The Delaware Supreme Court issued a landmark decision on February 27, 2026, upholding the constitutionality of Senate Bill 21 (SB 21), the 2025 amendments to the Delaware General Corporation Law that created new liability shields for interested-party and conflicted controlling-party transactions. The ruling confirms that Delaware corporations may obtain protection from statutory safe harbors that significantly limit stockholder remedies in the form of damages and equitable relief when conflicted transactions are approved through the procedures outlined in the statute – namely, having such transactions approved by either independent directors, or by a vote by disinterested stockholders.
Historically, Delaware law emphasized the use of both independent committee approval and disinterested stockholder approval in certain conflicted controlling-party transactions. The amended statute provides alternative procedural pathways that permit a transaction to obtain statutory protection through either safeguard, provided the statute’s procedural requirements are satisfied.
For corporate entities, the ruling provides immediate clarity. Conflicted controlling-party and other interested party transactions should now be structured with careful attention to the statutory safe harbors, including proper committee formation, documentation of independence, and robust disclosure practices. This is of particular importance to private equity sponsors and their portfolio companies, as portfolio-company boards often include sponsor-affiliated directors and may encounter various transactions involving sponsor interests, continuation vehicles, or management rollovers that raise controlling-party considerations. In such contexts, the statutory safe harbor’s effectiveness will likely depend on demonstrating that the relevant statutory safeguards, including committee independence, committee authority, and appropriate stockholder disclosure requirements were satisfied in practice. When these steps are followed, companies can substantially reduce litigation exposure and obtain increased certainty that the transaction will not be subject to post-closing fiduciary duty challenges. The decision stabilizes Delaware’s corporate law environment and reinforces the reliability of the new liability shields.
SB 21 was enacted in response to a series of high-profile Chancery Court decisions that heightened litigation risk for controlling stockholders and boards. Decisions such as the invalidation of Elon Musk’s Tesla compensation package and the Moelis ruling on control rights signaled a more plaintiff-friendly judicial posture toward fiduciary duty claims. These developments, combined with Tesla’s reincorporation in Texas and concerns about broader corporate departures from the state or, “DExits,” prompted Delaware policymakers to adopt reforms aimed at restoring predictability and preserving the state’s competitive position as the leading corporate domicile.
At the core of SB 21 is a statutory safe harbor framework intended to function as a predictable, statute-based checklist for managing liability in conflicted controlling-party and other interested party transactions. A transaction can qualify for protection if it is approved either by a fully empowered, independent special committee or by a fully informed vote of disinterested stockholders. The statute requires that the committee be composed entirely of directors who are genuinely independent of the controlling-party or conflicted fiduciary, free from financial, personal or professional ties that could compromise their judgment, and formally empowered to negotiate, retain advisors, and reject the transaction.
Documentation of independence requires the company to create a clear record demonstrating why each committee member qualifies as independent, including the absence of disabling relationships and the committee’s receipt of adequate information and advice throughout the process. Robust disclosure practices are equally essential when relying on a disinterested stockholder vote and require the company to provide fulsome disclosure regarding the transaction, the conflicts at issue, and any material facts necessary for stockholders to make an informed decision.
Together, these steps shift the focus from litigating fairness after the fact to building a defensible procedural record before approval, ensuring that the statutory safe harbor is satisfied and that the liability shield will apply. When a corporation satisfies one of these procedural pathways, SB 21 provides protections to corporations and board members from shareholder claims seeking damages, rescission, injunctions, and other equitable remedies, replacing open ended judicial review with a more clear, forward-looking compliance framework.
For additional guidance on implementing SB 21’s procedural requirements or assessing exposure in pending or planned transactions, please contact a Dinsmore attorney.
*Caitlin Wright is a law clerk and is not yet licensed to practice law.