The Delaware General Corporation Law (DGCL) has been amended by two pieces of legislation. The first set of amendments, adopted as Senate Substitute 1 to Senate Bill 21, implement significant changes to Sections 144 and 220 of the DGCL. These amendments were signed on March 25, 2025 by the governor with immediate and generally retroactive effect1 and implement changes that relate to foundational issues that have arisen in practice and litigation over the past decade. The changes include:
- Addition of protections and safeharbors for directors, officers, and controlling stockholders from liability for breach of fiduciary duty in connection with interested transactions.
- Limitation of stockholders' rights related to inspection and use of corporate books and records.
At a high level, the amendments may incentivize the compliance with, and documentation of, prescribed governance practices by (1) making compliance with corporate governance standards more accessible and attractive to directors, officers, and controlling stockholders; (2) clarifying and lowering analogous standards under Delaware common law; (3) codifying the protective effects of such compliance in the DGCL; and (4) expressly identifying corporate documentation involved in obtaining the potential benefits of these amendments. From that perspective, drafting takeaways from these amendments are particularly salient. As a result of the substantial changes by these amendments, questions remain regarding how certain terms will be interpreted and applied.
The second set of amendments, adopted as Senate Bill 95 and signed on June 30, 2025 by the governor, apply to other sections of the DGCL with immediate or certain delayed effect (for the most part, effective August 1, 2025) and address issues related to forum selection provisions, Delaware state filings, and registered agents. These amendments are more technical and routine than the earlier 2025 amendments.
This GT Update discusses the impact of the legislation on corporate and M&A documents, including board resolutions, governing documents, books and records documents, and certain related drafting considerations.
Board, Committee, and Stockholder Resolutions
Transaction Approvals. Section 144 previously provided a narrow protection against common law rules that could prevent a corporation from entering into transactions with its directors and officers. As amended, Section 144 provides safe harbors from equitable relief and other damages awards against directors, officers, and controlling stockholders, as applicable, for three categories of conflicted transactions:
- D&O Transactions. A transaction without a conflicted controlling stockholder in which a director or officer has a financial interest may be insulated under Section 144(a) if it is (a) fair to the corporation and its stockholders; (b) approved or ratified by a majority of the votes cast by disinterested stockholders on an informed, uncoerced basis; or (c) authorized in good faith and without gross negligence by a majority of the disinterested directors then serving on the board or a committee, when all such directors know of the material facts of the director's or officer's relationship or interest, except that, if a majority of the directors are not disinterested directors, then the D&O Transaction must be approved (or recommended) by a committee of at least two directors, each of whom is determined by the board to be disinterested directors. The votes cast standard applicable to disinterested stockholder approval marks an important departure from the analogous procedure for cleansing fiduciary duty claims under the Corwin case law which required approval by a majority of outstanding shares held by disinterested stockholders. It is likely that the votes cast standard will be more applicable to public companies, because private companies more frequently obtain stockholder approvals by written consent and would therefore continue to operate under the majority of outstanding standard. 2
- Controlling Stockholder Transactions. Under Section 144(b), a transaction, other than a going private transaction, in which a controlling stockholder has a financial or other benefit not shared with other stockholders, may also be insulated as described with respect to a D&O Transaction by (a) fairness; (b) disinterested stockholders, if the Controlling Stockholder Transaction is also conditioned by its terms when it is submitted for stockholder approval or ratification on such disinterested stockholder approval; or (c) a disinterested director committee, if that committee is also authorized to negotiate (or oversee negotiations) and reject the Controlling Stockholder Transaction and the Controlling Stockholder Transaction is approved by a majority of the disinterested directors then serving on the committee.
