Delaware Looks to Retain its Business-Friendly Reputation: Potomac Law

KEY TAKEAWAYS:

Amendments to § 144 focus on providing clearer guidance for courts and corporations regarding transactions with interested directors or officers as well as actions by controlling stockholders.
Amendments to § 220 focus on clarifying rights and obligations regarding access to corporate books and records by stockholders.
The process and results have been a product of and subject to considerable debate with respect to recent high-profile cases with the potential for both more amendments and challenges to this set of amendments.
Corporations can best navigate the changes by ensuring that disinterested directors are fully informed of any potential conflicts before their votes and keeping clear and appropriate books and records to allow reasonable use and access as needed.

Companies in the United States are usually advised to register in Delaware, regardless of whether they are headquartered in Delaware or other states. As of 2023, more than half of publicly traded corporations listed on U.S. stock exchanges (including roughly 2/3 of Fortune 500 companies) had incorporated in Delaware.[1] This advice is often based, with good reason, on the idea that Delaware law is more business friendly than other jurisdictions. The combination of Delaware’s deep body of case law, a judicial bench that is very experienced in the nuances of corporate law, and an adjudication process that allows for swifter and more focused action is largely unparalleled in the United States.

However recent action by prominent companies to re-domesticate from Delaware to other jurisdictions reflected increasing concerns in many corporate governance circles about the less frequently considered burdens or limitations of Delaware as a legal home. In particular, there has been much discussion over the evolving judicial scrutiny of controlling stockholder transactions, the weight of independent directors, and the burdens and risks of extensive access to corporate books and records.

In response, Delaware government leadership took significant action to amend the corporate law in the state. On February 17, 2025, amendments to the Delaware General Corporation Law (“DGCL”) were first introduced in the Delaware legislature. An amended form of the legislation was passed by the Delaware legislature on March 25, 2025, and signed into law by Delaware Governor Matt Meyer.

The amendments to the DGCL focus on three principal areas:

Transactions in which a Director or Officer has an Interest.
- DGCL § 144(a) has been amended to clarify the mechanics for approving, and the consequences of proper approval of, transactions between a corporation (or a subsidiary thereof) and one or more of its directors and officers (whether directly or indirectly through another entity in which the director or officer has a role or financial interest).
- The law, as amended, gives a safe harbor from liability (both equitable relief and damages) in connection with these transactions, and clarifies the conditions under which an interested transaction will be subject to the safe harbor. Only one of the three enumerated conditions must be met to rely on the safe harbor:
  - Board or Committee Approval - (i) the director’s or officer’s interest in the transaction must be disclosed to the full board or a committee thereof and (ii) the transaction must be approved by a majority of the disinterested members of the board or such committee (as the case may be), with approval by a committee of at least two disinterested directors in a case where a majority of the board is interested in the transaction;
  - Stockholder Approval – the transaction must be approved by “an informed, uncoerced, affirmative vote of a majority of the votes cast by the disinterested stockholders”[2]; or
  - Fairness – the transaction must be “fair as to the corporation and the corporation’s stockholders.”[3]
- For publicly traded corporations, the interest, or lack thereof, of a director will be determined based on the applicable stock exchange’s criteria for director independence.
Transactions with a Controlling Stockholder
- DGCL §§ 144(b) and 144(c) have been amended to provide safe harbors for transactions with a controlling stockholder, with the latter addressing going private transactions and the former addressing all transactions other than going private transactions.
- For controlling stockholder transactions, other than a going private transactions, no director, officer or controlling stockholder may be subject to equitable relief or damages based on a claim of breach of fiduciary duty if one of the following conditions is met:
  - the material facts of the transaction are disclosed to a designated committee of the board (consisting of at least two disinterested directors) and the transaction is approved by a majority of the disinterested directors on the committee; or
  - the transaction is approved by “an informed, uncoerced, affirmative vote of a majority of the votes cast by the disinterested stockholders”^[4]; or
  - the transaction is “fair as to the corporation and the corporation’s stockholders.”^[5]
- For a controlling stockholder transaction that is a going private transaction, no director, officer or controlling stockholder may be subject to equitable relief or damages based on a claim of breach of fiduciary duty if either:
  - the transaction is approved by both a board committee and the disinterested stockholders in the manner described above; or
  - the transaction is “fair as to the corporation and the corporation’s stockholders.”^[6]
- A controlling stockholder is defined, generally, as any person (together with its affiliates and associates) that owns or controls a majority of the corporation’s voting power or has the right or power to elect a majority of the board.[7] No controlling stockholder will be liable, in that capacity, for monetary damages for breach of fiduciary duty other than:
  - a breach of the duty of loyalty,
  - acts not in good faith,
  - intentional misconduct or a knowing violation of law or
  - a transaction from which the stockholder derived an improper benefit.[8]
Stockholder Inspection Rights
- DGCL § 220 addresses the circumstances under which a stockholder may inspect books and records of the corporation. DGCL § 220(a) has been amended to enumerate the types of books and records that may be requested, including, but not limited to, stockholder meeting minutes, board and committee minutes, board materials, and director and officer independence questionnaires.
- The addition of DGCL §§ 220(f) and (g) address the limited circumstances under which a court may compel inspection of books and records other than those enumerated in § 220(a).
- The amended law also clarifies that a corporation may place reasonable restrictions on the confidentiality, use and distribution of inspected materials and redact portions of books and records inspected that do not relate to the stockholder’s stated purpose for the inspection.