Delaware Refines and Narrows the Statutory Landscape for Controlling Stockholders and Books & Records Requests
Last week, Delaware approved legislation overhauling the Delaware General Corporation Law (DGCL). As detailed below, the amendments to the DGCL ease certain restrictions applicable to “conflicted controller” transactions, and limit certain stockholder inspection rights. The legislation’s passage followed a fast-tracked proposal process, zealous public discourse culminating in a tense two-hour debate on the Delaware House floor and a prompt signature from Governor Matt Meyer. Proponents of the legislation have cited the need to stem the tide of so-called “DExits”—corporations leaving, or threatening to leave, Delaware to incorporate elsewhere absent legislative changes—while critics have objected that the new law limits shareholder protections and infringes on the role of the judiciary. The new legislation is expected to have considerable impact on shareholder derivative litigation in Delaware.
The legislation, proposed through Senate Bill 21 and amended through Senate Substitute 1 to Senate Bill 21 (S.B. 21), amends two provisions of the DGCL: (1) Section 144, which governs conflicted transactions involving controlling stockholders and/or interested directors, and (2) Section 220, which controls shareholder access to corporate books and records. Specifically, S.B. 21:
- Defines “Controlling Stockholders”: S.B. 21 defines “controlling stockholders” as stockholders that (1) have majority voting power, (2) have the right by contract or otherwise to elect a selected nominee and the voting power of the majority of the board or (3) own or control a third in voting power and have the capability through that power to exercise managerial authority over the business.1
- Changes the Standard for Transactions involving Controlling Stockholders: S.B. 21 alters the standard enunciated in the Delaware Supreme Court’s 2024 Match decision 2 to allow a safe harbor for controlling stockholder transactions where
- (1) the transaction is approved by either a special committee or a minority stockholder vote (unless the transaction is a going-private transaction involving a controlling stockholder, which still requires both types of approval);
- (2) the special committee consists of more than one director and a majority of disinterested directors, rather than solely independent board members; and
- (3) the special committee is no longer required to be established at the outset of a transaction. 3
- Limits Damages Against Controlling Stockholders: S.B. 21 clarifies that controlling stockholders cannot be held liable for monetary damages for breaches of the duty of care. 4
- Defines “Material Interest” and “Material Relationship”: S.B. 21 codifies new definitions of the terms “material interest” and “material relationships.” Specifically, “material interest” means an actual or potential benefit to a director or a stockholder that (1) “would reasonably be expected” to impair the objectivity of a director’s judgment or (2) be material to a stockholder. Similarly, the term “material relationship” means a relationship that (1) “would reasonably be expected” to impair the objectivity of a director’s judgment or (2) be material to a stockholder. 5
- Establishes What it Means to Be a “Disinterested” Director: S.B. 21 provides that a director is presumed to be “disinterested” where the director has been deemed an independent director from the corporation, and if applicable, the controlling stockholder. To overcome this presumption, a shareholder must plead substantial and particularized facts demonstrating that the director has either (1) a material interest in the transaction or (2) a material relationship to a person with a material interest in the transaction. 6
- Limits the Scope of Books and Records Requests: S.B. 21 substantially narrows the scope and breadth of corporate inspection requests by cabining what qualifies as “books and records” under the DGCL to specific items, including board minutes, board materials, and shareholder communications, absent a court order compelling broader disclosure. B. 21 also: (1) limits demand for a company’s financial statements and minutes to those within three years preceding the demand; (2) imposes stricter procedural requirements for books and records demands, including describing the purpose and records sought with “reasonable particularity”; and (3) allows corporations to impose restrictions on the confidentiality, use or distribution of books and records sought under any demand, including by redacting portions of any books and records that are not specifically related to the stockholder’s purpose for the demand. 7
The new legislation provides additional guideposts and stricter limitations on shareholders’ ability to challenge certain controller transactions or seek some forms of corporate records. But unanswered fiduciary issues remain, including questions regarding director independence and the practical implications of this new statutory landscape.
Please feel free to contact us to discuss the potential future implications of the DGCL amendments.
1 See S. 21 Sub. 1, 153rd Gen. Assemb. (De. 2025), available at https://legis.delaware.gov/BillDetail?legislationId=141930 (amendments to DGCL §144 (e)(2)).
2 In re Match Group, Inc. Derivative Litigation, 315 A.3d 446, 462-71 (Del. 2024) (conflicted transactions involving controlling stockholders are subject to an entire fairness review unless the transaction is approved by a fully independent special committee of board members established at the outset of the transaction, and by a fully informed vote of the minority stockholders).
3 See S. 21 Sub. 1, 153rd Gen. Assemb. (De. 2025) (amendments to DGCL §144 (a)-(c)).
4 See id. (amendments to DGCL §144 (d)(5)).
5 See id. (amendments to DGCL §144 (e)(7)-(8)).
6 See id. (amendments to DGCL §144 DGCL §144 (d)(2) & (e)(4)).
7 See id. (amendments to DGCL § 220).
