What is SB 21 really about?

SB 21 is about Delaware doing what is best for hardworking Delawareans–not the billionaires who have been attacking our state.  Elon Musk already took his companies elsewhere.

Delaware has been the gold standard for corporate law that makes the state a predictable, fair, and consistent place to do business.  Executives and investors understand this, which is why they incorporate here and why Delaware is able to use the fees on corporations to fund critical services like education, healthcare, and public safety.  SB21 makes needed updates to Delaware’s corporate law to remain the gold standard.  

While a small handful of billionaires want to attack our state, the reality is Delaware leads with sensible policies that make it the best place in the country to incorporate while supporting all Delaware residents. 

The bill, by its terms, does not change the rules for existing cases.  Therefore, it will not impact any pending Musk case.  And since Musk already took all of his companies to Texas and Nevada, changes to our law will not impact Musk or his companies in the future.   

• Musk publicly filed his opening brief appealing the compensation decision last week (week of March 10, 2025), and it does not mention the proposed amendments at all.  That is because, according to the terms of the legislation and well-settled case law, the Supreme Court will be deciding the appeal based on the case law that existed at the time the trial decision was issued.    

• The bill was drafted in response to concerns expressed by a large number of Delaware companies of all shapes and sizes regarding a recent lack of predictability and too much burdensome litigation.

• National law firms who advise Delaware companies on where to incorporate have also raised alarms that many Delaware companies are seriously considering reincorporating elsewhere.  These concerns are heightened right now because we are entering “proxy season” (late March/early April). This a time when companies may present the question of whether to reincorporate for a stockholder vote at their annual meetings.  And other states, including Texas and Nevada, are actively trying to entice our companies to reincorporate.   

• Twenty-one of the top national law firms, who represent a very large number of Delaware companies of all different types, have written a joint letter to the legislature explaining that there is a problem with companies wanting to leave Delaware and further explaining that their clients view the amendments as fixing the problem.  Numerous traditional Delaware law firms, employing over 1250 individuals in Delaware, have written a similar letter.    

• This bill is about protecting Delaware’s preeminent position as the nation and world leading place for incorporation.  Those Delaware incorporations fund $2.2 billion in annual revenue and are vital to funding the state budget. 

Will SB 21 hurt small or minority stockholders, including state and union pension plan participants?

• No.  The opposite -- the legislation encourages controllers and conflicted fiduciaries to empower small stockholders and protect pensioners.

• The way it does this is through directly encouraging transactions to voluntarily be put to a stockholder vote and providing safe harbors when the minority stockholders vote in favor of a transaction.

• Another safe harbor involves the approval of a transaction by independent directors to protect the interests of the minority stockholders.    

• Importantly, the legislation contains additional safeguards, including that transactions must be done in good faith and without gross negligence.  Any stockholder vote to approve a transaction must be an informed vote. With respect to books and records requests, there is a catch all provision that was recommended by the Corporate Law Council (CLC) of the Delaware State Bar Association to provide the Court with additional flexibility in situations where a stockholder may require additional information.    

• Under the current system, companies pay excessive costs to defend meritless litigation, which also drives up director and officer insurance premiums.  These additional and unnecessary litigation related costs ultimately get passed onto and harm the stockholders. This legislation reduces meritless litigation, which taxes all stockholders and distracts managers from running the business.

• The legislation, as Professor Hamermesh testified to the Senate (on March 12 and 13, 2025), is balanced, and essentially restores the status quo of about 5 or 10 years ago, a time when Delaware was unquestionably known as the gold standard.

• In short, these amendments will dissuade companies from moving to states like Texas and Nevada.  If a company moves to a state like Texas or Nevada, not only does Delaware lose revenue, but those states are much less protective of minority stockholders and much worse for pensioners.  This bill, on the other hand, is balanced and protects them. 

Why does SB 21 have a February 17, 2025 date and an effective date?

• The effective date will be the date the bill is signed into law.  At that time, the new rules embodied in the bill with apply to all transactions before or after the effective date.  Very importantly, the new rules in the bill expressly will not apply to any case that was filed before February 17, 2025 (the date the bill was publicly introduced) or any books and records demands made before that date. 

• SB 21 is meant to provide better “rules of the road” to companies, and we want all companies to be able to benefit from the improvements. But at the same time, we are not changing the “rules of the game” in the middle of litigation or after a records request has been made.