On Wednesday, March 26, 2025, Governor Matt Meyer signed Senate Bill 21 (SB 21) into law, marking a significant update to Delaware’s corporate statutes. The bill passed with bipartisan backing in the House and Senate.
The legislation aims to solidify Delaware’s position as the leading jurisdiction for U.S. and global businesses by clarifying key governance structures and reinforcing the state’s reputation for equitable, predictable, and efficient corporate oversight.
Here’s what to know.
Preservation of Delaware’s Corporate Appeal
Now signed into law, SB 21 addresses concerns about companies potentially relocating their legal domiciles to other states. By modernizing corporate laws to balance the interests of stockholders and corporate boards, Delaware aims to retain its status as the premier choice for incorporation.
The law clarifies conflict of interest transactions by establishing clear approval mechanisms for transactions involving directors, officers, or controlling stockholders. If such transactions are pre-approved by independent directors or ratified by disinterested stockholders, they receive business judgment rule protection, reducing unnecessary litigation.
The law also enhances decision-making structures by offering corporations more flexibility in structuring approvals for key transactions, bringing the state in line with evolving corporate norms, making governance more efficient and predictable.
Reducing Meritless Litigation
Historically, Delaware entities have paid considerable costs to defend meritless litigation.
These costs ultimately get passed onto and harm stockholders. The newly signed legislation aims to curb meritless litigation by clarifying the legal framework surrounding transactions involving directors, officers and controlling stockholders. It codifies procedures that corporations can follow to protect transactions from legal challenges. If a transaction involving a potential conflict of interest is either (A) approved in advance by a committee of disinterested directors, or (B) ratified by a fully informed vote of disinterested stockholders, then courts will review the transaction under the “business judgment rule” rather than the stricter “entire fairness” standard. This will make it harder for lawsuits based on mere allegations of conflicts to proceed.
From Yale Law School professor, Jonathan Macey, via the Wall Street Journal:
“Senate Bill 21… finally give[s] companies a clear definition of a ‘disinterested director’: one who isn’t a party to the deal under consideration, doesn’t have a material interest in the act or transaction, and doesn’t have a relationship with a person who has a material interest in the act or transaction. That’s clarity businesses can work with.”
By setting clear guidelines for approval of transactions, the legislation prevents opportunistic lawsuits where plaintiffs challenge deals just to extract settlements. Only cases where there is evidence of fraud, bad faith, or misconduct can proceed under stricter scrutiny, discouraging frivolous claims.
Our Two Cents
Broadly, we believe this legislation will have a positive impact on not only the local legal and business communities, but also Delaware’s standing as the world’s premier choice for incorporation. As one of Delaware’s most established providers of corporate services, we are already well up-to-speed on the legislation and are happy to answer any questions you might have. Email us at info@incserv.com or give us a call at 302-531-0855.
