Delaware Senate Substitute 1 for Senate Bill 21: A Controversial Corporate Overhaul Becomes Law in 36 Days, by Loren R. Barron, Esq., Monica Townsend, Esq., and Thomas Wallace, Esq., 4-9-2025

On March 25, 2025, just a few hours after it was resoundingly passed by the Delaware House of Representatives after a tense debate,¹ Delaware Governor Matt Meyer signed Senate Substitute 1 for Senate Bill 21 (the “New Law”) into law – a major update to Title 8 of the Delaware code relating to the general corporation law.

According to a press release from the Governor’s Office, passage of “this critical update to Delaware’s corporate law” is intended to “ensur[e] the state remains the premier home for U.S. and global businesses” with Governor Meyer noting that “Delaware is the best place in the world to incorporate your business, and [SS 1 for SB 21] will help keep it that way, ensuring clarity and predictability, balancing the interests of stockholders and corporate boards.” 

How Did Delaware Get Here?

Delaware has long been recognized as “the nation’s premier state for business incorporation.”²  This status is due in large part to the “expertise and speed” of the Delaware Court of Chancery in deciding sophisticated corporate matters. ³  At the same time, incorporations are big business in Delaware “with taxes and fees related to the industry bringing in more than $2.2 billion last fiscal year, or about a third of the state’s budget.”⁴

However, in recent months Delaware was in the national news for “DExit,” as prominent companies are considering departing the state to reincorporate in other states such as Nevada or Texas, with some well-known high profile corporate founders going as far as to recommend that companies bypass Delaware and incorporate elsewhere.⁵

In response, Governor Matt Meyer stated in national interviews in early February 2025 that “there need to be changes.”⁶

Shortly thereafter, on February 17, 2025, Senate Bill 21 entitled “An Act to Amend Title 8 of the Delaware Code Relating to the General Corporation Law” was introduced in the Delaware State Senate (“DE Senate”).⁷

On March 12, 2025, Senate Substitute 1 was adopted in the DE Senate in lieu of SB 21 and was unanimously passed by the DE Senate on March 13, 2025. ⁸

In the days leading up to the March 25, 2025 vote by the Delaware House of Representatives, seven house amendments were submitted for consideration, one of which was an opt-in provision – five of the proposed amendments were defeated and two were stricken, but the New Law was ultimately passed and signed into law as written.⁹

Key Changes to 8 Del. C. § 144 Related to “Interested Transactions”

Among the New Law’s critical changes is that protections which were previously in place for minority stockholders in “controller” or “interested” transactions have been weakened significantly.  Previously, to “cleanse” a controller transaction, a purported controlling stockholder was required to go through a process that required both (i) approval from an independent committee and (ii) a vote of the majority of the minority of stockholders in order to receive safe harbor protection for the transaction, under Kahn v. M&F Worldwide Corp.¹⁰ Under the New Law, though, a controller can successfully “cleanse” a controller transaction by receiving either (i) approval from an independent committee or (ii) a vote of the majority of the minority of stockholders.¹¹

Significantly, the New Law adds definitions for the key terms listed below for purposes of § 144: (1)“Control Group”, (2) Controlling Stockholder”, (3) “Controlling Stockholder Transaction”, (4)“Disinterested Director”, (5) “Disinterested Stockholder”, (6) “Going Private Transaction”, (7) “Material Interest”, and (8)“Material Relationship.” ¹²  Only time will tell if such definitions provide the “clearer, brighter-line definitions of key terms” as has been suggested by some commentators.¹³

Among the key defined terms is a tighter definition for a “controlling stockholder”, which is now defined as any person owning a majority of voting power in a corporation, or any person who owns at least one-third of voting power and has managerial authority in a corporation.¹⁴  By way of example, this would have excluded Elon Musk from being considered a “controlling stockholder” in the closely followed Tornetta v. Musk,¹⁵ since Musk only had 21.9% ownership in Tesla.¹⁶  Said another way, the New Law has stricter and tighter standards for a plaintiff to plead a “controlling stockholder” than those that were previously in place with case-law.

Key Changes to 8 Del. C. § 220 Related to “Books and Records”

The New Law defines “Books and records” to mean the following:

1. The certificate of incorporation, as defined in § 104 of this title, including a copy of any agreement or other instrument incorporated by reference in the certificate of incorporation.
2. The bylaws then in effect, including a copy of any agreement or other instrument incorporated by reference in the bylaws.
3. Minutes of all meetings of stockholders and the signed consents evidencing all action taken by stockholders without a meeting, in each case for the 3 years preceding the date of the demand under subsection (b) of this section.
4. All communications in writing or by electronic transmission to stockholders generally within the past 3 years preceding the date of the demand under subsection (b) of this section.
5. Minutes of any meeting of the board of directors or any committee of the board of directors and records of any action of the board of directors or any such committee.
6. Materials provided to the board of directors or any committee of the board of directors in connection with actions taken by the board of directors or any such committee.
7. Annual financial statements of the corporation for the 3 years preceding the date of the demand under subsection (b) of this section.
8. Any agreement entered into under § 122(18) of this title.
9. Director and officer independence questionnaires. ¹⁷

