Delaware lawmakers to vote on corporate law overhaul in face of criticism

Reuters

20-03-2025

WILMINGTON, DEL., March 20 (Reuters) - Delaware lawmakers are expected to vote to overhaul the state's corporate law on Thursday to protect its business-friendly reputation, but opponents have called the bill a giveaway to billionaires.
The bill makes it hard for investors to sue over certain transactions involving controlling shareholders, such as buying a controlling shareholder's business, if the deal follows certain steps. It also applies to deals with board members and executives, but will not impact existing rules for a takeover of the company by the controlling shareholder.
Attorneys who represent shareholders have dubbed the proposal "the billionaire's bill" and have launched a public campaign against it, politicizing the normally sleepy annual process of tweaking the corporate code.
The bill, known as SB 21, comes as a trickle of companies leaving Delaware raised concerns of a "DExit" stampede out of one of the country's smallest and least populated states. While other states are trying to attract incorporations, Delaware still remains home to most large public companies and related fees generate 20% of its budget revenue.
Several companies, mostly with controlling shareholders, have said they might or will leave Delaware, including Dropbox (DBX.O), opens new tab, Meta Platforms, opens new tab (META.O), opens new tab, TripAdvisor (TRIP.O), opens new tab and President Donald Trump's media company.
The state's senate approved the bill last week and Governor Matt Meyer has said he will sign it.
Amy Simmerman, a corporate lawyer in Wilmington, told the Delaware House Judiciary Committee, which approved the bill on Wednesday, that she has 15 significant corporate clients that she declined to identify which were considering leaving the state. "This is serious," she told lawmakers. "I don't think it's just bluffing."
Under the proposed bill, if a deal is approved by a board committee that has a majority of independent directors or by a vote by public shareholders, investors cannot challenge it in court. Currently, litigation can only be avoided if both steps are used and the committee must be entirely made up of independent directors.
The bill also makes it harder to challenge whether a director is independent. It defines "controlling shareholder" and limits records available to shareholders who want to investigate a deal for conflicts.
At Wednesday's committee hearing, lawmakers focused largely on the risk of companies leaving Delaware. Witnesses included corporate lawyers, law professors and a former judge on the state's Court of Chancery, its business court, and mostly spoke in support of the bill.
Public comment was dominated by opposition from attorneys who represent shareholders, who said they were excluded from the drafting process. They described the changes as radical, rushed and corrupt.
Joel Fleming, who represents shareholders, told lawmakers the bill was a result of lobbying by Meta Platforms and would protect its CEO and controlling shareholder Mark Zuckerberg from potential liability that shareholders are currently investigating. CNBC published documents on Wednesday it obtained from an open records request showing that the governor met with Meta officials in the weeks leading up the bill be proposed.
"Those claims may now be dead," Fleming told the lawmakers. "This is appalling."
The governor's spokeswoman Mila Myles said the governor met with Meta representatives to discuss corporate law but said the company did not lobby for the bill. She said the governor has been "meeting with everyone" so the state remains a global leader.
Meta declined to comment.
Corporate leaders have expressed frustration in recent years over court rulings that upset certain expectations about the state's law. Elon Musk fueled the debate last year by urging companies to follow Tesla (TSLA.O), opens new tab and leave the state after a Delaware judge rescinded his $56 billion pay package as CEO of the electric car maker.