Delaware Revamps Its General Corporation Law — Will It Be Enough to Keep Companies from Leaving?

On March 25, 2025, Delaware Gov. Matt Meyer signed into law significant amendments to §§ 144 and 220 the Delaware General Corporation Law (DGCL). The amendments, which were articulated in Senate Substitute No. 1 for Senate Bill No. 21 (SB 21), are intended to address concerns raised by Delaware corporations, resulting from a number of recent controversial Delaware Court of Chancery decisions, leading some companies (particularly those with controlling stockholders) to reincorporate or consider reincorporating to other states (particularly Nevada and Texas), a phenomenon being referred to as the “Delaware Exit” or “DExit.”

While some view the amendments as a much-needed rebalancing of shareholder and management rights, others see them as an overreaction, a direct rebuke of the Delaware judiciary, and an attack on the rights of minority investors. Opponents have dubbed SB 21 the “billionaire’s bill.”

The amendments adopted largely track changes the Delaware Senate initially proposed on February 17, 2025—with certain changes introduced by the Council of the Corporation Law Section of the Delaware State Bar Association (Council), including those identified in italics below.

As we previously reported, the Delaware Senate unanimously approved the amendments on March 13, 2025. Following a reportedly testy debate in the House of Representatives and the rejection of multiple amendments aimed at limiting the bill’s reach (including some that would have allowed companies to opt in to the changes), the bill was ultimately approved by a margin of 32-7, with two members not voting, on March 25, 2025.

Amendments to DGCL § 144

Under the new DGCL § 144(a), “interested” transactions with officers and directors (other than transactions involving a controlling stockholder) will not be subject to equitable relief or give rise to an award of damages against a director or officer if:

• The transaction or act is approved in good faith and without gross negligence by the affirmative votes of a majority of the informed, disinterested directors of the board or a committee of the board, even though the disinterested directors be less than a quorum; provided that if a majority of the directors are not disinterested directors, such act or transaction must be approved (or recommended for approval) by a committee of the board that consists of two or more directors, each of whom the board of directors has determined to be a disinterested director; OR
• The transaction or act is approved or ratified by the informed, uncoerced, affirmative vote of a majority of the votes cast by disinterested stockholders entitled to vote thereon; OR
• The transaction or act is fair as to the corporation and its stockholders.

According to the synopsis of SB 21, the requirement that the transaction be approved in good faith and without gross negligence is intended to make clear that the statute does not displace the common law requirements regarding core fiduciary conduct.

The Council introduced the requirement that the transaction or act be approved (or recommended for approval) by a committee of the board consisting of two or more disinterested directors, where a majority of the directors are not a disinterested director. While the change signals an attempt to ensure minimum guardrails are in place for approving these transactions, this could prove challenging for certain companies, particularly private companies (which cannot take advantage of the presumption of disinterestedness available for independent directors of public companies that is discussed below), where there may only be one director who the board can confidently identify as “disinterested.” Delaware otherwise disposed of minimum committee size requirements decades ago.

Another change introduced by the Council and reflected in the final version of SB 21 was eliminating the definition of “fair as to the corporation.” The synopsis notes that whether an interested transaction is “fair as of the corporation and its stockholders” should be determined by reference to the “entire fairness” doctrine developed in the common law.

Under the new DGCL § 144(b), “controlling stockholder transactions” (other than a going- private transaction) will not be subject to equitable relief or give rise to an award of damages against a director or officer or any controlling stockholder or member of a control group if:

• The transaction or act is approved or recommended for approval, as applicable, in good faith and without gross negligence, by a majority of the informed, disinterested members of a committee of the board, which has been expressly delegated the authority to negotiate (or oversee the negotiation of) and to reject the transaction; provided that the committee consists of two or more directors, each of whom the board has determined to be a disinterested director; OR
• The transaction is conditioned on a vote of the disinterested stockholders at or prior to the time it is submitted to the stockholders for their approval or ratification, and the transaction is approved or ratified by the informed, uncoerced, affirmative vote of a majority of the votes cast by disinterested stockholders entitled to vote thereon; OR
• The transaction is fair as to the corporation and its stockholders.

Under the new DGCL § 144(c), “controlling stockholder transactions” that constitute a going private transaction will not be subject to equitable relief or give rise to an award of damages against a director or officer or any controlling stockholder or member of a control group if:

• The transaction is approved or recommended for approval, as applicable, by a committee of the board (in the same manner as described above for a controlling stockholder transaction not constituting a going private transaction) AND the transaction is approved by the disinterested stockholders (in the same manner as described above for a controlling stockholder transaction not constituting a going private transaction)
• The transaction is fair as to the corporation and its stockholders

The amendments introduce more certainty around who qualifies as a “controlling stockholder” by providing a bright-line rule under § 144(e)(2) that limits qualification to only stockholders who satisfy any of the following:

• Own a majority of the voting power
• Control at least one-third of the voting power together with the power to exercise managerial authority
• By contract or otherwise, have the right to cause the election of a majority of the board of directors or directors entitled to cast a majority in voting power of all directors will also be deemed a controlling stockholder

The amendments also provide clearer guidance on what constitutes a “material interest,” and “material relationship,” and who qualifies as a “disinterested” stockholder or director.

Importantly, the amendments introduce a presumption of director “disinterestedness” for independent public company directors if the board of directors has determined that such director satisfies the applicable criteria for determining director independence under the rules (and interpretations thereof) promulgated by the national securities exchange on which the company’s stock is listed.

