Delaware Enacts Significant Amendments to the Delaware General Corporation Law

On March 25, 2025, the Delaware General Assembly enacted amendments to the Delaware General Corporation Law (the DGCL and such amendments, the DGCL Amendments), which were subsequently signed into law by the governor of Delaware. The DGCL Amendments have significant implications for corporations and their stockholders, most specifically with respect to controlling stockholder and interested party transactions under Section 144 of the DGCL and stockholder rights under Section 220 of the DGCL, which governs the inspection of corporate books and records.

Summary of Important Changes

1. Resets standards governing controlling stockholder and interested party transactions to provide more predictability (Section 144). The DGCL Amendments provide a clear framework for controlling stockholder and interested party transactions that create safe harbors so that decisions by independent directors will not be seconded guessed and litigation can more easily be dismissed at the pleadings stage. This is a change from the prior jurisprudence regime governing such transactions that became increasingly difficult (and expensive) to comply with in order to obtain pleading stage dismissal.
2. Presumption of independence for directors (Section 144). The DGCL Amendments provide a presumption of independence for public company directors that the corporation determines to be independent and that meet the criteria under the applicable stock exchange rules.
3. Refinement of stockholder inspection rights (Section 220). The revisions clarify and, in some cases, limit the scope of records stockholders can access through a Section 220 demand, reducing administrative burdens and potential misuse of inspection rights.

The following summarizes the specific changes under Sections 144 and 220 of the DGCL.

Changes to Section 144 of the DGCL Under the DGCL Amendments

Section 144 sets forth the procedures for the approval of transactions involving a corporation on one hand and an officer, director or controlling stockholder of the corporation or their respective affiliates on the other hand. Prior to the passage of the DGCL Amendments, Section 144 did not provide a specific framework for the approval of interested party transactions involving a controlling stockholder or their respective affiliates, resulting in recent Court of Chancery decisions in which the entire fairness standard, a heightened level of scrutiny by the court, was unexpectedly applied to transactions involving controlling stockholders. The DGCL Amendments address this issue by creating explicit safe harbors for interested party transactions, including transactions involving a corporation and its controlling stockholder. The DGCL Amendments also eliminate monetary damages against controlling stockholders for duty of care violations.

Transactions Involving Controlling Stockholders and Other Interested Transactions

Under the DGCL Amendments, a controller is now defined as a stockholder holding either (i) at least 33⅓ percent of the voting power of the corporation’s issued and outstanding shares plus managerial authority equivalent to a majority owner or (ii) ownership or control over the election or nomination of a majority of the directors or voting power on the board of directors. In addition, transactions with controllers that are not squeeze out or going private mergers, and other interested transactions would have to satisfy only one prong of a prescribed framework to receive the more favorable business judgement rule review. The framework is:

1. Material facts to the transaction are disclosed to or known to all members of a committee of the board of directors, where such committee (a) includes two or more disinterested directors and (b) has been delegated the authority to negotiate and reject the transaction. Of note, the DGCL Amendments require that only a majority of the directors on the committee must be disinterested, as opposed to prior jurisprudence which required that every director on such committee be independent in order to receive deference to such committee’s approval (the Disinterested Director Approval Safe Harbor).
2. The transaction is conditioned by its terms on the approval of, or ratification by, the corporation’s disinterested stockholders and the transaction is approved by a majority of votes cast by disinterested stockholders, provided that such disinterested stockholders are informed and are not coerced. Of note, the DGCL Amendments provide for a “votes cast” standard, rather than a majority of the outstanding stock not held by interested persons (the accepted standard under prior jurisprudence), which will provide a lower threshold and more certainty for obtaining the vote (the Disinterested Stockholder Approval Safe Harbor).

Only in controller mergers where minority stockholders are squeezed out (i.e., going private transaction) would both of the conditions described above be required to be met for the safe harbor to be established.

Under the DGCL Amendments, the committee review or majority of the minority vote can be implemented at any time during the deal process, in contrast to prior jurisprudence, which required similar conditions to be implemented ab initio, interpreted as before the start of substantive economic negotiations.

Section 144 provides that as an alternative to complying with one or both of the above safe harbor requirements, safe harbor protection can also be obtained for controller and other interested transactions if such transaction is “fair as to the corporation.” Under this standard, known as the entire fairness standard, the corporation and its board of directors must show that the economic terms of the transaction and process taken to negotiate and approve the transaction were fair to both the corporation and the corporation’s stockholders.

