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Delaware SB 21: Status and Risk Management Implications for Directors and Officers

Delaware’s Senate Bill 21 (SB 21), signed into law by Governor Matt Meyer on March 25, 2025, amends the Delaware General Corporation Law (DGCL) and took effect immediately. The law addresses concerns about “DExit”—a term for companies potentially leaving Delaware for states like Nevada or Texas due to litigation risks or perceived judicial overreach. This article outlines what SB 21 means for directors and officers.

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Key Changes in SB 21

SB 21 modifies DGCL Sections 144 (conflicted transactions) and 220 (shareholder record demands). For conflicted transactions where directors, officers, or controlling stockholders have a personal interest affecting their independence or objectivity, directors and officers gain stronger protection. If directors and officers are involved in a deal where they have a personal interest, they are shielded from lawsuits or equitable challenges if the transaction is approved in good faith, without gross negligence, by a fully informed majority of disinterested directors (or a committee of at least two independent directors) or by a majority of disinterested shareholders. The deal may be protected if it is fair to the corporation. This allows directors and officers to rely on the business judgment rule, avoiding the stricter “entire fairness” standard.

Controlling stockholders—those with at least one-third voting power and managerial authority—also get safe harbor protections for transactions (except “going private” deals) if approved by an independent board committee or disinterested shareholders. “Going private” transactions require both. If these conditions are not met, the “entire fairness” standard applies. Directors of public companies are presumed independent unless evidence indicates a significant conflict. Controlling shareholders are exempt from duty of care claims without needing charter provisions.