The Delaware Supreme Court in Rutledgev. Clearway Energy Group LLC, No. 248, 2025 (Del. Feb. 27, 2026), recentlyaffirmed the constitutionality of amendments to Section 144 of the DelawareGeneral Corporation Law (DGCL) regarding transactions involving controllingstockholders.
Takeaway:
Delaware law provides safe harborsto protect certain controlling‑stockholder transactions from equitable reliefor damages for breach of fiduciary duty, and one cannot be a controller unlessthey own at least 1/3 of a company’s stock.
Background:
SenateBill 21 (“SB 21”), enacted in March 2025, amended DGCL Section 144 and made twomain changes:
1. SB 21 defines a controllingstockholder or a control group as a stockholder or group of stockholders owningat least 1/3 of a company’s stock. Before, a controlling stockholder could be a stockholder with anyownership percentage as long as that stockholder asserted actual control overthe corporation. For example, now, a 20%stockholder can never be a ‘controlling stockholder’ (and subject to additionalliabilities) even if they exert significant control over the company.
2. SB 21 also provides safe harbors toprotect controlling‑stockholder transactions from legal challenge when thattransaction was either (i) given special committee approval, or(ii) approved by a majority of the minority stockholders. The prior safe harbor rules required bothapproval by a special committee and a majority of the minority stockholders. The new safe harbor moves a challenge to thelegality of a transaction from the exacting ‘entire fairness’ rule to thebusiness-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.
TheCourt’s Decision:
TheDelaware Supreme Court focused on two questions: (1) whether the safe harborprovisions limited the Court of Chancery’s equity jurisdiction, and (2) whetherSB 21’s retroactive application violated due process. The Delaware Supreme Court answered bothquestions in the negative. This affirmedthe constitutionality of SB 21, so corporations engaged in transactionsinvolving a controlling shareholder may rely on Section 144 as authoritativewhen assessing the risk and protective measures.
SB21 fundamentally changed best practices in controller transactions, butDelaware law on most venture capital issues and common law protections remainsunchanged. If the new safe harbors in SB21 are not met, then common law applies which requires an analysis under theentire fairness unless there is a separate common law protection. This means many fundamental Delaware casessuch as Weinberger, Mills, Corwin, and Trados stilllive.