Transactions Involving Directors and Officers

Under the DGCL Amendments, a “safe harbor” is created for transactions in which a corporation’s directors or officers are a party or have a material interest if the requirements for a Disinterested Director Approval Safe Harbor or Disinterested Stockholder Approval Safe Harbor are met, subject to the following differences:

1. Disinterested Director Approval Safe Harbor: A committee is only required if a majority of the directors on the corporation’s board of directors are not disinterested. Otherwise, the transaction may be approved by a majority of the disinterested directors of the board of directors.
2. Disinterested Stockholder Approval Safe Harbor: The transaction does not need to be conditioned on the approval of the disinterested stockholders. However, the material facts as to the interested officer or director’s relationship to the transaction, including any interest that may be adverse to the corporation’s interest, must be disclosed or otherwise known to the stockholders entitled to vote on the transaction.

Favorable Presumption of Directors Disinterestedness

The DGCL Amendments also seek to provide increased predictability with respect to determinations of director disinterestedness. The DGCL Amendments create a presumption that directors of public companies are independent with respect to a transaction if they are not a party to the transaction and the board of directors determines that such director is independent under the criteria set forth by the NYSE or Nasdaq. The independence presumption is rebuttable only if there is substantial and particularized evidence that the director has a material interest in the transaction or material relationship with an interested party.

Changes to Section 220 of the DGCL Under the DGCL Amendments

Under Section 220, a stockholder may demand inspection of a corporation’s books and records if the stockholder can demonstrate a “proper purpose” which Delaware courts have interpreted broadly. Corporations have long complained that this stockholder inspection right was expanding beyond its mandate and causing corporations, officers and directors to expend considerable resources to respond to an ever-increasing volume of demands requiring the production of voluminous records including, in some instances, electronic communications and threatened litigation. The DGCL Amendments aim to provide predictability, lower costs and reduce corporate risk.  

Under the DGCL Amendments, a corporation’s “books and records” subject to demand will be specifically defined as the following corporate materials and documents over the prior three years:

1. The certificate of incorporation;
2. Bylaws;
3. Stockholder meeting minutes and signed consents;
4. The corporation’s communications in writing to stockholders;
5. Board of director meeting minutes and signed consents;
6. Material provided to the board;
7. Annual financial statements;
8. Corporate contracts with stockholders; and
9. Director and officer independence questionnaires.

Importantly, the DGCL clarifies that a stockholder may inspect the corporation’s books and records only if (i) the demand is made in good faith and for a proper purpose, (ii) the stockholder’s demand describes with particularity the purpose and the books and record sought and (iii) the books and record sought are specifically related to the stockholder’s purpose. This is a heightened standard compared to the standard set forth under Section 220 before the DGCL Amendments, which required demanding stockholders only to show a proper purpose for the demand.

In order for a stockholder to compel a corporation to produce records outside the scope of the definition of “books and records,” under the DGCL Amendments, such stockholder must (i) meet all of the procedural requirements for demands to inspect books and records outlined in the previous paragraph, (ii) show a compelling need for an inspection of such other records and (iii) demonstrate by clear and convincing evidence that such other records are necessary and essential to further the stockholder’s purpose.

Finally, the DGCL Amendments clarify the corporation’s right to confidentiality. Not only may a corporation demand stockholders execute a confidentiality agreement prior to obtaining books and records, but the corporation may redact portions of records not specifically related to the proper purpose of the stockholder’s demand. Additionally, corporations can require that information obtained be deemed incorporated by reference in any related legal action filed by the stockholder.

The impact of the changes regarding stockholder demands under Section 220 should be considerable. By defining the scope of what constitutes books and records, and providing enhanced conditions to demonstrate with particularity the proper purpose, corporations will be better suited to anticipate and manage stockholder demands, reduce legal uncertainties and lower administrative burdens and cost. The changes should further reduce litigation of frivolous or expansive inspection demands that are followed by even more litigation.

Taken together, the DGCL Amendments will likely limit a corporation’s exposure to stockholder demands under Section 220 and lessen the burden of costly litigation that can result from such demands.

What Does It Mean for Your Business?

With respect to the DGCL Amendments to Section 144, corporations should consider the following:

1. Review and update corporate governance documents, including conflict of interest and interested party transactions policies, to reflect new definitions under Section 144.
2. Consult legal counsel to develop strategies for consideration and approval of interested transactions in a manner that meets the procedural requirements for reliance on the Disinterested Director Approval Safe Harbor or Disinterested Stockholder Approval Safe Harbor.

With respect to the DGCL Amendments to Section 220, corporations should consider the following:

1. Review and update corporate governance documents, including corporate bylaws and internal policies and procedures, to reflect the new definitions under Section 220.
2. Consider establishing procedures for compliance, including the maintenance of the specific books and records for the requisite three-year period.
3. Consult legal counsel to develop strategies for responding to stockholder inspection demands under the DGCL Amendments.