On March 25, 2025, the Delaware House of Representatives voted to approve Senate Substitute 1 for Senate Bill 21 (SB 21), which amends Sections 144 and 220 of the Delaware General Corporation Law (DGCL). The bill was signed into law by Delaware Governor Matt Meyer the same day. As enacted, SB 21 incorporates nearly all changes previously recommended by Delaware’s Corporations Law Council, which we reviewed in our March 7, 2025 advisory.
Before approving SB 21, the Delaware House considered several proposed modifications, including an opt-in provision, dual-cleansing procedures for non-going-private transactions, and heightened requirements for director independence. All proposed modifications were rejected.
New Sections 144 and 220 usher in significant changes to Delaware corporate law involving interested director and officer (D&O) and controlling stockholder transactions and stockholder access to corporate books and records.
- Interested Non-controlling Stockholder Transactions. As amended, Section 144(a) codifies new safe harbor procedures for interested transactions not involving a controlling stockholder. These transactions may be cleansed by a majority of disinterested directors or committee members who approve the transaction on an informed basis, in good faith, and without gross negligence. If a majority of the board is not disinterested, the transaction must be approved by a committee of two or more disinterested directors. These transactions may also be ratified by the informed and uncoerced vote of a majority of voting disinterested stockholders.
- Controlling Stockholder Non-Going-Private Transactions. As amended, Section 144(b) codifies new safe harbor procedures for non-going-private transactions that involve a controlling stockholder. These transactions may be cleansed by a committee of two or more disinterested directors who have been delegated the authority to negotiate and reject the transaction and who approve the transaction on an informed basis, in good faith, and without gross negligence. These transactions may also be cleansed if conditioned on stockholder approval and approved by the informed and uncoerced vote of a majority of voting disinterested stockholders.
- Controlling Stockholder Going-Private Transactions. As amended, Section 144(c) codifies new safe harbor procedures for going-private transactions that involve a controlling stockholder. These transactions must be approved by a committee of disinterested directors and a majority vote of disinterested stockholders. The other requirements for cleansing non-going-private controlling stockholder transactions must also be satisfied.
- Fairness Cleansing. As amended, Sections 144(a), (b), and (c) provide a safe harbor for all interested D&O and controlling stockholder transactions that are determined to be “fair as to the corporation and the corporation’s stockholders.”
- Presumed Director Disinterestedness. As amended, Section 144(d)(2) creates a rebuttable presumption of disinterestedness for directors of publicly traded corporations that have satisfied the NYSE’s or Nasdaq’s independence standards, applied as if the controlling stockholder or control group were the corporation. The presumption may be rebutted only by “substantial and particularized” facts that the directors have a material interest in a transaction or have a material relationship with a person with a material interest.
- Automatic Controlling Stockholder Exculpation. As amended, Section 144(d)(5) exculpates controlling stockholders from monetary damages for breaches of fiduciary duty in their capacities as controlling stockholders, except for breach of loyalty violations, acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, or any transaction from which the controlling stockholder derived an improper personal benefit. These protections apply to both direct and derivative stockholder claims.
- “Controlling Stockholder” Defined. As amended, Section 144(e)(2) codifies the definition of “controlling stockholder” as any person who, together with their affiliates and associates: (1) owns or controls a majority of the voting power of the corporation’s outstanding stock; (2) has the right to elect either a majority of the board members or a majority of the voting power on the board; or (3) has power functionally equivalent to owning or controlling a majority of the voting power, owns or controls at least one-third of the voting power, and has the power to exercise managerial authority over the business and affairs of the corporation.
- Limitations on Stockholder Information Rights. As amended, Section 220 limits stockholder inspection rights to the following specified categories of documents, many of which are restricted to records created within the past three years: certificates of incorporation, bylaws, stockholder meeting minutes, stockholder communications, board and committee meeting minutes and materials, annual financial statements, stockholder agreements, and D&O independence questionnaires. Stockholders may also inspect “other specific records” if the stockholder has (1) made a showing of a compelling need for an inspection of the records to further the stockholder’s proper purpose; and (2) demonstrated by clear and convincing evidence that the specific records are necessary and essential to further that purpose. New Section 220 also allows corporations to impose confidentiality restrictions on produced records and to redact portions of produced records not specifically related to the stockholder’s purpose.
- Effective Date. The amendments to Sections 144 and 220 took effect on March 25, 2025 and apply to all acts and transactions except those for which an action or proceeding was completed or pending as of February 17, 2025.
SB 21’s amendments to Sections 144 and 220 of the DGCL represent the most extensive changes to Delaware corporate law in decades. Meanwhile, in a persistent effort to vie for a bigger stake of the corporate franchise, Nevada and Texas have introduced legislation to reinforce protections for corporate fiduciaries in those states. We are continuing to monitor these developments as corporations continue to assess their favored corporate forum in light of these rapid changes.
You can subscribe to future advisories and other Alston & Bird publications by completing our publications subscription form.
If you have any questions, or would like additional information, please contact one of the attorneys on our Securities Litigation team or one of the attorneys on our Capital Markets & Securities team.