6. Delaware Establishes Safe Harbors for Controlling Stockholder Transactions In March 2025, following an unusually vocal discussion, Delaware amended its corporations statute to create procedural safe harbors for transactions with or involving a controlling stockholder. The amendments came after criticism of several Delaware court opinions finding certain less-than-majority holders to be controlling stockholders (even if only for purposes of a challenged transaction) and finding fiduciary lapses in transactions with controlling stockholders.21 That criticism evolved into calls for “DExit” and provided opportunities for other states, including Texas22 and Nevada,23 to invite companies to redomicile. Several Delaware corporations, including Tesla, Tripadvisor, and Dropbox, redomiciled, though the great majority of Delaware corporations have remained in Delaware, and many new corporations continue to choose to incorporate in Delaware. Conditions to the Safe Harbors The safe harbors are based on approvals by: 21 In one of the most prominent of such cases, the Delaware Court of Chancery ordered rescission of a 2018 equity compensation plan awarded by Tesla to Elon Musk after finding that Musk, holder of 21.9% of Tesla’s voting power, exercised transaction-specific control with respect to the grant and that the grant was not entirely fair to Tesla (Tornetta v. Musk, Del. Ch. Jan. 30, 2024). The Delaware Supreme Court reversed the rescission order, finding that it was not an appropriate remedy, even if the Justices had “varying views on the liability determination” (In re Tesla, Inc. Deriv. Lit., Del. Supreme Dec. 19, 2025). 22 Texas amended its corporations statute in 2025 to, among other things, allow corporations in their governing documents to waive jury trials for internal entity claims and, for public corporations and for private corporations that opt in, codify the business judgement rule and provide that the presumption could be overcome only by showing fraud, intentional misconduct, or knowing violations of law (or an ultra vires act). Texas had previously established a specialized Business Court that began operations in 2024. 23 Nevada amended its corporations statute in 2025 to, among other things, allow corporations in their articles of incorporation to waive jury trials for internal corporate actions. Nevada is also considering a specialized business court. ▪ For a transaction by the controlling stockholder with the corporation (other than a going-private transaction) or in which the controlling stockholder receives a benefit not shared with the other stockholders generally, either (i) a committee of the board that has been delegated the authority to negotiate and to reject the transaction, or (ii) the disinterested stockholders, based on votes cast (rather than on shares outstanding). ▪ For a going private transaction with a controlling stockholder, both (i) a committee of the board and (ii) the disinterested stockholders, as provided above. The safe harbors require other procedures, including information disclosure to the committee and the stockholders. The committee must be comprised of persons the board has determined to be disinterested, but (unlike under Delaware judicial doctrine) the safe harbor will apply even if a court later determines that one or more directors on the committee is not disinterested, so long as the committee approval is by a majority of the disinterested directors on the committee. The committee must act in good faith, without gross negligence. Before the amendments, to avoid review under the Delaware courts’ stringent entire fairness standard, a transaction process would have to comply with the judicially created “MFW” framework. MFW requires, for all such transactions, approval by both a committee of disinterested directors and the disinterested stockholders, and imposes other procedural hurdles, such as that the transaction must be conditioned on such committee and stockholder approvals “ab initio” before the start of substantive negotiations. Related Provisions In addition, the amendments provide that: ▪ To be “controlling,” a stockholder generally must either (i) own or control a majority of the voting power of the corporation’s stock or otherwise have the right to cause the election of a majority of the corporation’s board, or (ii) own or control at least 1/3 of the voting power 50 Morrison Foerster
RkJQdWJsaXNoZXIy NTU5OTQ5