The Delaware Supreme Court in Rutledge v. Clearway Energy Group LLC, No. 248, 2025 (Del. Feb. 27, 2026), recently affirmed the constitutionality of amendments to Section 144 of the Delaware General Corporation Law (DGCL) regarding transactions involving controlling stockholders.
Takeaway:
Delaware law provides safe harbors to protect certain controlling‑stockholder transactions from equitable relief or damages for breach of fiduciary duty, and one cannot be a controller unless they own at least 1/3 of a company’s stock.
Background:
Senate Bill 21 (“SB 21”), enacted in March 2025, amended DGCL Section 144 and made two main changes:
1. SB 21 defines a controlling stockholder or a control group as a stockholder or group of stockholders owning at least 1/3 of a company’s stock. Before, a controlling stockholder could be a stockholder with anyo wnership percentage as long as that stockholder asserted actual control over the corporation. For example, now, a 20% stockholder can never be a ‘controlling stockholder’ (and subject to additional liabilities) even if they exert significant control over the company.
2. SB 21 also provides safe harbors to protect controlling‑stockholder transactions from legal challenge when that transaction was either (i) given special committee approval, or(ii) approved by a majority of the minority stockholders. The prior safe harbor rules required both approval by a special committee and a majority of the minority stockholders. The new safe harbor moves a challenge to the legality of a transaction from the exacting ‘entire fairness’ rule to the business-friendly business judgment rule.
SB21 applies to acts or transactions occurring before March 2025, unless alawsuit challenging those acts was already pending or completed as of February17, 2025.
The Court’s Decision:
The Delaware Supreme Court focused on two questions: (1) whether the safe harbor provisions limited the Court of Chancery’s equity jurisdiction, and (2) whether SB 21’s retroactive application violated due process. The Delaware Supreme Court answered both questions in the negative. This affirmed the constitutionality of SB 21, so corporations engaged in transactions involving a controlling shareholder may rely on Section 144 as authoritative when assessing the risk and protective measures.
SB21 fundamentally changed best practices in controller transactions, but Delaware law on most venture capital issues and common law protections remains unchanged. If the new safe harbors in SB21 are not met, then common law applies which requires an analysis under the entire fairness unless there is a separate common law protection. This means many fundamental Delaware cases such as Weinberger, Mills, Corwin, and Trados still live.