On March 25, 2025, significant amendments to the General Corporation Law of the State of Delaware (the DGCL), intended to provide greater certainty to transaction planners in light of recent Delaware case law developments, were adopted by the Delaware General Assembly and signed into law by Governor Matt Meyer.
As noted in our prior blog post, the amendments proposed on February 17, 2025 by the Delaware General Assembly were intended to address a number of high-profile corporations threatening to redomicile out of Delaware, citing excessive litigation risks. Both the General Assembly and the Governor moved swiftly to maintain Delaware’s position as the preeminent jurisdiction for corporate formations by providing clearer, more predictable rules for companies navigating complex governance matters.
Key aspects of the legislation include:
- Amendments to Section 144. Section 144 of the DGCL governs transactions involving interested parties. The legislation amends Section 144 of the DGCL to provide safe harbor procedures for acts or transactions involving corporations and their directors, officers and controlling stockholders who may have interests or relationships rendering them interested or not independent. The amendments also provide greater clarity around the definition of a “controlling stockholder” and determining with greater certainty the independence of directors.
- Safe Harbors for Controlling Stockholders (Other than Going Private Transactions). Under new Section 144(b) of the DGCL, a controlling stockholder transaction that does not constitute a going private transaction may comply with the safe harbor protections from both equitable relief and damages liability if it is either (i) approved by an independent board committee consisting of at least two directors, or (ii) approved or ratified by a majority of the votes cast by the corporation’s disinterested stockholders.
- Definition of a Controlling Stockholder. The amendments provide greater guidance in determining whether a stockholder should be deemed a “controlling stockholder,” limiting the definition of a “controlling stockholder” to a person who (i) controls a majority in voting power of the outstanding stock entitled to vote generally in the election of directors, (ii) has the right to control the election of directors comprising a majority of the board’s voting power, or (iii) possesses power functionally equivalent to that of majority control by both controlling at least one-third in voting power of the outstanding stock entitled to vote in the election of directors and exercising managerial authority over the business and affairs of the corporation.
- Director Independence Determinations. Importantly, the amendments to Section 144 also codify a higher presumption of independence for directors deemed by the board of directors to be independent with respect to an act or transaction under the rules of a national stock exchange, resolving a long-standing inconsistency between independence definitions set forth by national stock exchanges and Delaware case law.
- Safe Harbors for Directors and Officers. Certain acts or transactions will be protected if they are approved or recommended by a majority of disinterested directors, either serving on a board of directors or a committee thereof, or if the act or transaction is approved by a majority of the votes cast by the corporation’s disinterested stockholders, in each case upon disclosure of the material facts giving rise to the conflict. To the extent a majority of directors serving on the board are not disinterested, any approval or recommendation must be secured through a committee of disinterested directors.
- Amendments to Section 220. The legislation amends Section 220 of the DGCL to limit a stockholder’s right to inspect the “books and records” of a corporation, often for the purpose of securing corporate records supporting potential litigation claims. Section 220 as amended limits the term “books and records” to formal corporate documents, including board and stockholder meeting minutes and related board materials and stockholder disclosures made within the past three years, director and officer questionnaires, and annual financial statements from the prior three years. In order to secure access to informal corporate materials, such as internal emails, a stockholder will be subject to a heightened showing that (i) the stockholder met the statutory demand requirements, (ii) there is a compelling reason to conduct the inspection for a proper purpose and (iii) the stockholder demonstrated by clear and convincing evidence that the specific records are necessary and essential to the proper purpose. We will provide further updates as the Delaware judiciary implements the recent amendments, and also examine in a future post the safe harbor procedures specified for controlling stockholder going private transactions.