The New Law sets forth the criteria, all of which must be satisfied, necessary for a stockholder to inspect and copy a corporation’s books and records, which are significantly more demanding for a stockholder than the standards under previous books and records actions:

“a. The stockholder’s demand is made in good faith and for a proper purpose, [which is defined as “’a purpose reasonably related to a stockholder’s interest as a stockholder.’”]

 b. The stockholder’s demand describes with reasonable particularity the stockholder’s purpose and the books and records the stockholder seeks to inspect.

 c. The books and records sought are specifically related to the stockholder’s purpose.” ¹⁸

The New Law now permits corporations to” impose reasonable restrictions on the confidentiality, use, or distribution of books and records” and permits the corporation to put conditions in place related to any such production and make redactions so long as such redactions “are not specifically related to the stockholder’s purpose.” ¹⁹

It will be interesting to watch the impact of the § 220 amendments over time as the changes have been criticized for being “poorly drafted”, for not including emails and texts in the definitions of “books and records” and for creating a “higher burden” on stockholders in order for the court to order a corporation to produce records.²⁰

Effective Date

Section 3 of the New Law provides that the changes take effect on March 25, 2025, the date the bill was signed into law by the Governor, and that it applies “to all acts and transactions, whether occurring before, on, or after [March 25, 2025],” but that the changes to §§ 144 and 220 “do not apply to or affect any action or proceeding commenced in a court of competent jurisdiction that is completed or pending, or any demand to inspect books and records made, on or before February 17, 2025.”²¹  In other words, pending litigation filed on or before February 17, 2025, in a Court of competent jurisdiction will not be impacted by the New Law, however, the law is in effect for all other instances moving forward.

Where Does Delaware Go From Here?

Those in favor of the amendments argued that they are simply a “course correction”²² and that they “are necessary to stem what they say could become a trend of companies choosing other states to incorporate . . . and what they say is a more recent trend of large companies questioning their future” in Delaware.²³  In contrast, opponents, including “academics, attorneys who represent shareholder plaintiffs, and institutional investors like pension funds [argued] that such an exodus is unlikely and not underway. [and that ] the threat of such is a mirage that obscures the bill’s true intent: to deregulate corporate governance at the behest of business titans . . . .” ²⁴

Emphasizing the overhaul represented by the bill, some legal scholars have claimed that the New Law may effectively overturn, at minimum, 25 or more opinions from Delaware’s Supreme Court in this area of the law developed over the last several decades. ²⁵  Although the New Law’s synopsis explicitly stated that “the Amendment’s Safe Harbor procedures do not displace any safe harbor procedures or other protections available at the common law,” legal scholars continue to debate the impact the bill will have on a substantial body of case law from Delaware’s Supreme Court and Delaware’s Court of Chancery.

While the New Law’s influence on whether corporations will stay in Delaware remains to be seen, the Delaware General Assembly may not be done with corporate changes as Senate Concurrent Resolution 17 (“SCR17”) was also introduced on February 17, 2025. ²⁶  As proposed, SCR17 charges the Council of the Corporation Law Section of the Delaware State Bar Association (the “Council) with the following task:

Prepar[ing], on or before March 31, 2025, a report with recommendations for legislative action that might help the Delaware Judiciary ensure that awards of attorney’s fees provide incentives for litigation appropriately protective of stockholders but not so excessive as to act as a counterproductive toll on Delaware companies and their stockholders that threatens to make the overall “benefit-to-cost” ratio of corporate litigation negative.

SCR17 further requests for the Council to “examine the utility of a cap on such awards” in making its recommendations. ²⁷  The current status of SCR17 reflects that is was “[l]aid on [the] table during consideration [and that it] awaits further action.”²⁸

Yet, concerns abound.  In the days before the passage of the New Law, Bruce McNew, a long-time and well-respected member of the Delaware bar who routinely represents investors before the Delaware Court of Chancery, stated, “All of this fallout is to protect self-dealing—I have a [difficult] time buying that self-dealing transactions are so important to our economy.”  He went on to note that “the talk of federalizing corporate law [is the real risk]—if that happens, then Delaware’s role becomes irrelevant.”  And, on April 3, 2025, a mere nine days after the Governor signed the amendments into law, a challenge was filed in Plumbers & Fitters Local 295 Pension Fund v. Dropbox, Inc., et al., C.A. No. 2025-0354-KSJM, compl. (Del. Ch. Apr. 3, 2025; red. April 8, 2025) alleging that the New Law is unconstitutional under Delaware’s constitution.²⁹

Look for updates as Kaufman Dolowich continues to monitor Delaware corporate law developments including the recently filed constitutional challenge. 

