On March 25, 2025, the Delaware legislature and Governor enacted landmark amendments to the Delaware General Corporation Law that will have significant impacts for Delaware corporations and transaction planning. The amendments respond to recent concerns over Delaware law that had arisen in the market and should, in our view, restore the stability, predictability, and balance that long characterized Delaware law. The Delaware Governor and legislative leaders announced the underlying legislation on February 17, 2025, and the Delaware legislature acted swiftly and decisively to ensure that Delaware law remains workable for its various constituents.
The amendments effect various changes:
- They provide definition around what it means to be a controlling stockholder in response to case law that had made that question indeterminate. Now, essentially, a controlling stockholder must either 1) possess a majority stake or elect a majority of the board of directors or 2) possess one-third of the stockholder voting power and the power to exercise managerial authority.
- They provide clear mechanisms for cleansing conflicts of interest involving controlling stockholders, directors, and officers so that companies can plan transactions with predictability and avoid protracted litigation while still acting responsibly for their investors.
- They provide that controlling stockholder conflicts of interest can be cleansed either through an independent board committee or through a disinterested stockholder vote, unless the transaction at issue constitutes a going-private transaction, in which case both protections are required to retain the protection of the deferential business judgment rule.
- They provide a “heightened” presumption that public company directors deemed independent under stock exchange rules are also disinterested for Delaware law purposes, unless a plaintiff pleads substantial and particularized facts that a director has a material interest in a transaction or a material relationship with a conflicted party.
The amendments also revise Delaware’s statute that allows stockholders with a proper purpose to inspect books and records of the corporation. The amendments limit that right to core books and records of the corporation, such as the charter, bylaws, annual financial statements, and board minutes and accompanying board records, unless a stockholder shows a compelling need for other records, or a corporation fails to maintain certain categories of information and other records are necessary and essential to the stockholder’s purpose.
The amendments are immediately effective and apply to all prior and future acts and transactions, except that the amendments do not apply to court proceedings that were pending or completed on or before February 17, 2025, or to stockholder demands to inspect books and records made on or before that date.
Finally, one other legislative effort remains pending: the Delaware legislature asked the Corporation Law Council of the Delaware State Bar Association—a Delaware body of expert practitioners that develops new legislation—to assist with studying whether legislative reforms may be needed to appropriately address the size and frequency of plaintiffs’ attorney fee awards in stockholder litigation.
For the last century, the market has relied on Delaware as the home of many corporations as a result of Delaware’s expert and nimble courts, state-of-the-art statute, thoughtful legislature, responsive Secretary of State’s office that handles corporate filings and other matters, familiarity to market actors, and deep understanding of the importance of providing up-to-date, balanced, and sophisticated corporate law. The new amendments keep with that tradition and are designed to ensure that while investors still have meaningful protections, corporations can structure their businesses and make decisions with clarity and without unnecessary litigation.
