A Free Explainer: "Delaware Senate Bill 21: What It Does and What Questions Remain Open"
Summarizing the why and what
My new paper, Delaware Senate Bill 21: What It Does and What Questions Remain Open, provides a comprehensive analysis of Delaware Senate Bill 21 (SB 21), which significantly reformed Delaware corporate law in 2025, particularly regarding controlling stockholder transactions, director and officer conflicts of interest, and shareholder inspection rights. The bill emerged in response to concerns about "DExit" - corporations potentially leaving Delaware for other states with more favorable legal environments.
Key provisions of SB 21 include:
A new definition of "controlling stockholder" requiring either majority voting power ownership or at least one-third ownership plus managerial authority
Revised standards for cleansing conflicted controller transactions that modify the framework established in Kahn v. M & F Worldwide Corp.
Automatic exculpation for controlling shareholders from monetary damages except for duty of loyalty breaches, bad faith actions, or improper personal benefits
A narrower definition of "director independence" with heightened presumptions for directors of publicly traded companies
Significant limitations on shareholder inspection rights under DGCL § 220, restricting access primarily to board-level documents
The paper identifies several open questions and potential issues with SB 21, including its potentially over-inclusive definition of controlling stockholder transactions, ambiguities about how courts might interpret the new provisions, and concerns about whether the Chancery Court might find ways to circumvent the statute based on equitable principles.
The paper concludes that while SB 21 addresses legitimate concerns about the expansion of fiduciary duties and uncertainty created by recent court decisions, some aspects of the bill could benefit from further refinement.
Stephen M. Bainbridge, Delaware Senate Bill 21: What It Does and What Questions Remain Open (May 06, 2025). UCLA School of Law, Law-Econ Research Paper No. 25-02, Available at SSRN: https://ssrn.com/abstract=5243857 or http://dx.doi.org/10.2139/ssrn.5243857