Vinson & Elkins
MONTH-IN-BRIEF (Feb 2025)
Proposed Amendments to Sections 144 and 220 of the Delaware General Corporation Law
By K. Tyler O’Connell, Morris James LLP
On February 17, 2025, Delaware legislators introduced proposed Senate Bill 21, providing for amendments to Sections 144 and 220 of the Delaware General Corporation Law (“DGCL”).
The proposed amendments to Section 144 of the DGCL would provide safe harbor procedures for transactions in which directors, officers, or a controlling stockholder (or a controlling stockholder group) have potential conflicts of interest that under present law may cause a transaction to be subject to judicial review under the entire fairness standard. In sum, the proposed amendments provide that potential divergent interests of directors, officers, or controlling stockholders in transactions do not give rise to claims for equitable relief or damages, provided that (i) the material facts as to the person’s interest in and involvement in the transaction, including any potential conflicts, are disclosed, and (ii) the transaction is approved in good faith by an informed majority of the disinterested directors or an informed majority of the disinterested stockholders. For controlling stockholder going private transactions, both procedural steps—i.e., informed disinterested director and stockholder approval—must be followed to render the transaction protected. Alternatively, the amendments recognize that such transactions may also not result in breaches of fiduciary duties if they are shown to be fair to the corporation. The proposed amendments also define when a person may be found to be a controlling stockholder or a member of a control group, primarily by reference to ownership or control of certain percentages of the corporation’s voting stock.