Delaware Makes Notable Changes to Its General Corporation Law 

What This is: On March 25, 2025, Delaware Governor Matt Meyer signed Senate Bill 21 (SB 21) into law. The bill makes significant changes to the Delaware General Corporation Law (DGCL) by expanding the safe harbor aspects of §144 regarding transactions involving interested directors and others, and by amending § 220 to change requirements for the scope and production of books and records for stockholder inspection.   
 
What This Means: Let’s look at the highlights of some of the key aspects of SB 21. 

Expanded Safe Harbor for Interested Directors, Officers and Others

In transactions where interested directors, officers, controlling stockholders, and/or control group members are involved, SB 21 expands safe harbor protection significantly.  Acts or transactions involving interested directors or officers will be protected if they are approved by a disinterested director majority or by a majority of votes cast by disinterested stockholders and meet certain conditions, including: 

Material facts as to the director’s or officer’s relationship or interest as to the act or transaction (including any involvement in the initiation, negotiation, or approval of the act or transaction) are disclosed or known to all members of the board of directors or a committee of board of directors, and the board or committee, in good faith and without gross negligence, authorizes the act or transaction by the affirmative votes of a majority of the disinterested directors then serving on the board of directors or such committee, even though there is less than a quorum; if there is not a disinterested director majority, the act or transaction must be approved by a committee of 2 or more directors, determined by the board to be disinterested; or the act or transaction may be approved or ratified by an informed, uncoerced, affirmative vote of a majority of the votes cast by disinterested stockholders; or the transaction or act is fair to the corporation and the corporation’s stockholders. 

New Protection for Controlling Stockholders 

Transactions involving controlling stockholders may be protected if the related material facts (including the controlling stockholder’s or control group interest) are disclosed or are known to a delegated director committee which has the authority to negotiate, oversee, reject the transaction and the transaction is approved or recommended for approval in good faith and without gross negligence by a majority of the disinterested director committee; (The committee must consist of 2 or more disinterested directors with respect to the controlling stockholder transaction); or if the transaction is submitted to the stockholders it must be approved or ratified by an informed, uncoerced, affirmative vote of a majority of votes cast by disinterested stockholders; or such controlling stockholder transaction is fair to the corporation and its stockholders.   

Changes Regarding Stockholder Rights to Inspect Books and Records  

Under prior law, there was more latitude for a stockholder to inspect a corporation’s books and records.  There was no general definition for what books and records needed to be available for inspection. Written demand was to be made under oath, stating the purpose for the inspection of such records as the corporation’s stock ledger, a list of its stockholders, and its other books and records and a subsidiary’s books and records subject to certain limitations. SB 21 lessens the burden on corporations.  The bill defines the list of books and records that must be available for a stockholder to inspect, also including a time limitation for some.  

The time limitation includes:  

• Minutes of stockholder meetings for the three years before the stockholder demand 

• Communications in writing or by electronic transmission to stockholders within the past three years before the date of the demand 

• Annual financial statements of the corporation for the three years before the date of the demand.  

The bill also sets stringent requirements for a stockholder to be able to inspect the corporation’s books and records:  

• The stockholder’s demand must be in good faith and for a proper purpose and must describe with reasonable particularity the stockholder’s purpose and the books and records sought to be inspected.  

• The books and records must be specifically related to the stockholder’s purpose.  

• Under the bill, the corporation may impose reasonable restrictions on the confidentiality, use or distribution of the books and records.  

• The corporation may require that the stockholder agree that any information included in the corporation’s books and records is considered incorporated by reference in any complaint filed by or at the direction of the stockholder in relation to the subject matter on demand.  

• The corporation may redact portions of any books or records produced to such stockholder to the extent the portions so redacted are not specifically related to the stockholder’s purpose.  

• The right of a stockholder to seek discovery of books and records if in litigation with the corporation is not affected and remains the same as that of any other litigant. The power of a court independently to compel the production of corporate records for inspection and to impose reasonable restrictions is not affected by the bill so long as the stockholder has met required conditions.   

Under prior law, a director had a right to examine the corporation’s stock ledger, a list of its stockholders, its books and records for a purpose reasonably related to the director’s position as a director. The bill adds that a director could examine other corporate records as well. The Court of Chancery has exclusive jurisdiction to determine whether a director is entitled to the inspection sought and may order the corporation to permit the director to inspect other corporate records as well as the list of stockholders, books and records permitted under the prior law. 

Under the bill, in a stockholder-initiated court proceeding to compel the inspection of books and records, the Court  of Chancery may order the corporation to produce additional records, if the stockholder satisfies certain requirements and shows how specific records are essential, including showing a compelling need for an inspection to further the stockholder’s proper  purpose or demonstrating by clear and convincing evidence that such records are essential. The Court is permitted to impose reasonable restrictions to any records of the corporation as set by law. 

Effective Date  

SB 21’s amendments to the DGCL became generally effective on March 25, 2025. 

The text of SB 21 is available here

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.