On March 25, 2025, Delaware’s governor, Matt Meyer, signed Senate Substitute 1 to Senate Bill 21, enacting significant changes to the Delaware General Corporation Law (the DGCL).¹ The newly-enacted legislation, among other things, provides various safe harbors for acts or transactions involving potential or actual conflicts of interest of directors, officers, controlling stockholders, or members of a control group. Before the amendments, Section 144 did not offer a safe harbor for acts or transactions in which controlling stockholders or members of a control group had potential or actual conflicts of interest, and these conflicts of interest were governed by common law principles that Delaware courts developed over decades.

Specifically, amended Section 144 provides guidance for corporations and their advisors to obtain the protection afforded under the business judgment rule for acts or transactions that might otherwise be subject to an entire fairness analysis. Based on amended Section 144, business judgment rule protection will be obtained through disinterested director and/or disinterested stockholder approval.² Absent disinterested directors and/or disinterested stockholder approval, the directors, officers, controlling stockholders, or members of a controlling group have the burden of demonstrating that the act or transaction was entirely fair as to the corporation and its stockholders.³

Amended Section 144(e) also provides definitions (as provided below) to implement and uniformly apply the statute. In contrast, before the amendments, Section 144 did not provide statutory definitions of (among other terms) “disinterested director,” “disinterested stockholder,” “controlling stockholder,” and “control group.” Rather than be defined by statute, before the amendments, these terms required judicial determination after a fact intensive analysis on a case-by-case basis.⁴

Further, amended Section 144 provides that potential or actual conflicts of interest “may not be the subject of equitable relief or give rise to an award of damages against a director or officer” if the statutory requirement of disinterested director or disinterested stockholder approval is satisfied. In contrast, before the amendments, Section 144 provided that acts or transactions between a corporation and one or more of its directors or officers (or an entity in which one or more of its directors or officers are directors or officers or have a financial interest) would not be “void or voidable” solely because of the potential or actual conflict of interest if approved by disinterested directors or stockholders after the disclosure of material facts.⁵ Arguably, before the amendments, the application of Section 144 was more limited in scope focusing on allegedly “void” or “voidable” transactions rather than the remedies of “equitable relief” and “damages.”

Finally, amended Section 144(d)(5) sets forth an exculpatory provision for controlling stockholders or members of a control group that eliminates liability of controlling stockholders or members of a control group for monetary damages for breach of fiduciary duty under certain circumstances. In contrast, before the amendments, Section 144 did not contain any exculpatory provision for directors, officers, controlling stockholders, or members of a control group. Indeed, Section 102(b)(7) of the DGCL provides exculpation for directors and officers if an exculpation provision is contained in the corporation’s certificate of incorporation, and, before amended Section 144(d)(5), the DGCL provided no exculpation for controlling stockholders or members of a control group.

In sum, although there are similarities, there are material differences between Section 144 before the amendments and after the amendments. These similarities and differences will be discussed below in more detail. A discussion of the differences will include (a) the definitions contained in amended Section 144, and (b) the exculpation of controlling stockholders and members of a control group. Finally, the relationship between amended Section 144 and common law principles will be examined.

A. Amended Section 144(a)

Amended Section 144(a) applies to acts or transactions involving potential or actual conflicts of interest of directors or officers, and does not apply to controlling stockholders or members of a control group. For purposes of amended Section 144(a), a conflict of interest exists if the director or officer has a material interest (as defined below) in the act or transaction. A conflicted act or transaction involving directors or officers will be protected by Section 144(a)(1) if the act or transaction is approved by a majority of the disinterested directors on the board of directors (the “Board”) or a committee of the Board (the “Section 144(a) Committee”), even if the disinterested directors appointed are less than a quorum, in good faith and without gross negligence.⁶ The material facts concerning the nature of the material interest and the act or transaction must be disclosed or known to all members of the Board or the Section 144(a) Committee and, if a majority of the Board is not disinterested, then the approval (or recommendation of approval) must be by the Section 144(a) Committee comprised of at least two directors, who the Board determined to be disinterested. Absent disinterested director approval, a conflicted act or transaction involving directors or officers will be protected by Section 144(a)(2) if the act or transaction is approved or ratified by an informed, uncoerced,⁷ and affirmative vote of a majority of the votes cast by the disinterested stockholders.⁸ Finally, absent disinterested director or disinterested stockholder approval, the statutory safe harbor of amended Section 144(a)(3) will apply if the act or transaction is “fair to the corporation and its stockholders.”⁹ The safe harbors provided by amended Section 144(a) are not altered by the facts that (a) potential or actual conflicts of interest exist, (b) the directors or officers received any benefit from the act or transaction, or (c) the directors or officers are present at or participate in the meeting which authorizes the act or transaction, or were involved in the initiation, negotiation, or approval of the act or transaction.

B. Amended Section 144(b)

Amended Section 144(b) applies to a controlling stockholder transaction (as defined below) except in the case of a going private transaction (as defined below). Under Section 144(b)(1), a controlling stockholder transaction will be protected if the material facts as to the controlling stockholder transaction (including the controlling stockholder’s or control group’s interest therein) are disclosed or are known to all members of a committee of the Board (the “Section 144(b) Committee”) to which the Board expressly delegated the authority to negotiate (or oversee the negotiation of) and to reject the controlling stockholder transaction, and the controlling stockholder transaction is approved (or recommended for approval) in good faith and without gross negligence by a majority of the disinterested directors serving on the Section 144(b) Committee. The Section 144(b) Committee must be comprised of two or more directors, each of whom the Board determined to be a disinterested director with respect to the controlling stockholder transaction. Under Section 144(b)(2), a controlling stockholder transaction will also be protected if the transaction is conditioned, by its terms, as in effect at the time it is submitted to stockholders for their approval or ratification, on the approval of or ratification by disinterested stockholders, and the transaction is approved or ratified by an informed, uncoerced, affirmative vote of a majority of the votes cast by the disinterested stockholders. Finally, the statutory safe harbor of Section 144(b)(3) will apply if the controlling stockholder transaction is fair to the corporation and its stockholders.

C. Amended Section 144(c)

Amended Section 144(c) applies to a controlling stockholder transaction that constitutes a going private transaction. Under amended Section 144(c)(1), a going private transaction may not be the subject of equitable relief or give rise to an award of damages against a director, officer, controlling stockholder or members of a control group by reason of a breach of fiduciary duty by a director, officer, controlling stockholder, or members of a control group if both disinterested committee approval (amended Section 144(b)(1)) and disinterested stockholder approval (amended Section 144(b)(2)) are validly obtained. Under amended Section 144(c)(2), a going private transaction will also be protected if the transaction is fair to the corporation and its stockholders.

It is important to note that, unlike amended Section 144(a), for purposes of amended Section 144(b) and amended Section 144(c), amended Section 144(b)(1) requires that at the time the Section 144(b) Committee is formed, it must be clear that the Section 144(b) Committee has the power and authority to reject the transaction. Amended Section 144(b)(1) does not require, however, that the Section 144(b) Committee be formed or delegated the authority to negotiate and reject the controlling stockholder transaction before the commencement of substantive economic negotiations. In addition, unlike amended Section 144(a), for purposes of amended Section 144(b) and amended Section 144(c), amended Section 144(b)(2) requires that the act or transaction be expressly conditioned upon the requisite stockholder vote, and the safe harbors of amended Section 144(b) and amended Section 144(c) will apply, if the controlling stockholder transaction is approved or ratified by an informed, uncoerced, affirmative vote of a majority of the votes cast by the disinterested stockholders. Although the controlling stockholder transaction must be expressly conditioned on the disinterested stockholder vote where a party is relying on the vote for safe harbor protection, the condition needs only be in place before the act or transaction is submitted to a vote of stockholders, and it need not be in place before the time at which substantive negotiations commence.

