On March 25, 2025, Delaware Gov. Matt Meyer signed Senate Bill 21 (SB 21) into law, marking what many legal scholars are calling the most sweeping overhaul of Delaware’s corporate code in over half a century. The statute rewrites core provisions of the Delaware General Corporation Law (DGCL), reshaping how courts, boards, and controlling stockholders approach some of the most consequential aspects of corporate governance.
SB 21 moved rapidly through the General Assembly, driven by mounting fears of a so-called “DExit”—a wave of high-profile corporations threatening to reincorporate in other states like Nevada, following judicial rulings that rattled Delaware’s boardroom elite. In response, state lawmakers fast-tracked legislation they argue will preserve Delaware’s dominance as the corporate capital of America.
Gov. Meyer pitched the bill as a bid for clarity and predictability, striking a balance between protecting shareholder rights and empowering corporate boards. Critics, however, see something else: a consolidation of power in the hands of insiders.
Why Delaware Acted Now
The turning point came in December 2024, when the Delaware Court of Chancery invalidated Elon Musk’s $56 billion Tesla pay package for failing to meet fiduciary standards. In response, Musk not only pulled Tesla and SpaceX’s incorporations out of Delaware, but publicly urged other founders to do the same. His appeal remains pending before the Delaware Supreme Court, but the damage was done.
Companies like Meta, Dropbox, and Pershing Square Capital Management began openly discussing their own exits. The concern wasn’t just optics—Delaware’s incorporation franchise brings in more than $2.2 billion annually, accounting for over one-third of the state’s total budget. A flight of this magnitude threatened to destabilize Delaware’s fiscal foundation.
In a bid to stop the bleeding, Gov. Matt Meyer and key legislators moved quickly. The result was SB 21, a bill designed to give corporate boards and controlling stockholders more leeway in how they manage conflicts and respond to shareholder demands. The hope was to reassure powerful executives that Delaware remained the most predictable—and protective—jurisdiction for incorporation.
But if the goal was stability, the means were anything but quiet. Critics blasted the bill as a legislative overreach, branding it the “billionaires’ bill.” They argued it stripped minority shareholders of key protections, tipping the scales too far in favor of insiders. Despite that backlash, the bill sailed through the General Assembly with little resistance.
Core Reforms
Senate Bill 21 overhauled two foundational pillars of Delaware corporate law: DGCL Section 144, which governs conflicted transactions involving directors, officers, and controlling stockholders, and Section 220, which defines a stockholder’s right to inspect a corporation’s books and records.
It’s crucial to note, however, that SB 21 is not retroactive to any court action initiated prior to Feb. 17, 2025.
Changes to DGCL Section 144: Interested Transactions and Controlling Stockholders
Before SB 21, Section 144 offered a “safe harbor” for conflicted transactions if approved by either a majority of disinterested directors or by disinterested stockholders. But that protection was never clearly extended to transactions involving controlling stockholders. Delaware courts typically subjected such deals to entire fairness review unless both procedural safeguards were used and the deal was conditioned on those mechanisms from the outset—what courts often referred to as the MFW standard.
SB 21 changes that. It explicitly extends the Section 144 safe harbor to transactions involving controlling stockholders, provided one of two “cleansing mechanisms” is satisfied: either (1) approval by a fully informed and good-faith vote of an independent committee made up of at least two disinterested directors, or (2) approval by a majority of informed, disinterested stockholders. That means companies can now secure business judgment rule protection without meeting both standards or preconditioning the deal “ab initio”—a fundamental departure from precedent like Match Group and a dramatic lowering of the bar for controller transactions.
The law further insulates controlling stockholders by narrowing the scope of liability. Under SB 21, controllers are only liable for breaches of loyalty, acts taken in bad faith, or the receipt of improper personal benefits. They’re now shielded from damages for breaches of the duty of care when acting in their capacity as controllers.
SB 21 also codifies a bright-line definition of “controlling stockholder”: anyone who (a) holds a majority of voting stock, (b) can elect a majority of the board, or (c) owns at least one-third of voting stock and exercises managerial authority equivalent to a majority holder. This marks a departure from the more flexible “actual control” test previously used by courts—one that, for instance, allowed Elon Musk to be treated as a controller at just 21% ownership.
In tandem, the bill creates a clearer—though arguably narrower—definition of “disinterested director.” A director is presumed disinterested if they are not a party to the transaction and meet independence standards under NYSE or Nasdaq rules. This presumption is rebuttable only with “substantial and particularized facts” suggesting a material interest or relationship.
SB 21 also tightens the definitions of “material interest” and “material relationship,” requiring demonstrable, significant impairment of objectivity rather than relying on contextual analysis. As a result, directors and officers now benefit from their own parallel safe harbor. Transactions involving interested insiders are insulated from both equitable relief and damages so long as they are approved by either a two-member independent committee or a vote of disinterested stockholders—mirroring the protections offered to controlling stockholders and signaling a broader legislative effort to fortify board autonomy.
Changes to DGCL Section 220: Books and Records Inspection Rights
Section 220 has long empowered shareholders to inspect corporate books and records for a proper purpose, but it left the scope of accessible documents—and the evidentiary threshold—largely undefined. SB 21 seeks to curb what some corporate insiders view as overly aggressive or pretextual inspection demands by tightening both procedure and substance.
