Delaware's 2025 DGCL amendment

Business Journals

06-06-2025

In March 2025, Delaware enacted significant amendments to the Delaware General Corporation Law (DGCL). These amendments, enacted through Senate Bill 21 (SB 21) and signed into law by Gov. Matt Meyer on March 25, 2025, substantively modify the safe harbor provisions for interested transactions and refine the scope of stockholder inspection rights. We analyze these critical changes and their practical implications for Delaware corporations, their boards and stockholders.
Background and context
The amendments were passed by the Delaware legislature in response to a concerning trend of corporations redomesticating to other states. The law took effect immediately upon the governor's signature and represents Delaware's proactive effort to maintain its position as the premier state for corporate domicile by providing greater statutory clarity in areas previously defined primarily through case law.
Section 144: Comprehensive safe harbor framework
Defining the 'controlling stockholder'
The amendments provide a statutory definition of a 'controlling stockholder' as one who:
Owns or controls a majority of voting stock entitled to vote in director elections
Can appoint directors with majority voting power, or
Has equivalent control by holding at least 33.33% of the corporation's voting stock and managerial authority over the corporation
Three distinct safe harbor paths
The amendments establish differentiated approval requirements for interested transactions based on the specific conflict scenario:
1. Majority interested board safe harbor
For transactions involving a majority interested board, the amendments provide a safe harbor from both equitable relief and damages liability through either:
Approval by an independent committee comprising at least two disinterested directors, or
Approval or ratification by a majority of the votes cast by disinterested stockholders
Notably, the director safe harbor no longer requires conditioning approval before the start of substantive economic negotiations, though the board must determine all committee members are disinterested. For stockholder approval, the 'votes cast' standard replaces the previous 'outstanding' shares standard.
2. Conflicted controller/non-go-private transactions
For transactions where a controlling stockholder has a conflict but is not taking the company private:
Safe harbor is available through either:
Approval by an independent committee comprising at least two disinterested directors, or
Approval or ratification by a majority of the votes cast by disinterested stockholders
This effectively overrules prior case law requiring both protections for such transactions.
3. Conflicted controller / go-private safe harbor
For transactions where a controlling stockholder is taking the company private:
Safe harbor requires both:
This codifies the dual-protection framework from Kahn v. M&F Worldwide Corp. (MFW) while eliminating the 'ab initio' requirement that these protections be implemented before the start of substantive economic negotiations.
Enhanced protection for public company directors
The amendments create a strong presumption that directors of public companies are disinterested and independent if they meet stock exchange independence definitions. This presumption:
Does not apply if the director is a party to the transaction
Can only be rebutted by 'substantial and particularized facts'
The amendments also limit controller liability to breaches of loyalty or improper benefits, shielding controlling stockholders from damages for breaches of the duty of care in their capacity as controllers.
Section 220: Refining stockholder inspection rights
Statutory definition of 'books and records'
The amendments provide a statutory definition of 'books and records' to establish clearer boundaries for stockholder inspection rights, including:
Enhanced requirements for inspection
SB 21 also institutes more structured requirements for books and records inspections:
Demands must be conducted in good faith
Proper purpose must be described with reasonable particularity
Requested records must be specifically related to the stockholder's proper purpose
Additionally, the amendments codify that corporations can impose reasonable confidentiality restrictions, limiting the use and distribution of inspected records and redacting irrelevant information.
Limited expansion provision
Unlike the original bill, the enacted amendments permit the inspection of materials beyond those covered by the 'books and records' definition if a stockholder:
Makes a showing of a compelling need for inspection to further a proper purpose, and
Demonstrates by clear and convincing evidence that such specific records are necessary and essential to further such purpose
This balanced approach is designed to preserve meaningful inspection rights while providing companies with greater certainty about the scope of potential demands.
Practical implications
For corporate governance:
Strategic flexibility in transaction planning: The amendments provide multiple pathways to cleanse conflicted transactions based on the nature of the conflict, enhancing flexibility in transaction structuring.
Greater certainty for boards: The presumption of independence for public company directors who meet exchange requirements reduces litigation risk in board decision-making.
Protection for controllers: Limiting controller liability to breaches of loyalty or improper benefits shields controlling stockholders from damages for breaches of the duty of care.
Streamlined approval processes: Removal of the 'ab initio' requirement and other timing constraints allows more practical implementation of protective measures.
For transaction planning:
Clearer standards: The 33.33% threshold for controlling stockholder status provides a bright-line rule.
Tailored approval paths: Different cleansing options based on transaction type allow more efficient governance approaches.
Special committee requirements: Committees must include at least two directors determined to be disinterested and fulfill their duty of care.
Modified stockholder approval standard: The shift to a 'votes cast' standard from 'outstanding shares' may make stockholder approval more attainable.
For stockholder rights:
More defined inspection scope: The statutory definition of 'books and records' provides both corporations and stockholders with greater clarity.
Balanced protection: While defining limits to inspection rights, the amendments preserve access to additional records when stockholders can demonstrate compelling need.
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With nearly 140 years of service, King & Spalding is an international law firm that represents a broad array of clients, including half of the Fortune Global 100, with 1,300 lawyers in 24 offices in the United States, Europe, the Middle East and Asia.
Rob Leclerc works with publicly traded and private companies as well as private equity firms to execute mergers and acquisitions, strategic investments, joint ventures and other complex transactions. Leclerc is a partner in our Mergers and Acquisitions and Corporate Governance practices.
Zack Davis specializes in representing issuers and underwriters in a variety of capital markets activities in the U.S. and abroad. He also advises a number of public companies in connection with governance issues, SEC reporting and disclosure requirements and other corporate and securities matters.