouraged to consult the official text of the statutes for details.  

Five Takeaways from the Amendments

1. For officers, directors and controlling stockholders, New Section 144 offers a map for navigating an interested director, officer or controlling stockholder transaction into the statutory safe harbor.
2. For non-controlling stockholders who do not approve an interested transaction, key questions under New Section 144 are whether an approval of the transaction by a board, committee or stockholder majority satisfies the statutory requirements of disinterestedness, whether the approval is based on knowledge of all the material facts, and as to stockholder approval, whether it was uncoerced. Under the new law, a board or committee approving an interested transaction must still act in good faith, and with due care and loyalty. A dissenting stockholder may still challenge an approved transaction for failure to comply with the DGCL or other positive law, or the corporation’s charter or bylaws. If the transaction is not approved under the new law, it remains subject to entire fairness review, Delaware’s most onerous standard.
3. For corporate counsel, New Section 144 will likely lead to increased scrutiny of
   (a) relationships between and among board candidates, members, officers and controlling stockholders; (b) the corporation’s disclosure materials created when seeking approval of interested transactions; (c) the process leading to that approval; and (d) counting of votes and consents depending on differing views of board, committee and stockholder disinterestness.
4. For corporate litigators, apart from the first three takeaways being of interest, the new books and records statute has the potential to effect a major change in the scope of an initial motion to dismiss. Under the new law, the corporation may condition the stockholder’s access to corporate records on the stockholder’s agreement that any information included in the produced records is deemed incorporated into the stockholder’s complaint. As a result, a defendant in such an action may move to dismiss the stockholder’s claims at the outset of the case based on potentially many facts that the stockholder omitted from the complaint. The effect of such a practice remains uncharted waters for now.
5. For all interested in or affected by the amendments, they took effect on March 25, 2025 and apply retroactively except to (a) cases already filed before that date and (b) demands for books and records made on or before February 17, 2025.

Interested Director or Officer Transactions.

An interested director or officer transaction is one (a) where the director or officer essentially stands on both sides of the deal, that is, the transaction involves the corporation or one or more of its subsidiaries, on one hand, and one or more of its officers or directors (or their affiliates), on the other hand, or (b) where the director or officer would benefit from the transaction in a way not shared by the corporation or the stockholders generally.

Safe Harbor for Interested Director or Officer Transactions. Under New Section 144, an interested director or officer transaction may not form the basis of a fiduciary duty claim for equitable relief or money damages against an officer or director of a corporation if any one of three criteria is satisfied:

1. A disinterested board majority or committee validly approved the transaction.
2. The stockholders validly approved the transaction.
3. The transaction is fair to the corporation and its stockholders.

Board Approval of Interested Director or Officer Transactions. For board or committee approval to qualify for the safe harbor, a majority of the disinterested directors^[2] on the board or a disinterested board committee must authorize the transaction. They must do so in good faith, without gross negligence and after the material facts are disclosed to the full board of directors or committee.^[3]

New Section 144 adds three other points of clarification:

1. In the case of board approval, if it satisfies the requirements of Section 144(a)(1), the safe harbor applies even if the disinterested board members who authorized the transaction comprised less than a quorum of the board.^[4]
2. Interested directors count toward satisfying the quorum requirement for board approval of the transaction at a board meeting.^[5]
3. If the majority of the directors is not disinterested as to the transaction in question, then a committee of at least two directors whom the board^[6] has determined to be disinterested as to the transaction may approve the transaction.^[7]

Stockholder Approval or Ratification of Interested Director or Officer Transaction. For stockholder approval or ratification of an interested director or officer transaction to qualify for the safe harbor, a majority of the votes cast (as opposed to a majority of outstanding shares) by the disinterested shareholders^[8] must approve the transaction or ratify it after the fact. The vote must be informed by the material facts and uncoerced.^[9]

Fairness as to the Corporation. Independently of valid board, committee or stockholder approval of an interested director or officer transaction, the safe harbor will apply to exculpate the directors or officers if the transaction is fair as to the corporation and its stockholders.^[10] The Synopsis to the amendments notes that this prong of the safe harbor “is intended to be consistent with the entire fairness doctrine developed in the common law.”  