- Going Private Transactions. Under Section 144(c), a Controlling Stockholder Transaction that, for companies with stock listed on a national securities exchange, constitutes a Rule 13e-3 transaction or, for any other corporation, pursuant to which all or substantially all shares held by disinterested stockholders are cancelled, converted, purchased, or Going Private Transactions. Under Section 144(c), a Controlling Stockholder Transaction that, for companies with stock listed on a national securities exchange, constitutes a Rule 13e-3 transaction or, for any other corporation, pursuant to which all or substantially all shares held by disinterested stockholders are cancelled, converted, purchased, or
The documentation of these approvals can help demonstrate compliance with the safe harbor provisions. For instance, directors' or stockholders' awareness of any potential conflicts can be memorialized in a recital to board, committee, and stockholder resolutions and/or disclosures regarding such relationships or interests. The conditionality of disinterested stockholder approval should be set forth in the definitive plan, agreement, or other document constituting the terms of a Controlling Stockholder Transaction or Going Private Transaction, as contemplated by Section 144(b) and (c). However, this reflects an important departure from the analogous procedure for cleansing fiduciary duty claims under the MFW case law which required that both the disinterested committee and stockholder approvals be conditions from the outset of economic bargaining (also known as the "ab initio" requirement under MFW case law)—a time that will presumably be much earlier than the time when the transaction is submitted for stockholder approval.
Committee Resolutions. The resolutions related to such disinterested director committees can also memorialize satisfaction of key terms of Section 144. For instance, disinterested director committee authority to negotiate (or oversee negotiations) and reject or approve (or recommend for approval) the Controlling Stockholder Transaction or Going Private Transaction can be provided in the board resolutions establishing the committee. The determination that the members of such a committee are disinterested directors can also be included in the board resolutions. Section 144(e)(4) defines "disinterested director" as a director who is not a party to the transaction and does not have a "material interest" (defined in Section 144(e)(7) as an actual or potential benefit other than one which would devolve on stockholders generally and would impair a director's judgment or be material to a stockholder or person). Section 144(d)(2) also provides a heightened presumption that a director of a corporation with stock listed on a national securities exchange is a disinterested director if the board has determined that director to be independent under applicable exchange rules. This statutory emphasis on these determinations suggests the importance of such board resolutions, which may be further affirmed by similar committee resolutions adopted pursuant to board authorization for the committee to determine the independence and disinterestedness of its members.
Certificate of Incorporation, Bylaws, and Stockholder Agreements
The safe harbor provisions under Section 144 relate to the existence of a controlling stockholder, and the concept of control turns in part on rights and powers of a stockholder under governing documents, such as the certificate of incorporation, bylaws, and stockholder agreements. Those provisions are discussed in the following subsections, along with other amendments related to forum selection provisions and registered agents.
Stockholder Voting Power, Director Election Rights, and Managerial Authority. Section 144 now provides that a stockholder (or a "control group" bound by agreement, arrangement, or understanding) may only be a "controlling stockholder" if it (a) owns a majority of the stockholder voting power in director elections; (b) has the right to cause the election of board nominees who are selected at that person's discretion and who constitute a majority of the board voting power; or (c) owns at least 33% of the stockholder voting power in director elections and has power to exercise managerial authority over the business and affairs of the corporation functionally equivalent to a stockholder that can elect directors with a majority of board voting power. Because rights to elect, nominate, and designate directors are set forth in the certificate of incorporation or stockholder agreements, the terms of such governing documents will factor into whether a stockholder with less than majority ownership is a controlling stockholder. In addition, for a stockholder with less than 33% ownership, it would not appear that rights under a stockholder agreement could establish the basis for controlling stockholder status.
Section 122(18), which became effective on August 1, 2024, provides significant power for corporations to enter into governance arrangements with current and prospective stockholders in their capacities as such, subject to the certificate of incorporation, and may offer stockholders an avenue to greater influence over corporate governance without being characterized as a controlling stockholder. Likewise, stockholders may tailor their ability to protect certain rights and police corporate actions by private ordering, such as contractual and charterbased provisions. Specifically, investors may be more thoughtful regarding protective provisions and consent rights regarding the corporate actions that are most important to their investment thesis.