Authors: Loren Barron, Managing Partner of KD’s Wilmington, Delaware Office, Associate Monica Townsend, and Associate Thomas Wallace

¹ Karl Baker and Jacob Owens, Meyers signs controversial Senate Bill 21 into law after bitter House debate, Spotlight Delaware (Mar 26, 2025), https://spotlightdelaware.org/2025/03/26/meyer-signs-senate-bill-21/ (last visited Apr. 4, 2025).

² Xerxes Wilson, Controversial Delaware corporate law changes head to state Senate for vote, Delaware News Journal (updated 4:24 p.m. ET Mar. 13, 2025), https://www.delawareonline.com/story/news/2025/03/12/delaware-senate-controversial-corporate-law-changes-elon-musk-matt-meyer/82266575007 (last visited Mar. 28, 2025).

³ Id.

⁴ Jacob Owens and Karl Baker, Landmark Delaware corporate law changes aim to stem exits, Spotlight Delaware (Feb. 19, 2025), https://spotlightdelaware.org/2025/02/19/delaware-corporate-law-change-sb-21/ (last visited Apr. 4, 2025), see also, https://news.delaware.gov/2025/03/12/governor-meyer-calls-for-swift-passage-of-senate-bill-21/ (“Delaware is the corporate home to 2.2 million registered entities—more than twice the number of people in the state—and incorporated 81% of U.S. IPOs last year.  The corporate franchise represents more than one-third of the Delaware state budget at roughly $2.2 billion.”) (last visited Apr. 4, 2025). The corporate franchise represents more than one-third of the Delaware state budget at roughly $2.2 billion.”) (last visited Apr. 4, 2025).

⁵ The Rio Times, Dexit: Why Companies Are Leaving Delaware and What It Means for Business (Feb. 18, 2025), https://www.riotimesonline.com/dexit-why-companies-are-leaving-delaware-and-what-it-means-for-business/ (last visited Apr. 4, 2025); see also, Jordan Howell, Delaware Call Interviews Sen. Bryan Townsend About SB21 Is Delaware in a crisis? Senate Majority Leader Bryan Townsend seems to think so (Feb. 21, 2025), https://delawarecall.com/2025/02/21/delaware-call-interviews-sen-bryan-townsend-about-sb21/ (last visited Apr. 4, 2025).

⁶ Jacob Owens, Meyer considers corporate court reform, drawing concern, Spotlight Delaware (Feb. 11, 2025), https://spotlightdelaware.org/2025/02/11/meyer-chancery-court-reform/ (last visited Apr. 4, 2025).

⁷https://legis.delaware.gov/BillDetail?LegislationId=141930.

⁸ Id.

⁹ Id.

¹⁰88 A.3d 635 (Del. 2014).

¹¹ 85 Del. Laws ch. 6, § 1 (2025).

¹²Id.

¹³ Delaware Business Times, Viewpoint: Delaware’s Corporate Law, Proposed Amendments Play Fair (Mar. 6, 2025), https://delawarebusinesstimes.com/news/viewpoint-sb21-chandler-hamermesh/ (last visited April 4, 2025).

¹⁴ 85 Del. Laws ch. 6, § 1 (2025) .

¹⁵310 A.3d 430 (Del. Ch. 2024).

¹⁶ Id. at 446-448, 454.

¹⁷85 Del. Laws ch. 6, § 2 (2025).

¹⁸ Id.

¹⁹ Id.

²⁰ ProfessorBainbridge.com, The Badly Drafted Books and Records Provisions of Delaware SB 21: What Documents Can Shareholders Inspect?, Mar. 7, 2025 Posted at 5:34 p.m., https://www.professorbainbridge.com/professorbainbridgecom/2025/03/the-books-and-records-provisions-of-delaware-sb21-what-documents-can-shareholders-inspect-.html (last visited Mar. 28, 2025).

²¹ 85 Del. Laws ch. 6, § 3 (2025).

²² Xerxes Wilson, Controversial Delaware corporate law changes head to state Senate for vote, Delaware News Journal (updated 4:24 p.m. ET Mar. 13, 2025), https://www.delawareonline.com/story/news/2025/03/12/delaware-senate-controversial-corporate-law-changes-elon-musk-matt-meyer/82266575007 (last visited Mar. 28, 2025).

²³ Id.

²⁴ Id.

²⁵ Jeff Montgomery,Law360, Del. Legal Overhaul Won’t Scuttle Key Rulings, Expert Says, (Mar. 31, 2025, at 8:12 p.m. (EDT),  https://www.law360.com/articles/2318019/del-legal-overhaul-won-t-scuttle-key-rulings-expert-says (last visited Apr. 4, 2025).

²⁶ https://legis.delaware.gov/BillDetail?LegislationId=141858 (last visited Apr. 4, 2025).

²⁷ Id.

²⁸ Id.

²⁹ Id.