Redrafting The Blueprint: Delaware Legislature Proposes Amendments To DGCL Amid DExit Concerns

On February 17, 2025, the Delaware legislature introduced Senate Bill 21 (SB21) and Senate Concurrent Resolution 17 (SCR17). SB21 proposes amendments to the Delaware General Corporate Law (DGCL) that expand the safe harbor afforded in the context of certain interested transactions, while also proposing amendments to the DGCL 122 concerning books and records inspections. SCR17 would require the Delaware Bar to produce recommendations on attorney's fees awards.

The introduction of these bills comes at a time when companies are increasingly considering leaving Delaware—now being referred to as "DExit"—in favor of reincorporating in other states. Recently, the Delaware Supreme Court further facilitated this shift by making the path to reincorporation more accessible.

Report Attorney's Fees Awards

Attorneys' fees also have dominated the news cycle. In December 2024, the Court of Chancery granted $345 million in attorney's fees in Tornetta v. Musk and in January 2025 approved a settlement that awarded the lawyers who negotiated the settlement $176 million in fees in Police & Fire Ret. Sys. of the City of Detroit v. Musk.

SCR17 directs the Council of the Corporation Law Section of the Delaware State Bar Association to produce a report with recommendations for legislative action concerning the awarding of attorney's fees in specific corporate litigation cases.

Interested-Party Transactions

Section 144 of DGCL ("DGCL 144") was enacted with the specific purpose of preventing certain transactions—those involving a corporation's directors and officers with a personal interest—from being automatically void under common law. SB21 proposes to expand DGCL 144 to include "controlling stockholders" and "control groups" and provide a safe harbor for transactions in which these parties have interests that might render them conflicted. SB21 introduces specific procedures for controlling stockholder transactions and distinguishes between "going private" transactions and "not-going private" transactions. SB21 replaces current DGCL 144(b) and a controlling stockholder transaction that does not constitute a going private transaction may be entitled to safe harbor protection if the transaction is (1) approved or recommended by a committee of disinterested directors; or (2) approved or ratified by a majority of the votes cast by disinterested stockholders. For going private transactions, SB21 proposes new DGCL 144(c), which stipulates that such transactions may receive safe harbor protection if the transactions: (1) are negotiated and approved or recommended by a committee of disinterested directors; or (2) they are approved or ratified by a majority of the votes cast by disinterested stockholders.

SB21 proposes defining key terms in DGCL 144(e), including:

• Controlling Stockholder as any person that either owns or controls a majority of the corporation's voting stock, or exercises equivalent control by owning at least one-third of the voting stock or having influence over a majority of the board's voting power and corporate management;
• Control Group as two or more persons who, though not individually controlling stockholders, collectively form a controlling stockholder through an agreement, arrangement, or understanding;
• Disinterested director as a director who is not involved in the transaction, has no material interest in it, and has no significant relationship with anyone who does; and
• Disinterested stockholder as a stockholder who has no material interest in the transaction and no significant relationship with anyone who does.

The proposed amendments also define "Controlling stockholder transaction," "Fair as to the corporation," "Going private transaction," "Material interest," and "Material relationship." The amendments proposed by SB21 also specify that controlling stockholders and control groups, in their capacity as such, cannot be held liable for monetary damages for breaches of the duty of care.

Finally, SB21 preserves common law protections, stating that the amendments do not displace any safe harbor procedures or other protections available at common law.

Books & Records

SB21 also proposes amendments to Section 122 of the DGCL ("DGCL 122") concerning stockholders' rights to inspect corporate books and records. DGCL 122 does not define "books and records." SB21 proposes defining "books and records" as including all of the following:

1. Company's certificate of incorporation
2. Company's bylaws
3. Stockholder meeting minutes and signed consents documenting all actions taken by stockholders without a meeting (last three years)
4. All communications in writing or by electronic transmission to stockholders (last three years)
5. Board of directors meeting or board committee meeting minutes and records of any action taken by the board or any such committee
6. Materials provided to the board of directors or any committee concerning actions taken by the board or committee
7. Annual financial statements (last 3 years)
8. Any agreement entered into under DGCL Section 122(18)

The amendments also establish specific conditions that stockholders must meet to inspect corporate books and records. SB21 clarifies that any information obtained through a DGCL 220 inspection will be deemed to be incorporated by reference into any complaint filed by or at the direction of a stockholder on the basis of information obtained through a demand for books and records. Newly proposed DGCL 220(b)(4) would confirm that the amendments under SB21 do not create new inspection rights but preserve any independent rights that already exist. New DGCL 220(f) would empower the Delaware Court of Chancery to compel corporations to produce additional relevant records if the specified documents are unavailable and the requested records are necessary for the stockholder's proper purpose.

SB21 requires a greater than majority vote for passage as the Delaware Constitution requires the affirmative vote of two-thirds of the members elected to each house of the General Assembly to amend the DGCL.

Conclusion

These proposed amendments mark a significant shift in Delaware corporate law, addressing corporate governance, stockholder rights, and judicial oversight concerns. SB21 and SCR17 seek to modernize Delaware's legal framework. There is certain to be more to come on these important issues.