Latest news with #DelawareGeneralCorporationLaw
Business Journals
06-06-2025
- Business
- Business Journals
Delaware's 2025 DGCL amendment
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. expand To learn more about King & Spalding's global M&A practice, please visit 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.
Yahoo
21-02-2025
- Business
- Yahoo
Elon Musk had his $100 billion Tesla pay package denied by Delaware courts twice. Now, one of the EV maker's law firms wants to change state law
More than two-thirds of the Fortune 500 is incorporated in Delaware, but Tesla CEO Elon Musk's criticism of the state's courts has coincided with other major companies leaving the state. A law firm that represented Tesla during Elon Musk's pay challenge has helped draft a bill that proponents say will prevent such an exodus, but critics allege the bill's expedited development lacks transparency. Tesla CEO Elon Musk believes the legal system in Delaware has prevented him from getting a fair payday, despite the state's reputation as the premier locale for incorporation due to its specialized business court, expert judges, and well-honed case law. In fact, about half of Russell 3000 companies have exclusive-forum bylaw provisions in place that explicitly require legal disputes involving the company to be litigated in Delaware rather than in a less-sophisticated and more hostile legal venue in another state. But, the court's opinion on Musk's moonshot pay package and his subsequent complaints about the state's jurisprudence have caught the attention of some lawmakers and legal experts. Musk brutally criticized a state judge who twice struck down his compensation package, now valued at nearly $100 billion. The electric vehicle maker has since reincorporated in Texas, but Musk's complaints directed a spotlight squarely at the Court of Chancery as well as the state's primary corporate statute, the Delaware General Corporation Law. Now, a law firm that represents both Musk and Tesla has helped draft a proposed amendment to state law as Delaware lawmakers race to convince other major companies to stay put. Roughly two-thirds of the Fortune 500 is incorporated in Delaware—the mecca of U.S. corporate law for more than a century—which generates billions in revenue for the state and has created a thriving legal industry that helps sustain the local economy. Tesla's departure, however, has led to fears about Musk sparking a wider corporate exodus. Bill Ackman recently said his activist hedge fund, Pershing Square, would reincorporate in either Texas or Nevada, two states trying to entice companies to relocate. Mark Zuckerberg's Meta is reportedly mulling a move to the Lone Star State, while companies like Dropbox and TripAdvisor are heading to Nevada. This month, Delaware Gov. Matt Meyer told Fortune in an interview that changes aimed at ensuring the state remains corporate America's go-to legal forum could be expected in the coming weeks and months. The former proved to be correct on Monday, when Delaware legislators introduced a bipartisan bill that would make several statutes more friendly to executives who are also controlling shareholders—like Musk, Zuckerberg, and Ackman. 'My sense and the governor's sense was that Delaware needed to do something very promptly,' said Lawrence Hamermesh, professor emeritus at Delaware Law School and one of the primary authors of the bill. Hamermesh developed the proposed changes with two of the state's most prominent former jurists: William Chandler, who formerly headed the state's Court of Chancery, the nation's leading court for handling corporate disputes. And Leo Strine, who also served as chancellor in the court before his tenure as chief justice in the Delaware Supreme Court. State Sen. Bryan Townsend, the bill's primary sponsor, said John Mark Zeberkiewicz, a director at law firm Richard, Layton & Finger, also took part as the group's 'scrivener' tasked with drafting the group's work. The firm, which served as counsel for Tesla during the pay package dispute, said its involvement was not on behalf of any specific client. 'As many have recognized, statutory changes are necessary to restore the core principles that have been the hallmark of Delaware for over a century and ensure that Delaware remains the preeminent jurisdiction for incorporation,' Lisa Schmidt, the firm's president, said in a statement. Tesla did not respond to a request for comment. Townsend, a Democrat and the state senate's majority leader, said the concerns addressed in the bill were not sparked by Musk's departure, even though he understands why people would connect the dots. 'We're not here to court him back,' Townsend said of the world's richest man. He and Hamermesh emphasized the new bill, titled Senate Bill 21, is not retroactive, meaning it can't overturn the decisions rescinding Musk's pay package. It's hard to establish that awarding executive compensation worth roughly $95 billion—the current value of the proposed package, based on Tesla's current share price around the $355 mark—is economically fair, Hamermesh said. 'I do resent efforts to suggest that this is all a sop to Republicans and Elon Musk,' Hamermesh said of the bill, 'because this ought to be supported, I think, by Democrats like me and Republicans alike.' Critics, however, say the process has lacked transparency. Typically, changes to Delaware corporate statutes are drafted, debated, and reviewed by the state bar's corporation law council before they are presented to legislators. Senate Bill 21, meanwhile, was authored by a small group of individuals largely unified in their viewpoints, said Charles Elson, founding director of the University of Delaware's Weinberg Center for Corporate Governance. He thinks the bill could weaken Delaware's hold on U.S. corporate law if institutional shareholders and other investors decide the state's safeguards for minority stockholders—like those who sued Musk—are now insufficient. More importantly, he thinks the bill greatly undermines the credibility of the state's courts. 