The amendments define “interested stockholder” as a stockholder that does not have a material interest in the act or transaction at issue or a material relationship with any person that has a material interest in the act or transaction. This definition may leave room for aggressive members of the plaintiff’s bar, particularly for public companies, as the amendments do not explain how this determination must be made and do not offer an express presumption that stockholders of a public company will be deemed independent, unless the company has knowledge to the contrary.

The amendments also shield controllers and control groups from liability for breaches of the duty of care. Section 144(d)(5) provides that no person who is a controlling stockholder or member of a control group will be held liable for monetary damages for a breach of fiduciary duty other than for any of the following:

• A breach of the duty of loyalty
• Acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law
• Any transactions from which the person derives an improper personal benefit

Amendments to DGCL § 220

Section 220 of the DGCL now limits the specific materials that a stockholder may demand to inspect pursuant to a request for books and records of a corporation (in some cases limiting the requests to the last three years), absent a showing of compelling need and clear and convincing evidence that additional records are necessary and essential to the stockholder’s purpose. Notably, the list does not include emails, text messages, or informal board communications, a pivotal change for Delaware corporations.

The amendments also impose stricter procedural requirements. A stockholder will only be entitled to inspect and copy books and records if all of the following:

• His or her demand is in good faith and for a proper purpose
• The demand describes with reasonable particularity the stockholder’s purpose and the books and records sought for inspection
• The books and records sought are specifically related to the stockholder’s purpose

These procedural requirements may make it easier for some corporations to argue that a stockholder request is not narrowly tailored or does not meet the heightened standard.

The amendments will also allow the corporation to impose reasonable restrictions on the confidentiality, use, or distribution of books and records. The corporation may require, as a condition to producing books and records, that the stockholder agree that any information included in the corporation’s books and records is deemed incorporated by reference in any complaint filed by the stockholder in relation to the subject matter referenced in the demand. This requirement, which codifies previous caselaw precedent recognizing that stockholders might take such documents out of context in any complaint they file, opens the door to consideration of the § 220 materials on a motion to dismiss, and can therefore be instrumental in getting a complaint dismissed at the pleading stage. The amendments also codify previous caselaw allowing the corporation to redact portions of any books and records produced to the extent the redacted portions are not specifically related to the stockholder’s purpose.

One potential criticism of the amendments to DGCL § 220 is that the legislature chose not to adopt a minimum stock ownership or holding requirements similar to Nevada and Texas corporate law.

Competition from Texas and Nevada

While the fast-tracked legislation was designed to address the concerns of business leaders and prevent more companies from leaving Delaware (or choosing to initially incorporate elsewhere), it remains to be seen whether the changes under SB 21 will be enough to stem the tide of departures. As Delaware responds to criticisms of overreach by its courts, and a sense of diminishing predictability around corporate structuring and transaction planning, states like Nevada and Texas are taking steps to make themselves more attractive to corporations.

For example, on February 27, 2025, the Texas Legislature introduced significant amendments to the Texas Business Organizations Code in an effort to establish Texas as a meaningful alternative to incorporation in Delaware. Companion bills were introduced in both the Senate and House of Representatives, which would among other things:

• Codify the business judgment rule and exculpation for directors and officers (under the proposed amendments, gross negligence would be insufficient to bring a liability claim, knowledge of guilt would be required, mirroring current Nevada corporate law
• Permit corporations to adopt a beneficial ownership requirement for shareholders bringing derivative suits (as specified in the company’s charter, up to 3%)
• Allow corporations to waive jury trials in their charter documents (which has been a concern of companies considering Texas incorporation)
• Provide a safe harbor from injunctions and damages for officers and directors in interested transactions, similar to the changes just adopted in Delaware (neither Texas corporate law nor the proposed amendments address controlling stockholder transactions specifically)
• Eliminate attorneys’ fees in “disclosure-only settlements,” which solely provide additional disclosures to shareholders, in derivative suits.

In Nevada, legislators have proposed a bill to create a specialized district court to decide corporate business matters and similar topics (like Delaware and Texas). Currently, lawsuits in Nevada involving complex business disputes are typically heard by judges in Nevada’s Second and Eighth Judicial District Courts (which were designated business courts by Nevada’s Supreme Court in 2001). However, these judges preside over a wide range of legal cases (not limited to business matters). The bill would also provide that judges sitting in the new business court would be appointed by a nonpartisan, independent body, to ensure that the judges overseeing matters in these courts are experienced with business and commercial matters.

Takeaways

It remains to be seen whether the amendments will be enough for Delaware to maintain its reputation as the dominant state for corporate domicile. In addition to the potential criticisms of the bill identified above, one area that remains a concern for Delaware companies is the rise in litigation and plaintiffs’ attorney fees in Delaware. When it first introduced SB 21, the Delaware Senate also adopted Senate Concurrent Resolution No. 17, which formally requests that the Council of the Corporation Law Section of the Delaware State Bar Association study and report on the topic of plaintiffs’ fees in corporate litigation by March 31, 2025. This remains an area of interest for many Delaware corporations and practitioners.

In addition, there are other changes Delaware (or other states) might consider such as authorizing corporations to adopt in their charters minimum stock ownership or holding requirements for making stockholder proposals or director nominations in order to permit private ordering as a solution to short-term activism and the exploitation of Rule 14a-8 of the Securities and Exchange Act of 1934 (relating to shareholder proposals) and the Universal Proxy Card rules by social and political activists.

We expect Nevada and Texas will continue to innovate in corporate law and Delaware will be well-suited to “disrupt itself” before other states gain further momentum. While some view SB 21’s changes as welcome improvements to the DGCL, the changes may not be enough to quiet the question of choice for state of incorporation.