Amendments to Delaware General Corporation Law expand safe harbor for controlling stockholder transactions and circumscribe books and records demand obligations

By Josh Kaufman, Era Anagnosti, Ronald Brown, Jon Venick & Ron Llewellyn on May 5, 2025

The Governor of Delaware has signed into law Senate Bill 21 (SB 21), which amends certain sections of the Delaware General Corporation Law (DGCL) governing controlling stockholder transactions under DGCL Section 144 and stockholder demands for books and records under DGCL Section 220.

Signed on March 25, 2025, these amendments followed Delaware court decisions that were largely viewed as adverse to controlling stockholders, driving corporations to reincorporate, or new entities to incorporate, in other jurisdictions such as Texas and Nevada.

Prior to its adoption, SB 21 faced opposition from stockholders, members of the state bar, and plaintiffs’ attorneys who believed that the DGCL amendments would weaken the ability of stockholders to hold corporations, boards, and controlling stockholders accountable. Importantly, SB 21 applies to all Delaware corporations and, despite legislative proposals, is not optional.

Section 144

SB 21 amends DGCL Section 144 to provide safe harbor procedures for acts or transactions in which one or more directors, officers, controlling stockholders, or members of control groups have interests or relationships that might render them interested or not independent with respect to the act or transaction. In such cases, no suit for equitable relief or damages may be taken in Delaware if such procedures are followed.

This statutory safe harbor may be particularly helpful to a board of directors that, in the context of a conflicted-board or conflicted-controlling stockholder transaction, which is challenged by stockholder plaintiffs, might otherwise have its decision subject to the entire fairness standard of review, pursuant to which it would have to prove both fair dealing and fair price.

Below is a summary of the key provisions of amended Section 144.

Officers and directors. Section 144(a) provides that acts or transactions involving directors or officers (or their related entities) and a corporation or its subsidiaries will be protected if approved or recommended by the affirmative vote of:
- A majority of the disinterested directors, either serving on a board of directors or a committee of the board or
- A majority of the votes cast by the disinterested stockholders entitled to vote on the matter.

In each case, the directors or stockholders, as the case may be, must be fully informed of the material facts surrounding the conflict or potential conflict. If the corporation lacks a majority of disinterested directors, the transaction must be approved by a committee of disinterested directors consisting of at least two members. The board or committee, as applicable, must act in good faith and without gross negligence.

Controlling stockholders. Under Section 144(b), a controlling stockholder involved in a transaction that is not a “going private transaction” may avail itself of the safe harbor if the transaction is fully disclosed or known to the committee or stockholders, as applicable, and:
- Is approved or recommended in good faith and without gross negligence by a majority of disinterested directors then serving on a board committee with expressly delegated authority to negotiate and reject said transaction or
- Is conditioned upon the approval or ratification by disinterested stockholders and is approved or ratified by a majority of the votes cast by such disinterested stockholders.

Section 144(b) requires the committee to consist of at least two directors, each of whom the board has determined to be disinterested with respect to the transaction.

Going private transactions. Section 144(c) addresses the requirements for when the controlling stockholder transaction constitutes a going private transaction, which is defined for public companies as a “Rule 13e-3 transaction” under Rule 13e-3 of the Securities Exchange Act of 1934 and for private companies as any controlling stockholder transaction pursuant to which all or substantially all of the shares of capital stock held by the disinterested stockholders (excluding the controlling stockholder or control group) are canceled or acquired. Under Section 144(c), going private transactions must be approved by both the methods discussed under Sections 144(b) (ie, approved by a fully informed and disinterested board committee and disinterested stockholders).

Under Sections 144(a), 144(b) and 144 (c), the safe harbor would also apply if the transaction is fair to the corporation and its stockholders.

Amended Section 144 is meaningfully more favorable to controlling stockholders because:

Compliance prohibits equitable relief or an award of damages or other sanction, whereas previously it simply made the transaction not void or voidable,
Disinterestedness is presumed for any director of a publicly traded corporation who is deemed to be independent under the standards of the applicable stock exchange and “may only be rebutted by substantial and particularized facts that such director has a material interest in such act or transaction or has a material relationship with a person with a material interest in such act or transaction,” ie, the mere fact that a director was nominated by a controlling stockholder is not likely a bar, and
The transaction may or must, as the case may be, be approved by the affirmative vote of a majority of the votes cast by disinterested stockholders, whereas prior law required approval by a majority vote of all stockholders – a higher standard.

Plaintiffs may still bring claims against controlling stockholders and other persons for aiding and abetting the breach of fiduciary duties by directors and may seek judicial review of provisions or devices intended to deter or prevent a change in control for purposes of injunctive relief. The new amendments also provide that controlling stockholders and control groups cannot be liable for monetary damages for breach of the duty of care.

Section 220

SB 21 also amends DGCL Section 220 by specifying the materials that stockholders may demand to inspect in a request for a corporation’s books and records. The purpose of Section 220 is to grant stockholders the right to inspect and make copies of a corporation’s stock ledger, stockholder list, and other books and records, for any proper purpose. Prior to this amendment, Section 220 did not define “books and records.” As now amended, Section 220 defines “books and records” to include:

The corporation’s certificate of incorporation,
The corporation’s bylaws (including agreements or other instrument incorporated by reference),
Stockholder meeting minutes and written consents within the prior three years,
Written or electronic communications to stockholders within the prior three years
Board and board committee minutes,
Materials provided to the board or any committee in connection with actions taken thereby,
Annual financial statements of the corporation for the prior three years,
Any agreement entered into under Section 122(18) of the DGCL, and
Director and officer independence questionnaires.

Amended Section 220 also defines “proper purpose” to mean “a purpose reasonably related to a stockholder’s interest as a stockholder.” Furthermore, it requires that the stockholder’s demand be made in good faith and “with reasonable particularity” regarding the stockholder’s purpose in seeking the books and records for inspection. The amendments materially circumscribe the scope and duration of the documentation required to be provided in response to properly made books and records demands. For example, under Delaware case law, books and records could include informal communications such as text messages and emails. Amended Section 220 would allow companies to exclude such materials, unless a stockholder can demonstrate a “compelling need” (see third bullet below) when responding to a Section 220 demand, reducing the time required to gather and produce them.

Amended Section 220 also specifies that:

Information from books and records obtained by a stockholder will be deemed to be incorporated by reference into any complaint filed by the stockholder on the basis of such information,
A corporation may redact portions of books and records to the extent such redactions do not specifically relate to the stockholder’s purpose,
If the corporation does not have certain books and records, including minutes of board and committee meetings, actions of board or any committee, financial statements, and director and officer independence questionnaires, the Court of Chancery may order the production of additional corporate records, and
A stockholder may obtain additional specific records if the stockholder has made a showing of a compelling need to further a proper purpose for the inspection and has demonstrated by clear and convincing evidence that such specific records are necessary and essential to further such purpose.

Amended Sections 144 and 220 became immediately effective on March 25, 2025, and apply to all acts and transactions, whether occurring before or after the adoption of SB 21. However, they do not apply to or affect any action or proceeding commenced in a court that is completed or pending or any Section 220 demand made on or before February 17, 2025.

For more information, please contact the authors.