Controlling Stockholder Transactions

A controlling stockholder transaction is one (a) where the controller essentially stands on both sides of the deal, that is, the transaction is between the corporation or one or more of its subsidiaries, on the one hand, and a controlling stockholder or a control group (or its or their affiliates or associates), on the other hand, or (b) a transaction from which a controlling stockholder or a control group (or its or their affiliates or associates) receives a financial or other benefit not shared with the corporation’s stockholders generally.^[11]

The Act defines a controlling stockholder as any person who either:

1. Owns or controls a majority in voting power of the outstanding stock entitled to vote to elect directors generally or to elect the directors who have majority voting power.
2. Has the right to nominate and cause the election of majority of the voting power of the board.
3. Owns at least one-third of the voting power of the outstanding stock and has the power to exercise managerial authority over the business and affairs of the corporation.^[12]

Safe Harbor for Controlling Stockholder Transactions. A controlling stockholder transaction may not form the basis of a claim for breach of fiduciary duty seeking equitable relief or money damages against an officer, director or controlling stockholder (or member of a control group) if any one of three criteria is satisfied:

1. A disinterested board committee, properly delegated authority to negotiate and reject the transaction, validly approved the transaction.
2. The transaction was, by its express terms, pre-conditioned on approval or ratification by disinterested stockholders, who then validly approved the transaction.
3. The transaction is fair as to the corporation and its stockholders.

Committee Approval of Controlling Stockholder Transaction. For committee approval of a controlling stockholder transaction to qualify for the safe harbor, a majority of the disinterested directors serving on the committee must approve the transaction. They must do so in good faith and without gross negligence after the material facts as to the controller’s interest and the transaction are disclosed to the full committee. The committee must also (a) include two or more members whom the board has deemed disinterested with respect to the transaction and (b) have received expressly delegated authority from the board to negotiate and reject the transaction.^[13]

Stockholder Approval of Controlling Stockholder Transactions. For stockholder approval or ratification of a controlling stockholder transaction to qualify for the safe harbor, a majority of the votes cast by the disinterested shareholders must approve or ratify the transaction. The stockholder vote must be based on an informed, uncoerced vote and the transaction must have been expressly pre-conditioned on such approval or ratification when submitted to the stockholders for consideration.^[14]

Going Private Transactions. A controlling shareholder transaction that constitutes a going private transaction falls within the statutory safe harbor if (a) it receives the required committee and shareholder approval; or (b) it is fair as to the corporation and its shareholders.^[15]

Availability of Non-Fiduciary Claims Challenging Interested Director or Officer Transactions and Controlling Stockholder Transactions. Stockholders may continue to bring claims for equitable relief based on interested director or officer transactions or controlling stockholder transactions where:

1. The approval of the transaction fails to satisfy the procedures set forth in New Section 144.
2. The transaction violates the corporation’s charter or bylaws.
3. The transaction violates any plan, agreement or governmental order to which the corporation is subject.^[16]

Books and Records Amendments

New Section 220 narrows the scope of books and records actions to nine categories of mostly board-level books and records that a stockholder may inspect:

1. The certificate of incorporation, including a copy of any agreement or other instrument incorporated by reference in the certificate of incorporation.^[17]
2. The current bylaws, including a copy of any agreement or other instrument incorporated by reference in the bylaws.
3. Minutes of all meetings of stockholders and the signed consents evidencing all action taken by stockholders without a meeting, in each case for the three years preceding the date of the books and records demand.
4. All written communications to stockholders at large within the three years preceding the date of the books and records demand.
5. Minutes of any meeting of the board of directors or any committee of the board of directors and records of any action of the board of directors or any such committee.
6. Materials provided to the board of directors or any committee of the board of directors in connection with actions taken by the board of directors or any such committee.
7. Annual financial statements of the corporation for the three years preceding the date of the books and records demand.
8. Any agreement entered into under § 122(18) of this title.^[18]
9. Director and officer independence questionnaires.

In any proceeding brought by a stockholder under Section 220 to compel the inspection of book and records, the Court of Chancery may not order the corporation to produce any records of the corporation other than the above nine categories, unless the stockholder also shows a compelling need for them to further the stockholder’s purpose and that specific records are necessary and essential to further that purpose.^[19]

Stockholders must satisfy three requirements for inspecting corporate books and records:

(1) The demand must be made in good faith and for a proper purpose.^[20]

(2) The demand must describe the stockholder’s purpose and the requested books and records with reasonable particularity.

(3) The books and records sought must be specifically related to the stockholder’s purpose.

If the stockholder meets these three requirements, Section 220 also authorizes the corporation to impose three types of restrictions on the stockholder’s access to corporate records.

First, the corporation may “impose reasonable restrictions on the confidentiality, use or distribution of books and records and may require, as a condition to producing books and records to a stockholder,” including by requiring the stockholder to sign a reasonable confidentiality agreement.^[21]  

Second, the corporation may require the stockholder to agree that “any information included in the corporation’s books and records is deemed incorporated by reference in any complaint filed by or at the direction of the stockholder in relation to the subject matter referenced in the demand.”^[22]

Third, the corporation may redact portions of any books and records produced to such stockholder if those portions are not specifically related to the stockholder’s purpose.