'You're basically saying our courts are no good,' he said of the bill. 'That's why we're overruling them.' Backers of the bill, however, insist time was of the essence to make changes. Hamermesh noted that companies are currently writing their proxy statements to prepare for shareholder meetings in April, May, and June when potential stockholder votes to reincorporate could take place. Townsend said interviews with frustrated business leaders indicated more companies would leave if Delaware didn't act fast. 'An unprecedented exigent risk required an unprecedented expedited process,' he said. Introducing the bill a few weeks before the next legislative session, he added, gives time for the corporation law council to react. 'As with all legislation, this bill will go through the complete legislative process, and the Governor has asked the [corporation law council] to review it expeditiously,' Mila Myles, a spokesperson for Meyer, said in a statement. 'He looks forward to a final product that reflects the needs of a broad spectrum of stakeholders.' Michael Houghton, a former president of the state bar, said elements of Delaware's corporate law require prompt revision. Nonetheless, the bill's rapid development was unusual, he said. 'That does not mean that it is necessarily flawed,' said Houghton, who is currently of counsel to Morris Nichols Arsht & Tunnell and chairs a council that advises the governor on Delaware's finances. What Houghton does find abhorrent, however, is the personal attacks Musk and others have launched against Chancellor Kathaleen McCormick, who rescinded the Tesla CEO's pay package. While lawmakers may claim Musk has not influenced the bill, he has certainly turned up the heat on the Court of Chancery, which is typically characterized as exceedingly apolitical and technocratic. Phil Shawe, the CEO of translation company TransPerfect, has spent millions on ads bashing Delaware courts after a bruising legal battle with his former fiancée, who co-founded the company with him. Shawe confirmed that campaign finance records show he separately funded a $1.25 million political action committee during Meyer's 2024 gubernatorial campaign. Shawe said that money was mostly dedicated to criticizing Meyer's main primary opponent, then-lieutenant governor Bethany Hall-Long. 'Any time spent pushing for reform in the Delaware Chancery Court is time well spent,' Shawe said in a statement. Townsend, reiterating that Senate Bill 21 will not help either Musk or Shawe, said the attacks on McCormick and her predecessor have been unacceptable. 'Our courts are rightfully heralded for their work,' he said. He hopes the new bill will give businesses even more reason to stick This story was updated to reflect that Phil Shawe had a legal battle with his former fiancée. 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Yahoo
20-02-2025
- Automotive
- Yahoo
Tesla's law firm helps draft legislation that some experts say could restore Musk's $55B pay package
A law firm representing Elon Musk and Tesla helped draft legislation to overhaul Delaware's corporate law amid an ongoing court battle over Musk's multibillion-dollar compensation package from his electric car company, sources familiar with the matter confirmed to ABC News. The proposed state legislation would amend the Delaware General Corporation Law to ease the rules that determine whether a shareholder is deemed a "controller," a designation that blocked Musk from receiving a compensation plan of up to $55.8 billion from Tesla last year. Musk lost his compensation package -- reportedly the largest CEO compensation plan in public corporation history -- after being recognized as a "controller" of Tesla even though he held less than a third of the company's shares. MORE: Tesla shares have plunged while Musk takes on Washington. Is that the reason? Under the existing law, shareholders below the one-third threshold still receive the "controller" classification if they exert other avenues of control. In contrast, the proposed law would set a requirement that a shareholder hold at least a third of a company's shares in order to be deemed a "controller." Legal experts are divided on whether the proposed legislation, if enacted, could impact Musk's Tesla compensation package currently on appeal to the state's Supreme Court -- a point of contention that has arisen from the fact the bill lacks an explicit mention forbidding its application to pending cases. The law firm representing Musk and Tesla, Richards, Layton & Finger, confirmed to ABC News its involvement in drafting the legislation. The firm claimed the legislation, if enacted, would not be retroactive and suggested it would not impact Musk's case. The firm also said that its role in the process "was not on behalf of or otherwise influenced by any firm client," stressing that it was among a group of lawyers, professors and experts that helped draft the proposal and that the firm has played a major role in shaping Delaware's business statutes for more than 125 years. "As many have recognized, statutory changes are necessary to restore the core principles that have been the hallmark of Delaware for over a century and ensure that Delaware remains the preeminent jurisdiction for incorporation," Richards, Layton & Finger President Lisa Schmidt wrote in a statement to ABC News. The bill's sponsor, Delaware Democratic state Sen. Bryan Townsend, echoed the claim, telling ABC News that the bill is "not retroactive and would not affect the litigation regarding Elon Musk's compensation package at Tesla." Townsend also stressed that an attorney from Richards, Layton & Finger was invited to advise on the legislation as an industry expert and a member of the Delaware State Bar Association's Corporation Law Council, along with many other experts -- and that legislators were fully responsible for the bill's final draft. But other legal experts told ABC News that the proposed law could allow the Delaware court to reverse its decision and grant Musk the pay package. The bill lacks an explicit mention forbidding application to pending cases, making possible a court finding that alters the outcome of Musk's case, legal experts said. "It's possible," Sarath Sanga, a professor of corporate law at Yale University, said of the potential use of the proposed law to revive Musk's pay package. "There's nothing in the law requiring it and there's nothing preventing it." MORE: Musk misreads Social Security data, millions of dead people not getting benefits, experts say Ann Lipton, a law professor at Tulane University, said the absence of any stipulation preventing application to pending cases could function as a signal to the court to reverse its decision about Musk's pay. "It sends a strong signal to the Delaware Supreme Court that we want you to interpret this to give Elon his pay package back," Lipton said. Boston College Law Professor Brian Quinn said that it's unclear if the legislation will be retroactive or not -- but added, "It's entirely possible that the court reverses the trial opinion for reasons not related to this amendment, and the package is reinstated." Chancellor Kathaleen McCormick, who oversees the Delaware trial court that handles commercial litigation, rejected the 2018 compensation package that Tesla voted to provide to Musk. McCormick found that the negotiations surrounding the package had been inappropriate, due to a lack of independence among board members and Musk's influence over the negotiations. MORE: Contradictory statements about Musk make it unclear who runs DOGE The proposed changes to the law could ease the scrutiny applied to Musk, resulting in a reversal of the court's judgment, some experts told ABC News. The proposed law bypassed a typical process of consideration before the Corporate Law Council, a section of the Delaware Bar Association, Sanga said. He said he could not recall an instance in which a proposed change to Delaware corporate law did not go through that process. Tesla's law firm helps draft legislation that some experts say could restore Musk's $55B pay package originally appeared on Sign in to access your portfolio
NBC News
18-02-2025
- Business
- NBC News
Tesla's law firm drafts Delaware bill that could salvage Musk pay package
A law firm that represents Tesla and Elon Musk has written proposed legislation that would alter Delaware corporate law, according to a person directly familiar with the drafting of the bill. The proposed legislation, drafted by Richards, Layton & Finger, or RLF, would amend Delaware General Corporation Law, and if adopted, could pave the way for the reinstatement of Musk's 2018 CEO pay package at Tesla, worth tens of billions of dollars in options. RLF confirmed their involvement to CNBC. 'Statutory changes are necessary to restore the core principles that have been the hallmark of Delaware for over a century and ensure that Delaware remains the preeminent jurisdiction for incorporation,' Lisa Schmidt, president of RLF, said in a statement. The bill was introduced in the Delaware General Assembly on Monday and would require approval by the state's two chambers as well as Gov. Matt Meyer before it could become law. The pay package Tesla granted to Musk in 2018 was the largest CEO compensation plan in public corporate history, but the Delaware Court of Chancery in early 2024 ordered it to be rescinded. In her ruling, Chancellor Kathaleen McCormick wrote that the pay plan was inappropriately set by Tesla's board, which was controlled by Musk, and that it was approved by shareholders who were misled by Tesla's proxy materials before they were asked to vote on it. Under the proposed legislation, Musk might no longer be considered a 'controller' of Tesla, said Brian JM Quinn, a Boston College Law professor. Transactions that involve self-dealing with controllers or directors would be subject to less review than they are now, Quinn said. Those transactions range from going-private deals, to mergers and acquisitions, to board and executive compensation decisions. 'The real role of corporate law is to protect minority investors,' Quinn said. 'With this bill, the legislature is saying, 'Now, you know what? Protect them less.'' The proposed legislation would also limit the kinds of documents that minority stakeholders are able to obtain through 'books and records' inspection requests, Quinn said. Those stakeholders would be limited to formal items such as a certificate of incorporation or minutes of stockholder meetings but they'd lose access to informal communications such as emails or other messages between board members and executives, Quinn said. After the Court of Chancery's ruling last year, Musk started a campaign to persuade companies not to incorporate in Delaware and moved the site of incorporation for his businesses out of the state. He has aimed his ire at McCormick with repeated and disparaging posts about her on X, his social network. Other prominent executives, including Coinbase CEO Brian Armstrong and Bill Ackman of Pershing Square, have also criticized the Delaware judiciary. 'Delaware has taken some heat for supposedly being too hard on controller transactions,' said Renee Zaytsev, partner at Boies Schiller and co-chair of the firm's securities and shareholder dispute practice. 'These amendments seem to be a course correction that would make it significantly easier for boards and controllers to avoid judicial scrutiny of their transactions,' she said.