First, the new law heightens procedural hurdles. Any demand must be made in good faith, clearly describe a proper purpose with reasonable particularity, and identify records specifically related to that purpose. This substantially raises the bar, especially for stockholder-plaintiffs seeking to explore potential wrongdoing without a specific claim in hand.
Second, SB 21 strictly defines what counts as “books and records.” The statute now limits inspection rights to a finite list of documents: charters, bylaws, stockholder communications, board and committee meeting minutes, financial statements, and similar formal materials. Critically, the law excludes director, officer, and manager communications—such as emails, Slack messages, and texts—which have become central to pre-litigation investigations in derivative suits.
This exclusion could significantly undercut shareholder litigation strategies. Informal communications have provided key evidence in many recent high-stakes suits. Under SB 21, those materials are out of reach in a typical Section 220 action.
But there is a narrow exception. If a stockholder can show—by clear and convincing evidence—that additional documents are both necessary and essential to fulfill a compelling investigative purpose, courts may grant access. But this is a high bar, and few demands are likely to meet it.
SB 21 also authorizes corporations to impose confidentiality restrictions on any records produced. Companies can redact irrelevant information, limit distribution, and require stockholders to incorporate the documents into any complaint. That last provision has major procedural implications: materials obtained through a Section 220 demand are now part of the pleadings and can be considered by the court at the motion to dismiss stage, potentially aiding defendants.
Continued Debate
Supporters frame the bill as a necessary and modest recalibration of Delaware’s corporate law. They argue that SB 21 restores equilibrium between board authority and shareholder oversight, offering much-needed clarity on murky doctrines and bringing Delaware statutes in line with business realities. By codifying procedural protections, proponents say the law discourages frivolous litigation and empowers companies to resolve claims early without enduring costly discovery battles.
Critics, however, see a power shift with dangerous implications. They argue SB 21 overcorrects, handing too much discretion to boards and controlling stockholders while sidelining Delaware’s judiciary. By narrowing shareholder rights and limiting judicial review of conflicted transactions, they say the law erodes the very checks that made Delaware the gold standard for corporate governance.
If the goal was to stem corporate departures, the early returns are mixed. Just weeks after SB 21 was enacted, AMC Networks and Madison Square Garden Entertainment filed proxy statements proposing reincorporation in Nevada. Their reasoning was rising costs—specifically pointing to Delaware’s steep franchise tax—as well as ongoing judicial uncertainty and a desire to avoid what they described as “opportunistic litigation.” In their view, Nevada “strikes a better balance” between shareholder protections and corporate flexibility.
While the law clearly addresses concerns about judicial scrutiny and procedural ambiguity, it hasn’t eliminated the broader pressures driving companies to reconsider their corporate domicile. For some, cost remains the primary issue. For others, it’s the promise of a less aggressive litigation climate.
Implications for Lawyers
Practitioners must move quickly to understand how these statutory changes interact with decades of Delaware case law, and how they reshape risk, governance, and litigation strategy moving forward.
Corporate Governance
The new safe harbors and the codified presumption of director independence will influence how boards are constructed and how conflicted transactions are vetted. Counsel will need to reassess what it means to be “disinterested,” especially when advising on committee formation and director selection. The safe harbors now offer a clearer roadmap—but only if boards follow it precisely.
Mergers and Acquisitions
SB 21 alters how going-private transactions involving controlling stockholders are evaluated, replacing the strict MFW framework with a more flexible structure. Dealmakers must now decide whether to pursue one or both cleansing mechanisms and must understand how timing and process influence the availability of business judgment deference.
Litigation Strategy
Defense counsel will find new ammunition. The statutory presumption of independence strengthens motions to dismiss, and the ability to incorporate Section 220 records into pleadings opens the door to early case resolution.
For plaintiff counsel, however, the terrain is steeper. Section 220 demands now require greater specificity and offer access to a narrower scope of records. Emails and texts are off the table unless a compelling need is proven by clear and convincing evidence. Independence challenges, once common, now face higher evidentiary burdens.
Uncertainty Remains
Courts must still interpret the new statutory terms, reconcile them with existing precedent, and determine how much deference the legislature’s new rules will command. In the meantime, clients will need clear, confident guidance in a still-developing environment.
Delaware’s dominance as the corporate capital of the U.S. rests not only on its statutes, but on its reputation for balanced, sophisticated judicial oversight. SB 21 has sparked a fundamental debate: does this legislation strengthen that system by bringing clarity and predictability, or does it erode it by limiting judicial discretion and shareholder access?
Regardless of where one lands in that debate, one thing is clear—the legal environment in Delaware has changed. Practitioners can no longer rely solely on decades of case law without accounting for the sweeping statutory reforms now in effect. From deal structuring to litigation defense to governance advice, the new framework demands careful navigation.
As courts begin interpreting SB 21, its true contours will emerge. Until then, lawyers advising Delaware corporations must stay sharp, stay current, and prepare their clients for a legal regime that may look familiar—but now operates on very different terms.
