On March 25, 2025, Delaware Governor Matt Meyer signed into law significant amendments to the Delaware General Corporation Law (DGCL) that are designed to reduce excessive stockholder litigation and reinforce the authority of independent directors and disinterested stockholders.  The amendments, while controversial, received bipartisan support and praise from the business community in the aftermath of recent decisions by Tesla and a growing number of other highly visible companies to reincorporate elsewhere.

Elevated Standards for Conflict-of-Interest Transactions

The amendments to Section 144 of the DGCL provide procedural safe harbors for transactions involving directors, officers, and “controlling stockholders,” which includes any person or entity who:

  • Controls a majority of voting power in director elections;
  • Influences the election of directors holding a majority of the board’s voting power; or
  • Possesses at least one-third of the voting power and managerial authority.

Under the amended Section 144, a controlling stockholder transaction that is not a “going private” transaction may be entitled to safe harbor protection that prevents equitable relief and damages if, among other requirements: (i) all of the material facts about the transaction have been disclosed to stockholders entitled to vote and a special committee consisting of a majority of disinterested directors; and (ii) the transaction is approved or ratified by the special committee and a majority of informed, disinterested, and uncoerced stockholders.  Additionally, under the new Section 144(d)(2), a director of a public company is presumed disinterested if the company’s board of directors determines that the director satisfies applicable stock exchange standards.

Stricter Controls on Stockholder Inspection Rights

Revisions to Section 220 of the DGCL, which governs the scope of stockholders’ rights to inspect corporate records, have also undergone significant changes. Whereas previously, stockholders could broadly request both formal and informal corporate documents, the amended law substantially narrows this scope, primarily by limiting access to formal corporate records such as board minutes, board resolutions, financial statements, and similar records. In contrast, informal documents, like internal communications, emails, text messages, or drafts of documents can no longer be routinely requested. Stockholders seeking access to these informal records must now clearly demonstrate a compelling and specific justification tied directly to their investigation or claim, effectively limiting broad and exploratory demands that have previously led to extensive litigation.

Balancing Governance and Litigation Prevention

The amendments demonstrate a level of intentionality by the First State to create an optimized governance and decision-making environment for management and directors. By clarifying and tightening the standards governing conflict-of-interest transactions and restricting overly broad document inspections by stockholders, Delaware seeks to mitigate unnecessary and speculative litigation. The amendments strike a careful balance between reasonable safeguards and information requests and those that reduce the ability of Delaware corporations and their officers and directors to effectively manage and make strategic decisions in the best interests of the corporation and its stockholders.

Practical Key Takeaways for Delaware Corporations

Delaware corporations should consider the following actions in response to the recent DGCL amendments:

  • Update internal policies to align with the revised conflict-of-interest standards under the amended Section 144.
  • Document director independence in accordance with national stock exchange criteria.
  • Implement procedures to clearly distinguish between formal and informal corporate records, anticipating the tightened standards for stockholder inspections.
  • Conduct training sessions for directors and officers on the new legal standards to mitigate litigation risks.
  • Review and update corporate governance practices to ensure compliance with the amended DGCL provisions.

We believe that the Delaware legislature and courts will remain at the forefront of innovations and trends in corporate governance. If you have any questions about the above amendments and how it might impact your Delaware corporation, please do not hesitate to contact us.

March 28, 2025