D. Controlling Stockholder or Control Group Exculpation

Amended Section 144(d)(5) sets forth an exculpatory provision for controlling stockholders or members of a control group that eliminates liability of the controlling stockholders or members of a control group for monetary damages for breach of fiduciary duty other than for (a) breach of the duty of loyalty, (b) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or (c) transactions from which they derive an improper personal benefit. By reciting the core concepts imported from Section 102(b)(7) of the DGCL, which allows for the exculpation of directors and officers, amended Section 144(d)(5) confirms that controlling stockholders or members of a control group will not be held liable for monetary damages to the corporation or its stockholders for a breach of the duty of care. Amended Section 144(d)(5) appears to provide controlling stockholders and members of a control group with more certain protection than directors and officers because the controlling stockholders and the members of a control group are entitled to the protection as a statutory right, and, in contrast, the directors and officers are entitled to the protection only if the protection is contained in the corporation’s certificate of incorporation.

E. Amended Section 144(e) Definitions

In addition to creating safe harbor protections for directors, officers, controlling stockholders, or members of a control group, amended Section 144(e) provides various definitions to provide clarity and predictability in the law, including the codification of concepts that are core to any review of fiduciary conduct. The codification contained in amended Section 144 arguably replaces common law definitions and principles that have been created by courts over decades for the purpose of reviewing fiduciary conduct. The ramifications of the definitions contained in amended Section 144(e), therefore, may extend beyond amended Section 144, and be applied by courts in adjudicating corporate law matters not involving amended Section 144.

• “Control Group.” Amended Section 144(e)(1) defines a “control group” as two or more persons that are not individually controlling stockholders, but that, by virtue of an agreement, arrangement, or understanding between or among the persons, collectively constitute a controlling stockholder. In general, the provisions applicable to a “controlling stockholder” are also applicable to a “control group.” Amended Section 144(d)(4) provides that no person shall be deemed a controlling stockholder unless such person satisfies the criteria in amended Section 144(e)(2), and no two or more persons that are not controlling stockholders shall be a control group unless they satisfy the criteria in amended Section 144(e)(1).
• “Controlling Stockholder.” Amended Section 144(e)(2) defines “controlling stockholder” to mean any person or “control group” that (a) owns or controls a majority of the voting power of the corporation, (b) has the right, by contract or otherwise, to select directors or directors who would hold a majority of the voting power on the Board, or (c) has the power “functionally equivalent” to a controller by virtue of owning or controlling “at least one-third” of the voting power of the outstanding stock entitled to vote in the election of directors generally, or in the election of directors who have a majority of the voting power of all directors and the power to exercise “managerial authority over the business and affairs of the corporation.”
• “Controlling Stockholder Transaction.”  Amended Section 144(e)(3) defines “controlling stockholder transaction” is an act or transaction between the corporation or one or more of the corporation’s subsidiaries and a controlling stockholder or a control group, or an act or transaction from which a controlling stockholder or a control group receives a financial or other benefit not shared with the corporation’s stockholders generally.
• “Disinterested Director.” Amended Section 144(e)(4) defines “disinterested director” as a director who is not a party to the act or transaction and does not have a material interest in the act or transaction or a material relationship (as defined below) with a person that has a material interest in the act or transaction. In addition to supplying a definition of “disinterested director,” amended Section 144(d)(2) provides that any director of a publicly-listed corporation shall be presumed to be a disinterested director with respect to an act or transaction that such director is not a party to if the Board shall have determined that the director satisfies the relevant criteria for determining director independence under any rules promulgated by an applicable exchange or, with respect to controlling stockholder transactions, satisfies such exchange independence rules when substituting the company for the controlling stockholder for purposes of that inquiry. The statute provides that the presumption arising out of satisfaction of independence standards under the listing rules is heightened and may only be rebutted by substantial and particularized facts that a director who meets the criteria for independence under the applicable listing rules has a material interest in the transaction or has a material relationship with a person with a material interest in the transaction. Amended Section 144(d)(3) also codifies the common law principle that the mere designation, nomination, or vote in the election of the director to the board of directors by any person that has a material interest in an act or transaction shall not, of itself, be evidence that a director is not a disinterested director with respect to an act or transaction to which such director is not a party.
• “Disinterested Stockholder.” Amended Section 144(e)(5) defines “disinterested stockholder” as any stockholder that does not have a material interest in the act or transaction at issue or a material relationship with any person that has a material interest in the act or transaction at issue.
• “Going Private Transaction.” For purposes of amended Section 144(b) and amended Section 144(c), amended Section 144(e)(6) of the DGCL defines a “going private transaction” as (a) for companies with Securities Exchange Act-registered securities, a SEC Rule 13e-3 transaction, and (b) for any other corporation, any Controlling Stockholder Transaction pursuant to which all or substantially all of the shares of the corporation’s capital stock held by the disinterested stockholders are cancelled, converted, purchased, or otherwise acquired or cease to be outstanding.
• “Material Interest.” Amended Section 144(e)(7) defines “material interest” as an actual or potential benefit, including the avoidance of a detriment, other than one which would devolve on the corporation or the stockholders generally, that (a) in the case of a director, would reasonably be expected to impair the objectivity of the director’s judgment when participating in the negotiation, authorization, or approval of the act or transaction at issue, and (b) in the case of a stockholder or any other person (other than a director), would be material to such stockholder or such other person.
• “Material Relationship.” Amended Section 144(e)(8) defines “material relationship” as a familial, financial, professional, employment, or other relationship that (a) in the case of a director, would reasonably be expected to impair the objectivity of the director’s judgment when participating in the negotiation, authorization, or approval of the act or transaction at issue, and (b) in the case of a stockholder, would be material to such stockholder.

