On July 21, 2025, the Delaware Senate approved significant amendments to Senate Bill 21 (SB 21), refining the “safe harbor” protections available in corporate transactions. This legislative update delineates the standard of good faith required of board members, mandates full disclosure of material facts in conflicted dealings, and aims to restore trust in governance while addressing growing legal and economic concerns.
SB 21 was introduced in response to mounting concerns after a Delaware Supreme Court ruling struck down a CEO compensation package for Elon Musk—a decision that triggered criticism of the state’s corporate courts. The initial version of the bill was perceived by many as favoring controllers and majority shareholders, prompting backlash from investor groups, consumer advocates, and even polling data that showed only 21–26 percent support statewide.
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Under the newly amended SB 21, controlling stockholders are clearly subjected to a statutory safe harbor if a majority of disinterested directors or stockholders approve the transaction in good faith and without gross negligence, with full disclosure of all material facts to board or committee members. The amendments codify that directors and committees must act in good faith, be fully informed of relevant information, and avoid gross negligence. All transactions involving controllers require transparent disclosure to disinterested directors or committees. The definition of controlling stockholder is clarified and liability is limited to breaches of loyalty, bad faith, gross negligence, or improper personal gain.
Additionally, SB 21 tightens rules around stockholder access to corporate records under Section 220 of the Delaware General Corporation Law (DGCL), requiring precise documentation of inspection requests and granting companies discretion in imposing reasonable usage restrictions.
These changes are part of a broader effort to preserve Delaware’s reputation as the premier corporate law jurisdiction. State Senator Maria Powell, one of the amendment sponsors, emphasized that the revisions are vital to maintaining Delaware’s edge in capital formation and corporate governance oversight.
Business organizations have responded positively, citing enhanced predictability and reduced legal exposure for directors and controlling shareholders. The grant of explicit safe harbor provisions, they argue, could lead to early dismissal of meritless fiduciary lawsuits. On the other hand, critics caution that codifying fiduciary standards such as “good faith” might inadvertently spark more litigation, forcing courts to decipher these statutory thresholds in contentious boardroom disputes.
The constitutional foundations of SB 21 have already drawn legal scrutiny. In June, the Delaware Supreme Court agreed to fast-track constitutional challenges to the safe harbor provisions—examining whether they unlawfully usurp the Chancery Court’s equitable powers and whether retroactive application divests vested causes of action. Legal scholars and institutional investors argue that judicial interpretation will play a decisive role in determining whether SB 21’s balance between corporate autonomy and accountability holds firm.
SB 21 also addresses Delaware’s economic competitiveness. After Elon Musk criticized the Chancery Court’s decision involving his Tesla compensation, and with several major corporations signaling intentions to reincorporate in other states, the legislature viewed reform as essential to stemming a potential corporate exodus. Supporting testimony before the Senate Judiciary Committee noted that numerous companies had seriously explored relocating, prompting the reforms to preserve Delaware’s business registry revenues—roughly a third of the state’s budget.
Following the Senate’s approval, the amended SB 21 is expected to move to the House of Representatives in early August. If passed, Governor Matt Meyer is likely to sign the bill, making it law. Analysts anticipate that the legislation will transform Delaware boardroom dynamics by incentivizing full disclosures and formal approval processes in conflicted deals—potentially reducing shareholder litigation and increasing confidence in board decisions.
However, observers caution that the legal battles ahead, especially concerning retroactivity and judicial jurisdiction, will be pivotal in defining SB 21’s real-world impact. As Delaware enters what some call the most sweeping corporate-law overhaul in decades, the ongoing Supreme Court review and potential court rulings may ultimately determine how effectively the reforms balance director protection with shareholder rights.