Forum Selection. Section 115 permits provisions of the certificate of incorporation and bylaws to select one or more courts in Delaware as the exclusive forum for internal corporate claims. As amended, Section 115 now provides that the forum or venue for intra-corporate affairs claims may also be selected in the certificate of incorporation and bylaws. Such provisions relating to intra-corporate affairs claims, such as a derivative claim under the U.S. Securities Exchange Act of 1934 (Exchange Act), may select courts outside of Delaware but must permit such claims in at least one court with jurisdiction in Delaware, such as the U.S. District Court for the District of Delaware for derivative claims under the Exchange Act. This resolves a circuit split among U.S. Courts of Appeal, including the 5 th, 7 th, and 9th Circuits, with respect to whether derivative claims under the Exchange Act alleging inadequate disclosure could be limited to Delaware state courts by forum selection provisions under Section 115 prior to these amendments.
Books & Records Documents
Section 220 has also been amended and governance practices leveraging the new provisions may provide additional advantages for transactions, corporations, directors, officers, and controlling stockholders in books and records demands.
Core Records. As amended, Section 220 identifies core corporate books and records, including (1) board and stockholder minutes, consents, and actions, (2) annual financial statements for the preceding three years, and (3) for corporations with stock listed on a national securities exchange, director and officer independence questionnaires. Under this new statutory regime, if the corporation maintains such core corporate records, then, unless the stockholder demonstrates a compelling need and shows by clear and convincing evidence that specific records are necessary and essential to further its proper purpose, the court generally may not compel stockholder inspection of corporate records other than those core corporate records and other key records such as the certificate of incorporation, bylaws, stockholder communications from the preceding three years, board and committee materials in connection with prior actions, and stockholder agreements. This provides significant incentive for good recordkeeping with an emphasis on these core corporate records.
Inspection Demands, Replies, Restrictions, and Conditions. Section 220 now requires a stockholder's inspection demand to describe its proper purpose with reasonable particularity, as well as the books and records that the stockholder seeks to inspect. Section 220 also now expressly authorizes the established practice whereby corporations impose reasonable restrictions on confidentiality, use, or distribution of its books and records, including as a condition to producing books and records to a stockholder demanding inspection. The corporation remains obligated to reply to a stockholder's inspection demand within five business days (or the stockholder may commence a petition in the Delaware Court of Chancery to compel inspection), but the corporation can continue to consider appropriate restrictions and conditions before agreeing to produce books and records.
State Filings
Certificate of Nullification. Section 103(f) has long provided for correction of inaccuracies or defects in prior filings with a certificate of correction. That section now expressly provides a new corporation action, referred to as "nullification," that would render the prior filing nullified and void with the same retroactive effectiveness as correction under Section 103(f) (except as to persons substantially and adversely affected by the nullification). Nullification of a prior filing may be effected in the same way as a correction and by filing with the Delaware secretary of state a certificate of nullification setting forth the inaccuracy or defect in the prior filing.
Certificate of Merger with Foreign Corporation. Section 252 provides for mergers between Delaware and nonDelaware corporations. Certificates for such mergers in which the surviving corporation was a foreign corporation were previously required to set forth the authorized capital of each constituent corporation. That requirement has now been deleted and that information need not be included in such certificates going forward.
Certificates of Revocation, Restoration, Revival, and Reinstatement. Section 311 permits the revocation of dissolution and restoration of an expired certificate of incorporation, and these amendments add requirements to the information that must be included in a certificate of revocation or certificate of restoration. Section 312 permits the revival of a certificate of incorporation that has been void or forfeited (e.g., for failure to pay franchise fees) and Section 377 permits the reinstatement of a foreign corporation's qualification to do business in Delaware, and these amendments require the corporation to pay unpaid franchise fees from the period during which the certificate of incorporation was void or forfeited or the qualification was forfeited.
Franchise Tax Reports. Sections 502, 503, and 505, regarding franchise fees, have been amended to require that annual reports disclose the nature of the corporation's business and to provide that a ratification involving a certificate of validation under Section 204 or a correction under Section 103(f) will not reduce interest or entitle the corporation to a refund.
Footnotes
1. The amendments to Sections 144 and 220 are effective retroactively except as to any action or proceeding commenced in a court of competent jurisdiction completed or pending before SB 21 was introduced in the Delaware Senate on February 17, 2025.
2. Section 228 requires, for stockholder action by consent, approval by holders of shares that would be necessary to take such action at a meeting at which all shares entitled to vote were present and voted.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