F. The Relationship Between Amended Section 144 and Common Law Principles

Amended Section 144(d)(6) clarifies that amended Section 144 is not intended to limit the right of any person to seek equitable relief on the grounds that an act or a transaction, including a controlling stockholder transaction, was not validly authorized or approved in compliance with Delaware law. The safe harbor processes and procedures, therefore, do not displace any existing authorization requirements under the default provisions of the DGCL, the corporation’s certificate of incorporation, or the corporation’s by-laws. Amended Section 144(d)(6) also clarifies that amended Section 144 is not intended to limit judicial review for purposes of injunctive relief of provisions or devices designed to deter, delay, or preclude a change of control or other transaction (such as stockholder rights plans), or a change in the composition of a board of directors. The statute further provides that amended Section 144 does not limit a stockholder’s right to seek relief on grounds that a person or entity aided or abetted a breach of fiduciary duty by a director. Simply stated, amended Section 144 offers protection to directors, officers, controlling stockholders, and members of a control group, but does not offer protection to third parties that aid or abet breaches of fiduciary duty.

In sum, amended Section 144 is designed to provide safe harbors for acts or transactions that follow the statutory processes and procedures. It is not intended to displace the common law requirements regarding core fiduciary conduct, or any safe harbor procedures or other protections available at common law, including processes and procedures that comply with common law principles before the amendment but do not conform to the amended Section 144 safe harbors.¹⁰

Accordingly, the failure to comply expressly with the processes and procedures will not result in the application of heightened review if the act or transaction that is the subject to challenge would be entitled under common law to business judgment rule protection.

References

¹The amendments became effective upon its signing on March 25, 2025. The amendments apply prospectively (to acts and transactions occurring on and after that date) and retroactively (to acts and transactions occurring before it), subject to an exception. The amendments do not apply to any court proceeding that is pending on or before February 17, 2025.

