Delaware Adopts Significant Changes to Its General Corporation Law

On March 25, 2025, Delaware Gov. Matt Meyer signed into law significant changes to the Delaware General Corporation Law. These amendments provide greater clarity in a number of important areas that had been the subject of common law development, and they underscore Delaware’s commitment to deferring to the decisions of informed and disinterested directors and stockholders. They also reflect the Delaware legislature’s ability to respond promptly to judicial and market developments, which is one of many reasons Delaware has been the incorporation destination of choice for many years.

Among other things, the amendments:

– Create Safe Harbors (§144(a-c))

• The amendments create statutory safe harbors for conflicted transactions involving fiduciaries, including controlling stockholders and control groups.
• They preclude equitable relief and eliminate damages claims against fiduciaries if certain cleansing mechanisms are deployed to moderate conflicts: (i) a properly informed and functioning special committee consisting of at least two disinterested directors and/or (ii) an informed, uncoerced vote of disinterested stockholders.
• Contrary to existing law (e.g., the Delaware Supreme Court’s 2024 decision in In re Match), the use of either of these cleansing mechanisms is generally protective for conflicted transactions. The exception under the new Delaware amendments is that, in a controller go-private transaction, both mechanisms must be used.
• These statutory cleansing mechanisms provide greater predictability than existing common law.
  • Common law requirements set forth in cases like MFW concerning (i) the timing and conditionality of these mechanisms, (ii) committee governance and composition and director disinterestedness, and (iii) voting standards for a disinterested stockholder vote have changed in a manner that is expected to provide more clarity and certainty that the safe harbors will attach as transaction planners intend.
• If these cleansing mechanisms are not put in place, then alternatively fiduciaries may seek to prove that the act or transaction is entirely fair, consistent with existing law.

– Define “Controlling Stockholder” and “Control Group” (§144(e)(1)-(2))

• The amendments define who is a controlling stockholder (and control group) and provide that someone who fails to satisfy the definition cannot be found to be a controller.
• The amendments institute a one-third voting control floor applicable in most instances. This means that, often, an individual, entity, or group controlling less than one-third of the company’s voting power will not be a controller.

– Define “Disinterested Director” (§144(d)(2) and §144(e)(4), (7)-(8))

• The amendments also define “disinterested director,” along with related terms (e.g., “material interest” and “material relationship”).
• They further provide that if a board has determined that a director of a corporation with a class of stock listed on a national securities exchange is independent in accordance with applicable exchange rules (applied to the corporation or controlling stockholder as applicable), that creates a heightened presumption that he or she is a disinterested director. This presumption can be rebutted only by substantial and particularized facts.
• The mere fact that a director is nominated to the board by a stockholder does not, by itself, make that director interested in transactions involving the nominating stockholder.

– Provide for Controller Exculpation for Duty of Care Claims (§144(d)(5))

• The amendments exculpate a controlling stockholder or control group for monetary damages for breaches of the duty of care. At present, directors and officers may be exculpated for such claims via a provision in the corporation’s charter. This amendment extends that protection to controlling stockholders, with no charter amendment required.

– Narrow Books and Records Claims, While Preserving Access to Core Records (§220)

• Historically, Section 220 did not define the books and records subject to inspection by stockholders. Instead, this developed largely under case law.
• The amendments now define “books and records” to be certain core materials (e.g., board minutes). The Court of Chancery may order the corporation to produce records beyond this definition only if and to the extent that (i) the stockholder met the requirements for a demand, (ii) the stockholder made a showing of a compelling need for an inspection of such records to further its proper purpose, and (iii) the stockholder demonstrated by clear and convincing evidence that the specific records are necessary and essential to further the purpose.
• The amendments also specifically address safeguards to preserve the confidentiality of information produced in response to a Section 220 demand, whether through the redaction of non-responsive information or a confidentiality agreement.

– Apply to Post-February 17, 2025, Disputes or Demands

• The amendments became effective upon the Governor’s signature. As for retroactivity, the amendments apply to all acts or transactions whether occurring before, on, or after enactment. But, the amendments do not apply to actions, proceedings, or any demand to inspect books or records commenced or made on or before February 17, 2025 (the date that the first draft of the amendments became publicly available).

Taken together, the amendments reflect the empowerment of disinterested decisionmakers to protect investors, and thereby limit uncertainty and unnecessary litigation risk. Market participants need to take note of these important amendments and consider their implications with counsel.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.