Other Recent Legislative Activity.

On February 17, 2024, the Delaware Senate passed Concurrent Resolution 17 (SCR 17), requesting that the Council of the Corporate Law Section of the Delaware State Bar Association prepare a report of recommendations by March 31, 2025, for legislative action regarding a potential cap on attorneys’ fee awards in cases claiming a corporate benefit or common fund for stockholders. The Senate noted its view that “there are legitimate concerns about whether excessive attorneys’ fees have been awarded in cases claiming a corporate benefit or common fund for stockholders and whether recurring stockholder litigation has become unproductive for investors and corporations.”  

As of the date of this update, no further legislative action has been taken on SCR 17.

For questions or more information about the recent amendments, please contact Tom Ayala or Alyssa Radovanovich.

Co-author Tom Ayala is a partner in the Litigation Department. Co-author Alyssa Radovanovich is an associate in the Bankruptcy & Restructuring Department.

*************

[1] https://news.delaware.gov/2025/03/26/governor-meyer-signs-sb21-strengthening-delaware-corporate-law/

[2] “Disinterested Director” means one “who is not a party to the act or transaction and does not have a material interest in the act or transaction or a material relationship with a person that has a material interest in the act or transaction.” Section 144(e)(4). The fact that an interested person as to a transaction has nominated, designated or voted for a director does not, by itself, render the director disinterested. “Material interest” means “an actual or potential benefit, including the avoidance of a detriment, other than one which would devolve on the corporation or the stockholders generally, that (i) in the case of a director, would reasonably be expected to impair the objectivity of the director’s judgment when participating in the authorization or approval of the act or transaction at issue and (ii) in the case of a stockholder or any other person (other than a director), would be material to such stockholder or such other person.” Section 144(e)(7). “Material relationship” means “a familial, financial, professional, employment, or other relationship that (i) in the case of a director, would reasonably be expected to impair the objectivity of the director’s judgment when participating in the authorization or approval of the act or transaction at issue and (ii) in the case of a stockholder, would be material to such stockholder.” Section 144(e)(8).

[3] When determining whether to approve the interested transaction, the members of the board or committee continue to have fiduciary duties. See generally Solak v. Mountain Crest Cap. LLC, No. 2023-0469-SG, 2024 WL 4524682, at *6 (Del. Ch. Oct. 18, 2024) (“Directors of Delaware corporations owe duties of care and loyalty to the entity and its stockholders. [T]he duty of loyalty mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally.”) (citations omitted). The Synopsis to the Amendments adds that New Section 144 “provides that any approval or recommendation, as applicable, of disinterested directors or a disinterested director committee must be made in good faith and without gross negligence, making clear that the statute does not displace the common law requirements regarding core fiduciary conduct as contemplated by cases such as Flood v. Synutra International, Inc., 195 A.3d 754 (Del. 2018), and In re MFW Shareholders Litigation, 67 A.3d 496 (Del. Ch. 2013), aff’d sub nom., Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014).

[4] Under Section 141, a “majority of the total number of directors shall constitute a quorum for the transaction of business unless the certificate of incorporation or the bylaws require a greater number. Unless the certificate of incorporation provides otherwise, the bylaws may provide that a number less than a majority shall constitute a quorum which in no case shall be less than ⅓ of the total number of directors. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors unless the certificate of incorporation or the bylaws shall require a vote of a greater number.” 8 Del. C. § 141.

[5] Section 144(d)(1).

[6] “The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors unless the certificate of incorporation or the bylaws shall require a vote of a greater number.” 8 Del. C. § 141.

[7] Section 144(a)(1). The level of judicial deference to a board’s determination of disinterestness will likely be the subject of litigation.

[8] “Disinterested stockholder” means “any stockholder that does not have a material interest in the act or transaction at issue or a material relationship with any person that has a material interest in the act or transaction.” Section 144(e)(5).

[9] Section 144(a)(2).

[10] Section 144(a)(3). “Fair as to the corporation” means “the act or transaction at issue, as a whole, is beneficial to the corporation, or its stockholders in their capacity, as such given the consideration paid to or received by the corporation or its stockholders or other benefit conferred on the corporation or its stockholders and taking into appropriate account whether the act or transaction meets both of the following: a. It is fair in terms of the fiduciary’s dealings with the corporation. b. It is comparable to what might have been obtained in an arm’s length transaction available to the corporation.” Section 144(e)(6).

