On February 17, 2025, significant amendments to the General Corporation Law of the State of Delaware (the DGCL) were proposed directly by the Delaware General Assembly via Senate Bill No. 21, signaling important updates for stockholder rights under Delaware law. These revisions, which have not yet been voted upon by the Delaware General Assembly, are focused on corporate transactions involving interested parties, director independence and controlling stockholders, and the inspection of corporate books and records by stockholders and directors of a Delaware corporation.
Key proposed updates include:
- Section 144 Amendment: Section 144 governs transactions involving interested parties, including directors, officers and controlling stockholders. The proposal seeks to establish clearer safe harbor protections for those with potential conflicts of interest. By adhering to specified procedures, such as obtaining approval from disinterested directors or stockholders, these types of transactions would not be subject to judicial review under the exacting entire fairness standard but rather the deferential business judgment rule. The proposed changes further specify that controlling stockholders and control groups generally cannot be held liable for monetary damages stemming from breaches of the fiduciary duty of care.
- Section 220 Amendment: Section 220 deals with stockholders’ and directors’ rights to inspect certain corporate books and records. The proposal offers more precise definitions around the types of documents that must be produced in a books and records action, while also permitting corporations to impose restrictions on the confidentiality, use or distribution of its books and records.
Recent concerns have arisen due to high-profile companies threatening to relocate their legal domicile from Delaware, citing unfavorable legal standards. The proposed amendments to Sections 144 and Section 220 are seen as a response to reflect Delaware’s ongoing efforts to maintain its position as the preferred jurisdiction for corporate formations by providing clearer, more predictable rules for companies navigating complex governance matters.
The Delaware General Assembly also introduced Senate Concurrent Resolution 17, which requests that the Council of the Corporation Law Section of the Delaware State Bar Association (the Council) prepare a report with recommendations for legislative action regarding awards of attorney’s fees in certain corporate litigation cases. This resolution aims to address concerns that excessive attorney’s fees may have been awarded in cases claiming a corporate benefit or common fund for stockholders, potentially leading to recurring stockholder litigation. In its request, the General Assembly also asks the Council to consider the utility of capping excessive monetary awards.
Over the next few weeks and months, the proposed amendments under Senate Bill No. 21 will be subject to debate in the Delaware General Assembly, as well as considered by the Council, which has historically reviewed and recommended changes to the DGCL. The Council’s report on attorney’s fees is also to be submitted by March 31, 2025.
