Delaware Corporate Law - Important and Fundamental Amendments Passed
On March 25, 2025, Delaware amended its General Corporation Law (“DGCL”) in significant ways, reshaping key principles of legal review of conflicted fiduciary conduct, corporate liability, stockholder information rights, and the rights of various corporate constituencies (per se and relative to one another), among other things.
These changes are a direct reaction to recent Court of Chancery decisions involving Elon Musk, TripAdvisor, Meta, and other major corporations and corporate figures, seeking to overrule, limit, or otherwise address the holdings in those cases. The controversial amendments were approved by the Delaware Legislature quickly in response to other states’ encroachment on, and long-term goal to usurp, Delaware’s preeminence in corporate formations and domiciles – particularly Nevada and Texas. These states were leveraging the Chancery Court decisions as part of individual campaigns to convince businesses to initially form or redomicile in those states.
The amendments are retroactive, meaning they apply going forward to conduct both before and after their adoption, implicated in litigation brought after the amendments’ effective date; this excludes cases decided prior to that. Shareholders of Delaware companies have challenged the amendments under the Delaware Constitution on various bases, including based on the unusual retroactive application of the rules.
The following discussion summarizes the key changes made by the March DGCL amendments:
- Safe Harbor for Conflicted Transactions
The amendments included changes to the safe harbor for conflicted transactions available to officers, directors, and controlling shareholders. A conflicted transaction can be cleansed of its conflict by either approval by an independent group of board members or by the vote of shareholders with informed consent. Previously, this required both forms of cleansing; under the revisions, one or the other will suffice. This makes cleansing of conflicted transactions easier under the relevant actor’s fiduciary duty.
- Limitation of Liability and Protection from Equitable Remedies and Damages
The amendments also limit the liability of controlling shareholders, officers, and directors in engaging in conflicted transactions if the provisions of the safe harbor are met. The amendments preclude the use of equitable remedies and damages for such transactions if the safe harbor is satisfied, which was not the case under the prior provisions of the DGCL. Under those provisions, equitable remedies were always available as an inherent power of the Court of Chancery. This provision is a source of challenges to the amendments under the Delaware Constitution as impermissibly restricting the powers of the Court of Chancery.
- Record Request Changes
The amendments restrict the rights of shareholders to demand and receive records from a corporation by narrowly defining the types of records that may be requested. This is a significant change from prior terms of the DGCL, which had been interpreted relatively broadly to include internal communications and emails of officers and directors, which are not included in the enumerated categories of documents.
These amendments are significant and alter the balance of power between controlling stockholders, directors, and officers relative to stockholders, and will require significant case law interpretation to determine the full scope of their effect. We will continue to follow this story and update you regularly.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.