On March 25, 2025, Delaware Gov. Matt Meyer signed Senate Bill 21 into law. The new laws amend Section 144 of Title 8 of the Delaware General Corporation Law (DGCL) to change how interested-director, interested-officer and controlling-stockholder transactions may be ratified, and amend Section 220 of Title 8 of the DGCL to place boundaries on stockholders’ ability to demand books and records thereunder.
New Laws
Section 1 of the act amends 8 Del C. § 144 to provide safe harbor protection for interested-director, interested-officer and controlling-stockholder transactions. Safe harbor provisions are statutory or regulatory procedures that can be followed to protect interested-party transactions from being void or voidable solely because they involve an interested party. Under the revised § 144(a), certain acts or transactions involving directors or officers with an interest in the transaction may not be subject to equitable relief or give rise to an award of damages against the director or officer merely because they are present at or participate in the authorizing board meeting, so long as the transaction is fully disclosed and is approved or ratified by a majority of the disinterested directors or by a majority of the votes cast by the disinterested stockholders entitled to vote thereon, or if the transaction is deemed fair as to the corporation.
The new § 144(b), creates a safe harbor for controlling-stockholder transactions that are not “going private transactions” so long as the transaction is fully disclosed and is approved or recommended for approval by a committee consisting of a majority of two or more disinterested directors or is conditioned from the time the proposal was made on, and approved or ratified by, a majority of the votes cast by the disinterested stockholders, or the transaction is deemed fair to the corporation. The act defines going private transactions as (1) a Rule 13e-3 transaction as defined in 17 CFR § 240.13e-3(a)(3) (or any successor provision) for a corporation with a class of equity securities subject to § 12(g) or 15(d) of the Securities Exchange Act of 1934, or (2) any controlling stockholder transaction, “including a merger, recapitalization, share purchase, consolidation, amendment to the certificate of incorporation, tender or exchange offer, conversion, transfer, domestication or continuance, pursuant to which all or substantially all of the shares of the corporation’s capital stock held by the disinterested stockholders (but not those of the controlling stockholder or control group) are cancelled, converted, purchased, or otherwise acquired or cease to be outstanding.”
Under the new § 144(c), a controlling stockholder transaction that constitutes a “going private transaction” is entitled to safe harbor protection if it is fully disclosed and approved or recommended for approval by a committee consisting of a majority of disinterested directors and conditioned from the time the proposal was made on, and approved or ratified by a vote of a majority of the votes cast by the disinterested stockholders entitled to vote thereon, or if the transaction is deemed fair to the corporation.
The amendments to § 144 also update the criteria for determining the independence and disinterestedness of directors and stockholders. The new § 144(d)(2) creates a heightened presumption that a director of a corporation is disinterested if (1) they have a class of stock of the corporation that is listed on a national exchange, (2) they are not a party to the transaction and (3) the board determines they satisfy the applicable criteria for determining director independence from the corporation. Section 144(d)(2) also creates a heightened presumption that a stockholder is disinterested if, with respect to the relevant transaction, the board determines that the controlling stockholder or control group meet the criteria for independence promulgated by such exchange. The act, at § 144(d)(3), makes clear that the nomination of the director by any person with a material interest in the transaction is not alone sufficient evidence that the director is not disinterested with respect to the transaction.
The act, at § 144(d)(5), precludes monetary liability of controlling stockholders and control groups for claims of breach of the fiduciary duty of care (other than for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law) and clarifies, at § 144(e)(2), that controlling stockholders are stockholders that either own a majority in voting power of the outstanding common stock entitled to vote, have the functional equivalent of a majority of the voting power as a result of their ownership of at least one-third in voting power, or have the right and discretion, pursuant to contract or otherwise, to cause the election of nominees that would constitute a majority of the directors or a majority of the voting power of the board of directors. Section 144(e)(1) clarifies that control groups are two or more persons that pursuant to an agreement constitute a controlling stockholder.
Section 2 of the act amends 8 Del C. § 220(a) to set limits to the types of books and records that stockholders can demand. Stockholders can now demand certificates of incorporation, bylaws, committee meeting and board minutes, board materials, annual financial statements (for the preceding three years), agreements under 8 Del C. § 122(18), written or electronic communications to stockholders (for the preceding three years), stockholder meeting minutes and actions taken by stockholders without a meeting (for the preceding three years), and director and officer independence questionnaires. The new § 220(f) allows the Court of Chancery to order the production of additional corporate books and records if the corporation does not have any stockholder meeting minutes from the preceding three years, meeting minutes or records of any action by the board or board committee, or annual financial statements from the preceding three years, or director and officer independence questionnaires when the corporation has a class of stock listed on a national securities exchange.
The new § 220(b) also specifies that stockholder demands must now be made in good faith and describe with reasonable particularity a proper purpose for the demand and show that the records requested are specifically related to the demand. It also allows corporations to maintain reasonable restrictions on the confidentiality, use, or distribution of any books or records produced to stockholders and requires that stockholders incorporate any such books and records by reference in any related complaint filed at the direction of the stockholder.
Key Takeaway
The act has created bright line rules easing the requirements established in Kahn v. M&F Worldwide Corp. (MFW)for ratifying controlling-stockholder transactions and overturns MFW’s progeny that required strict compliance with the MFW framework for controlling-stockholder transactions beyond going private transactions. The act reinforces the importance of ensuring that disinterested directors are fully informed before their votes and corporations should take care to disclose all material facts to such directors and their stockholders prior to any vote by such persons. The act also affords Delaware corporations greater protections in favor of the confidentiality of corporate books and records and against burdensome 220 demands.