Recently Enacted Delaware Corporate Legislation

In the Summer 2024 issue of In Our Opinion, we wrote about amendments to the Delaware General Corporation Law (“DGCL”) designed to address issues raised by then recent decisions of the Delaware Court of Chancery and the effect of those amendments on legal opinions covering Delaware law, as well as remaining concerns regarding those issues in states other than Delaware.

New legislation has recently been enacted in Delaware designed to address concerns raised by other recent Delaware decisions that have prompted some prominent companies to reincorporate outside Delaware and others to consider doing so. The legislation, Senate Substitute 1 to Senate Bill 21,  amends the DGCL by:

• revising Section 144 to establish safe harbor procedures for approving transactions with a director or officer or with a controlling stockholder (as defined) that may involve a conflict of interest through either approval by disinterested directors or by disinterested stockholders, except for a controlling stockholder going private transaction, which would need both approvals; and
• revising Section 220 to specify more precisely the books and records that a stockholder is entitled to inspect and the circumstances under which it may inspect them.

The amendments are effective retroactively, except for matters subject to litigation or for which a books and records demand was made on or before February 17, 2025.

Unlike the 2024 legislation, the 2025 legislation is unlikely to have much relevance for legal opinions. The statutory right of stockholders to inspect a corporation’s books and records is unlikely to be the subject of a legal opinion and, even if inspection rights are included in an agreement on which an opinion is being given, the amendment of Section 220 would not affect those contractual rights. Although the amendment of Section 144 provides a fiduciary duty safe harbor for interested transactions if certain authorization procedures are followed, legal opinions as to authorization and enforceability do not address compliance with fiduciary duties, either based on an unstated assumption or one that is stated. In fact, Section 144(d)(6)a. of the amendment makes clear that the amendment does not affect the right to seek relief if the transaction was not authorized or approved as required by law or the governing corporate documents.