Amendments to Section 144 of the Delaware General Corporation Law (DGCL) broaden safe harbor protections for interested director and officer transactions and extend such protections to controlling stockholder transactions.
On March 25, 2025, the Governor of Delaware signed into law amendments to DGCL Section 144 that, among other things, expand the scope of safe harbor protections. These enhanced protections apply to all acts or transactions involving controlling stockholders or interested directors and officers, regardless of when the acts or transactions occurred. However, they do not apply to litigation that was pending or completed on or before February 17, 2025. The amendments took immediate effect.
Prior to these amendments, DGCL Section 144(a) provided a limited safe harbor, shielding transactions from being automatically void or voidable solely due to a director's interest, provided certain procedural safeguards were met. However, this did not protect directors from liability or equitable relief in the event of a breach of fiduciary duties. Now, by mitigating the risk of equitable relief or monetary damages where the safe harbor conditions are met, the amendments are expected to significantly raise the bar for stockholder litigation challenging controlling stockholder and interested director and officer transactions and create a more predictable and favorable legal environment for corporations.
Key Changes
Prior to these amendments, DGCL Section 144(a) provided that a transaction involving an interested director or officer was not void or voidable solely due to the conflict of interest, provided that it was either:
- Approved by a majority of disinterested members of the board or board committee, or
- Approved by a majority of disinterested stockholders.
Alternatively, the entire fairness standard under Delaware common law had to be satisfied. Notably, the statute offered no safe harbor protection against personal liability of the interested directors and officers or for controlling stockholder transactions.
Through the amendments to DGCL Section 144, the Delaware Legislature:
- Extends safe harbor protection for transactions involving interested directors and officers (excluding controlling stockholder transactions) by precluding equitable relief or damages against interested directors and officers regarding their involvement in such transactions, provided that the transaction is either:
- Approved by a majority of disinterested members of the board or board committee, or
- Approved or ratified by a majority of disinterested stockholders.
Alternatively, the entire fairness standard under Delaware common law must be satisfied.
- Creates a new safe harbor protection for controlling stockholder transactions, precluding equitable relief or damages against a director or officer of the corporation, any controlling stockholder, and any member of a control group regarding their involvement in such transactions, provided that for controlling stockholder transactions other than going private transactions, the safe harbor applies if there is either:
- Approval of a majority of disinterested members of the board committee, or
- Approval or ratification of a majority of disinterested stockholders.
For going private transactions involving a controlling stockholder, the safe harbor applies if there is both:
- Approval of a majority of disinterested members of the board committee, and
- Approval or ratification of a majority of disinterested stockholders.
Alternatively, for any of the two types of controlling stockholder transactions described, the safe harbor protection applies if the act or transaction satisfies the entire fairness standard under Delaware common law.
Looking Ahead
One of the primary reasons that more than half of all publicly traded U.S. companies have chosen Delaware as their corporate home is the state’s ongoing commitment to keeping its laws current and adaptable to emerging issues that create a less favorable and less predictable environment for corporations. The recent amendments to the DGCL reinforce Delaware’s position as the preeminent jurisdiction for incorporation, demonstrating the legislature’s swift and decisive action in ensuring its responsiveness to the evolving landscape of corporate law.
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