[11] “Controlling stockholder transaction” means an act or transaction between the corporation or 1 or more of its subsidiaries, on the one hand, and a controlling stockholder or a control group, on the other hand, or an act or transaction from which a controlling stockholder or a control group receives a financial or other benefit not shared with the corporation’s stockholders generally. Section 144(e)(3).

[12] Section 144(e)(2). A “control group” means two or more persons that are not each individually a controlling shareholder but together control majority voting and, by virtue of an agreement, arrangement or understanding between or among them, constitute a “controlling stockholder.” Section 144(e)(1).

[13] Section 144(b)(1).

[14] Section 144(b)(2). As noted, the safe harbor will apply to exculpate the directors, officers, or controlling shareholders in a controlling stockholder transaction if the transaction is fair as to the corporation and its stockholders. Section 144(b)(3). The amendments also eliminate controlling stockholders’ liability for money damages based on a breach of the duty of care, but not the duty of loyalty, acts done in bad faith or knowing violations of law, or transactions from which the person derived an improper personal benefit (not falling within the safe harbor). Section 144(d)(5).

[15] “Going private transaction” means: “a. For a corporation with a class of securities registered under § 12(d) or 15(g) of the Securities Exchange Act of 1934 or listed on a national securities exchange, a 13e-3 transaction (as defined in 17 CFR § 240.13e-3(a)(3) or any successor provision); and b. For any other corporation not subject to paragraph (e)(7)a. of this section, any controlling stockholder transaction, whether by merger, consolidation, amendment, tender or exchange offer, conversion, transfer, domestication or continuance, pursuant to which all or substantially all of the shares of capital stock held by the disinterested stockholders (but not those of the controlling stockholder or control group) are cancelled or acquired.” Section 144(e)(7).

[16] Section 144(d)(6). This subsection also states that nothing in New Section 144 shall limit “judicial review for purposes of injunctive relief of provisions or devices designed or intended to deter, delay, or preclude a change of control or other transaction involving the corporation or a change in the composition of the board of directors” or limit or eliminate “the right of any person to seek relief on the grounds that a stockholder or other person knowingly aided and abetted a breach of fiduciary duty by one or more of the directors of the corporation.”

[17] “The term “certificate of incorporation,” as used in this chapter, unless the context requires otherwise, includes not only the original certificate of incorporation filed to create a corporation but also all other certificates, agreements of merger or consolidation, plans of reorganization, or other instruments, howsoever designated, which are filed pursuant to § 102, §§ 133-136, § 151, §§ 241-243, § 245, §§ 251-258, §§ 263-264, § 267, § 303, §§ 311-313, or any other section of this title, and which have the effect of amending or supplementing in some respect a corporation’s certificate of incorporation.” 8 Del. C. § 104.

[18] Section 122(18) states as follows: “Every corporation created under this chapter shall have power, whether or not so provided in the certificate of incorporation, to . . . Notwithstanding § 141(a) of this title, make contracts with 1 or more current or prospective stockholders (or 1 or more beneficial owners of stock), in its or their capacity as such, in exchange for such minimum consideration as determined by the board of directors (which may include inducing stockholders or beneficial owners of stock to take, or refrain from taking, 1 or more actions); provided that no provision of such contract shall be enforceable against the corporation to the extent such contract provision is contrary to the certificate of incorporation or would be contrary to the laws of this State (other than § 115 of this title) if included in the certificate of incorporation. Without limiting the provisions that may be included in any such contracts, the corporation may agree to: (a) restrict or prohibit itself from taking actions specified in the contract, (b) require the approval or consent of 1 or more persons or bodies before the corporation may take actions specified in the contract (which persons or bodies may include the board of directors or 1 or more current or future directors, stockholders or beneficial owners of stock of the corporation), and (c) covenant that the corporation or 1 or more persons or bodies will take, or refrain from taking, actions specified in the contract (which persons or bodies may include the board of directors or 1 or more current or future directors, stockholders or beneficial owners of stock of the corporation). Solely for purposes of applying the proviso in the first sentence of this subsection, a restriction, prohibition or covenant in any such contract that relates to any specified action shall not be deemed contrary to the laws of this State or the certificate of incorporation by reason of a provision of this title or the certificate of incorporation that authorizes or empowers the board of directors (or any 1 or more directors) to take such action. With respect to all contracts made under this paragraph (18), the corporation shall be subject to the remedies available under the law governing the contract, including for any failure to perform or comply with its agreements under such contract.”

[19] Section 220(e).

[20] “Proper purpose” means “a purpose reasonably related to a stockholder’s interest as a stockholder.” Section 220(a)(2).

[21] Section 220(b)(3).

[22] Id.