On March 25, 2025, Delaware Governor Matt Meyer signed Senate Bill 21 into law, effecting significant changes to the General Corporation Law of the State of Delaware (DGCL), the statutory law governing Delaware corporations. With over two-thirds of Fortune 500 companies domiciled in Delaware, it continues to be the preferred state of incorporation for businesses drawn to its modern statutory law, renowned Court of Chancery, and developed case law.
Consequently, below are three major takeaways for businesses incorporated in Delaware or individuals involved with a Delaware corporation—as a director, officer, or stockholder—here are three major takeaways:
1. Procedural Safe Harbor Cleansing Related Party Transactions
Under Delaware corporate law, related party transactions involving a fiduciary, such as where a director of a corporation stands on both sides of a transaction, are potentially subject to the entire fairness standard of review. This onerous standard of reviewing a fiduciary’s actions in certain conflicted transactions places the burden on the fiduciary to prove that the self-dealing transaction was fair—both in terms of the process (fair dealing) and substantive (fair price)—given corporate law theory that the fiduciary’s interests may not be aligned with maximizing stockholder value.
Senate Bill 21 establishes a safe harbor pursuant to Section 144 of DGCL for these conflicted transactions (other than take-private transactions) if the transaction is approved by either:
- A majority of the disinterested members of the board or
- A majority of the votes are cast by the disinterested stockholders—in each case, subject to certain additional requirements. Consequently, if transactional planners and corporations follow the new procedural safe harbor when entering certain related party transactions, they greatly minimize the likelihood of a successful challenge of any breach of fiduciary duty claim against the corporation’s board.
2. Limiting Who Qualifies as a Controlling Stockholder
Prior to the enactment of Senate Bill 21, whether a stockholder was a “controlling stockholder” and was therefore subject to certain rules under Delaware corporate law, was not set forth in DGCL. Rather, Delaware case law helped transactional planners to determine if a stockholder would be treated as such.
Senate Bill 21 codifies the definition of this term in Section 144 of DGCL. Under the revised Section 144, a “controlling stockholder” is a stockholder who:
- Controls a majority in voting power of the outstanding stock entitled to vote generally in the election of directors;
- Has the right to control the election of directors who control the board; or
- Has the functional equivalent of majority control by possessing at least one-third in stockholder voting power and power to exercise managerial authority over the business of the corporation. This update provides transactional planners and corporations with clear guidelines over who qualifies as a controlling stockholder.
3. Narrowing Stockholder Information Rights
Over the past years, many Delaware corporations have been subject to an increasing number of “Section 220 demands” and related litigation that is often expensive for corporations to handle. Section 220 of DGCL provides stockholders with a statutory right to inspect a corporation’s books and records if the stockholder satisfies certain requirements.
Senate Bill 21 amends Section 220 of DGCL by narrowing what books and records of a corporation the stockholder is generally entitled to review after satisfying certain requirements. Specifically, the term “books and records,” as defined in Section 220 of DGCL, is now limited to certain organizational and financial documents of the corporation, including its annual financial statements for the preceding three years, board minutes, stockholder communication, and other formal corporate documents. Additionally, a stockholder’s demand must describe with “reasonable particularity” its purpose and requested books and records, and such books and records must be “specifically related” to the proper purpose.
In summary, Senate Bill 21’s amendments to DGCL give transactional planners and corporations additional clarity over cleansing conflicted transactions, who qualifies as a controlling stockholder, and the books and records a stockholder may access under Section 220. If you have questions about how the amendments to DGCL impact your Delaware corporation’s actions, reach out to a member of Varnum’s Securities and Capital Markets Practice Team.