²The business judgment rule is a presumption that directors made a decision on an informed basis, in good faith, and in honest belief that action was taken in best interests of company. A party challenging the decision must rebut the presumption by alleging facts that demonstrate that the directors breached their fiduciary duty of care or fiduciary duty of loyalty. See Solomon v. Armstrong, 747 A.2d 1098, 1111–12 (Del. Ch. 1999).

³The entire fairness standard of judicial review applies if the presumption of the business judgment rule is rebutted. Entire fairness is an exacting standard and requires the board of directors to “establish to the court's satisfaction that the transaction was the product of both fair dealing and fair price.” Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993) (emphasis in original).

⁴Before the amendments, Section 144(a)(2) provided that the safe harbor applies if approved by the “stockholders.” Notwithstanding the absence of the term “disinterested stockholders,” Delaware courts held that the safe harbor applies if approved by the “disinterested stockholders.” See In re Wheelabrator Tech. S’holders Litig., 663 A.2d 1194, 1203 (Del. Ch. 1995) (holding “8 Del. C. § 144(a)(2) pertinently provides that an ‘interested’ transaction of this kind will not be voidable if it is approved in good faith by a majority of disinterested stockholders”). Amended Section 144(b) adopted and defined the term “disinterested stockholders.”

⁵Under Delaware law, a “void” act or transaction is one that the corporation lacks the power or authority to take. In contrast, an act or transaction is “voidable” if it was within the corporation’s power and authority to take, but was not properly authorized or carried out in a specific case. See Solomon v. Armstrong, 747 A.2d 1098, 1114 (Del. Ch. 1999), aff'd, 746 A.2d 277 (Del. 2000) (holding that void acts are those the corporation itself “has no implicit or explicit authority to undertake or those acts that are fundamentally contrary to public policy.); see also XRI Investment Holdings LLC v. Holifield, 283 A.3d 581, 652 (Del. Ch. 2022) (citing Solomon and holding that “[v]oidable acts, by contrast, are within the power or capacity of the corporation and not fundamentally contrary to public policy, but which were not properly authorized, effectuated, or implemented by the proper corporate decision-makers.”)

⁶See Smith v. Van Gorkom, 488 A.2d 858, 873 (Del. 1985) (adopting the gross negligence standard in duty of care context).

⁷The statute does not define an “informed” or “uncoerced” vote, and, thus, Delaware’s well-developed common law principles apply in determining whether a vote was “informed” or “uncoerced.”

⁸There are three stockholder voting standards recognized under Delaware law. First, there is the “majority-of-the-outstanding standard,” in which to satisfy, the votes in favor must be a majority of the number of the outstanding shares. Second, there is the “majority-of-the-quorum standard,” in which to satisfy, the votes in favor must be a majority of the shares present in person or by proxy and entitled to vote at a meeting where a quorum is present. Third, the “majority-of-the-votes-cast standard,” in which to satisfy, the votes in favor must exceed the votes against. Amended Section 144, therefore, adopted the voting standard that is the least onerous to satisfy. See Salama v. Simon, 328 A.3d 356, 363 (Del. Ch. 2024).

⁹The term “fair to the corporation and its stockholders” is not defined in amended Section 144, but the statutory synopsis provides that this reference is “intended to be consistent with the entire fairness doctrine developed in the common law.” Del. Substitute No. 1, S.B. 21, 153rd Gen. Assemb. (2025).

¹⁰As provided in the statutory synopsis, “[a]ny approval or recommendation, as applicable, of disinterested directors or a disinterested director committee must be made in good faith and without gross negligence, making clear that the statute does not displace the common law requirements regarding core fiduciary conduct as contemplated by” Delaware decisions. Del. Substitute No. 1, S.B. 21, 153rd Gen. Assemb. (2025) (citing Flood v. Synutra Int’l, Inc., 195 A.3d 754, 768 (Del. 2018); In re MFW S’holders Litig., 67 A.3d 496, 517 n. 100 (Del. Ch. 2013), aff'd sub nom., Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014)).