Delaware Section 144 provides that a transaction between a corporation and an interested director or officer is not void solely because of that conflict if it is approved by disinterested directors, approved by disinterested stockholders, or is fair to the corporation at the time it is authorized. The statute creates a procedural safe harbor, not a substantive one — satisfying Section 144 shifts the burden of proof but does not guarantee judicial deference.
Under amended Section 144(a), transactions involving interested directors, officers, or controlling stockholders that are not going-private transactions receive safe harbor protection if approved through either of two cleansing mechanisms: approval by a majority of informed and disinterested directors on a committee of at least two members, or approval by a majority of the votes cast by informed and uncoerced disinterested stockholders. Critically, only one of these mechanisms is required, which represents a significant departure from the dual-approval framework that had developed under MFW and its progeny. Gurpreet Bal advises boards and transaction committees that the single-cleansing-mechanism approach provides substantially more flexibility in structuring controlled transactions than the prior common law framework.
Going-private transactions involving a controlling stockholder require both approval by a special committee of independent directors and a majority-of-the-minority stockholder vote to receive business judgment review under Delaware law. Without both procedural protections, the transaction is subject to entire fairness review, which requires the company to demonstrate that both the process and the price were fair — a significantly higher standard that few contested transactions satisfy.
For going-private transactions under Rule 13e-3, the amended statute requires both a disinterested committee approval and a disinterested stockholder vote to achieve safe harbor protection, preserving the heightened scrutiny that the Delaware courts applied under MFW. However, even for going-private transactions, the SB 21 amendments relaxed several MFW requirements. The committee need not consist entirely of disinterested members as long as a majority is disinterested, and the dual approvals need not be established as preconditions at the outset of negotiations as MFW required. Gurpreet S. Bal notes that this relaxation of the ab initio conditioning requirement provides meaningful practical flexibility for boards navigating controller-led take-private proposals.
Delaware courts have generally defined a controlling stockholder as one who owns more than 50% of the voting power or who, despite owning less, exercises actual control over the board of directors through other means such as contractual rights, domination through a personal relationship with directors, or the practical ability to dictate corporate decisions. The distinction matters because controlling stockholder status triggers entire fairness review for self-interested transactions.
Amended Section 144 codifies for the first time a statutory definition of controlling stockholder, limiting the classification to persons who control a majority of the voting power of outstanding stock entitled to vote in director elections, who control the election of directors possessing a majority of the total board voting power, or who possess the functional equivalent of majority control by holding at least one-third of such voting power combined with the power to exercise managerial authority over the company. This definition is narrower than the common law standard, which allowed courts to find control based on a more holistic assessment of influence. Gurpreet Bal advises clients involved in transactions with significant stockholders to analyze whether the stockholder meets the statutory definition, as the answer determines which cleansing mechanisms apply.
The trend of companies redomiciling away from Delaware — driven in part by concerns about judicial activism in the Court of Chancery — has created uncertainty about which state's corporate law will govern conflict transactions for companies that reincorporate mid-life. The 2025 DGCL amendments that codified some Section 144 protections were partly a response to this trend, but they also raised new questions about how courts will apply the amended provisions to existing transactions.
SB 21 was enacted in direct response to a wave of redomestications away from Delaware, known as DExits, triggered by several controversial Court of Chancery decisions that expanded litigation risk for controlling stockholders and fiduciaries. Companies including several major public corporations announced plans to reincorporate in Nevada, Texas, or other jurisdictions perceived as more favorable to boards. The Rutledge decision in February 2026 affirming constitutionality has provided the certainty the market needed. Gurpreet S. Bal advises companies considering redomestication to evaluate the new Section 144 framework against the corporate law regimes of alternative jurisdictions before making a decision, noting that the amended Delaware statute now provides clearer safe harbors than most competing jurisdictions offer.
Gurpreet S. Bal is a Partner at Foley and Lardner LLP in Silicon Valley, where he advises startups, founders, and investors on mergers and acquisitions, venture financings, IPOs, and cross-border transactions. He has advised on more than 50 M&A transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology.