Delaware

After a US$750 million acquisition, the parties ran the usual post-closing true-up that adjusts the price based on the target’s actual financials at closing. It turned out the seller had misapplied a revenue-recognition accounting standard in its pre-closing books, and once the standard was applied correctly the buyer owed roughly US$38.3 million more. The buyer paid, then sued separately for indemnification, arguing the seller had promised its financial statements complied with accounting standards and that promise was false. The Delaware Court agreed and let the buyer recover the extra payment.

The Court rejected the seller’s arguments that the buyer should have caught the error in due diligence, that the claim belonged in the earlier case, or that a contract clause barring double recovery blocked it. Diligence is not an audit, the claim was not ripe until the true-up concluded, and the anti-duplication clause was meant to prevent collecting twice, not to eliminate indemnity claims. The Court determined that a price true-up fixes the number, but does not by itself decide who bears the cost of an inaccurate representation.

The Delaware Court of Chancery dismissed a stockholder suit claiming that directors of B. Riley Financial breached their fiduciary duties by failing to catch problems with an investment that later went bad. The suit was framed as a Caremark claim, the label Delaware uses for lawsuits arguing that a board failed to conduct oversight. The Court reaffirmed why those claims are so hard to win: a board’s oversight duty is aimed at the company’s own internal compliance and risk systems, not at policing misconduct by outside parties the company does business with, even where the company has significant money on the line. A failed investment, on its own, is not evidence of bad faith, and stockholders cannot repackage hindsight criticism of a bad bet as a breach of duty. Delaware courts scrutinize process, meaning they evaluate whether the board informed itself and had systems in place, rather than whether that process led to a good outcome.

When allegations of corporate misconduct surface, one of the first questions companies may face is who should oversee the response. In some circumstances, an investigation led by management or in-house counsel may be appropriate. But allegations involving senior executives or directors, mission-critical compliance risks, or questions about management’s independence may require the board — often through an independent committee — to take a more active role.

In a new article for Reuters Practical Law, Sidley partner Holly J. Gregory examines when a board-driven investigation may be warranted and how boards can structure those investigations to withstand scrutiny from regulators, prosecutors, shareholders, and courts.

The article also considers recent Delaware decisions addressing directors’ responses to compliance red flags and highlights practical considerations for board-led investigations, including committee independence, investigative scope, preservation, privilege, documentation, whistleblower protections, self-disclosure, reporting, and remediation.

A Delaware Court of Chancery decision in Siegel v. Morse reaffirmed that courts will not entertain challenges to advance notice bylaws absent an actual, existing dispute. Even after the Delaware Supreme Court’s Kellner decision raised the bar for facial validity claims, the plaintiff attempted to reframe his challenge as an “as-applied” one, but the court found no ripe controversy since no stockholder had expressed an intent to nominate directors. The decision signals that bylaw litigation must be grounded in a real, concrete controversy and that generic concerns about defensive board behavior are insufficient without an active proxy contest or nomination dispute.

Many Delaware-incorporated companies include provisions in their corporate charters or bylaws requiring that stockholder lawsuits be brought in Delaware’s Court of Chancery — a court that decides cases before a judge, with no jury. This creates a tension with California law, which strongly guarantees the right to a jury trial and has a broad “long arm” statute that can pull disputes into California courts even when a company has chosen a different forum. A minority stockholder who was a California resident sued EpicentRX (a Delaware corporation) in California court. The lower courts refused to enforce the Delaware forum selection clause, reasoning that sending the case to Delaware would effectively strip the plaintiff of her California jury trial rights. The California Supreme Court reversed, holding that a forum selection clause is not unenforceable simply because it requires parties to litigate in a jurisdiction that does not provide the same jury trial right as California. The court reasoned that California’s strong public policy favoring jury trials applies to proceedings in California courts, not to courts in other states. It further reasoned that a forum selection clause determines where a dispute is litigated, not how, so it does not constitute a prohibited waiver of jury trial rights. The decision aligns California with the majority of states that enforce Delaware forum selection clauses, reinforcing the ability of Delaware-incorporated companies to channel stockholder disputes to Delaware’s specialized corporate court.

The Delaware Court of Chancery recently provided a powerful reminder of the Court’s equitable purpose, and how it will not countenance bad faith or duplicity. In Ghatty v. Mudili et al., three board members of a five-member board voted at a special board meeting to remove the remaining two directors from their officer positions, and later sued under 8 Del. C. § 225 to seek confirmation that the two directors had been validly removed from their officer roles. The Defendants challenged their removal on a number of grounds. The Court of Chancery considered one argument dispositive: that the meeting notice was inherently deficient because the meeting agenda omitted the removal action effectuated at the meeting, and indeed misleadingly suggested that one Defendant’s officer role would be expanded. The Court condemned the notice as “duplicity,” voided the vote, and held that the Defendants remained officers of the Company.

The Meeting Notice

The stated purpose of the meeting was to discuss how to bring “better governance and transparency” to the Company, and the agenda included the following items:

• Review of requests for financial statements, bank records, and supporting documentation;
• Discussion of alleged unauthorized transactions or approvals;
• Proposal for new signatory protocols and centralized finance email;
• Proposed recognition and role expansion for one of the Defendants; and
• Any additional matters raised by board members or shareholders in good faith.

Following the notice, there were additional communications amongst the directors detailing the items for discussion at the meeting. Notably, the removal of the Defendants as officers was never mentioned. In fact, although one Plaintiff director raised certain “potential areas of concern,” he specifically said that the meeting notice was not “an accusation of wrongdoing against any individual,” but was instead “a formal invitation to clarify and remedy any potential governance shortfalls,” and he invited the directors to “submit any ‘contrary evidence’ and ‘additional agenda items’ ahead of the meeting.” He also mentioned one Defendant’s “notable contributions,” and proposed that he be appointed Chief Revenue Officer and given enhanced compensation.

Before the board meeting, however, there was a “falling out” between that director and the Defendants. The latter then said that they would be unable to attend the meeting due to their “tight schedules.” The meeting went forward as planned, with only the three Plaintiff directors in attendance. Later resolutions state that, at the meeting, the three Plaintiff directors removed the Defendants as officers of the Company.

The Court found that the meeting notice technically complied with the Company’s bylaws, but nevertheless voided the vote taken at the meeting because the notice was not equitable. Instead, the Court considered it a “bait and switch that concealed the Plaintiffs’ intention to remove [the Defendants] as officers.” In holding that the Defendants remained officers of the Company, the Court stressed that “[e]quity will not abide such duplicity toward fellow directors.” The Court also rejected the argument that notice was not required where the targeted directors lacked the power to block the action, stressing that “[f]air notice fosters a genuine deliberative process – a purpose that was subverted here.”

Lessons Learned

Ghatty offers some important lessons about the value of good governance when taking board action:

• Directors are entitled to a “fair and non-misleading notice of the agenda for a special meeting,” even if the notice technically complies with the bylaws. When drafting agendas, consider whether the agenda adequately describes the discussion points and decision items for the meeting.
• Holding Regular Meetings. This meeting was the Company’s first in-person board meeting in three years. This fact was relevant to the determination of whether the meeting was a “regular” or “special” meeting. That distinction can be significant, particularly in instances where the company’s bylaws have different notice requirements for regular versus special board meetings.
• Clear Bylaws. The Court began its analysis by turning to the Company’s bylaws. In support of their argument that the meeting notice was deficient, the Defendants cited to a stockholder meeting provision in the bylaws that required a specific statement of the meeting’s purpose. Because the bylaws lacked an analog requirement for board meetings, the Court found that the notice was technically sufficient, and had to rely instead on its equitable power to reach its result. Consider whether there are unintentional gaps or inconsistencies in your company’s bylaws that can be clarified or corrected to provide more certainty and consistency across governance items. Also remember that bylaws set the rules for the game, but, as seen in Ghatty, can’t protect against bad faith.
• Records and Meeting Minutes. The Court referenced the fact that there were no contemporaneous minutes or evidence of the meeting, only a resolution dated a couple of weeks later stating that, at the meeting, “appropriate resolutions were adopted, changing certain officer and signatory roles within the Company.” Although the Court did not rely on this fact in its holding, it is a helpful reminder of the importance of appropriately and timely documenting actions taken at a meeting.

Courts are writing their own rules about generative AI, and in patent cases those rules differ sharply from judge to judge. This survey, current as of September 8, 2026, catalogs the generative-AI requirements in the venues where most patent infringement suits land: the Eastern and Western Districts of Texas, the Northern and Central Districts of California, the Northern District of Illinois, the District of New Jersey, and the District of Delaware and the U.S. International Trade Commission, where no AI-specific rules were identified. Only the Eastern District of Texas has a court-wide rule, making every litigant responsible for verifying AI-assisted filings. Elsewhere the obligations come from individual judges’ standing orders and vary widely, from restating the existing duty to verify what you sign to requiring a separate certificate naming the AI tool, confirmation that a human checked every citation, records of the prompts used, or disclosure of AI use in billing. Penalties include US$500 per violation and having the filing struck.

On April 29, 2026, the Delaware Supreme Court upheld the dismissal of consolidated stockholder challenges to advance notice bylaws that The AES Corporation and Owens Corning each adopted in 2023. Advance notice bylaws are the internal rules setting out how far in advance, and with what disclosures, a stockholder must tell a company it intends to nominate directors or bring business before a meeting. The stockholders attacked the provisions in the abstract, without anyone having actually attempted a nomination and been turned away.

The court held that this was not enough to proceed. Delaware courts will review these provisions when there is a concrete, live dispute about how a bylaw is being applied, not when the alleged harm depends on future events that have not occurred. The decision continues a consistent line of recent bylaw rulings and means such provisions generally will not be tested in court until a real nomination dispute arises.

On March 25, 2025, Delaware Governor Matt Meyer signed significant amendments to the Delaware General Corporation Law that provide greater predictability and clarity for conflicted transactions. The amendments create statutory safe harbors under Section 144 that preclude equitable relief and damage claims when transactions involving controlling stockholders or control groups are approved through either a properly functioning special committee of at least two disinterested directors or an informed, uncoerced vote of disinterested stockholders (with both mechanisms required only for controller go-private transactions). The amendments also define key terms including “controlling stockholder” (with a one-third voting control floor), “control group,” and “disinterested director,” extend duty-of-care exculpation to controlling stockholders, and narrow stockholder books-and-records inspection rights under Section 220 to core materials while adding heightened requirements for accessing additional records. The amendments apply to acts and transactions regardless of when they occurred, but do not apply to legal proceedings or demands commenced on or before February 17, 2025.

On February 27, 2026, in a unanimous 37-page opinion, the Delaware Supreme Court upheld the constitutionality of significant changes to the Delaware General Corporation Law (DGCL) enacted in March 2025 via Senate Bill 21 (SB 21). This decision permits Delaware corporations and their advisers to confidently rely on these amendments for transactions with interested fiduciaries (including controlling stockholders), thereby increasing transaction planning flexibility and certainty while decreasing litigation risk under Delaware law.

Background of SB 21

As previously discussed in this Sidley Update, SB 21 provided greater statutory clarity in a number of important areas that had been the subject of common law development. It amended Section 144 to, among other things, create new statutory safe harbors for transactions with interested fiduciaries, including controlling stockholders. Although these safe harbors are akin to previously existing common law standards, they reflect important changes thereto that decrease transaction planning risk beyond those prior tests. These include (i) offering safe harbor protection in all interested-fiduciary transactions (except for going private transactions) by the use of either disinterested committee/director approval or a majority-of-the-minority vote (not both), (ii) incorporating a definition of “controlling stockholder,” and (iii) codifying standards for director independence and disinterestedness. SB 21 also amended Section 220 to clarify the scope of books and records inspections. These changes applied retroactively to all acts or transactions whether occurring before, on, or after enactment, subject only to a carveout for litigation commenced or demands made before February 17, 2025 (when SB 21 was announced). The constitutionality of the Section 144 amendments, and their retroactivity, was promptly challenged.

Constitutional Questions and Answers

In Rutledge v. Clearway Energy Group LLC, No. 248, 2025 (Del. Feb. 27, 2026), the Delaware Supreme Court considered two constitutional challenges to Section 144, focused on its safe harbor provisions and retroactive application. It rejected both.

1. First, the Delaware Supreme Court held that Section 144’s safe harbors, which preclude equitable relief and eliminate damages claims against fiduciaries, do not improperly limit the Court of Chancery’s equity jurisdiction.

Highlighting the Delaware General Assembly’s long-respected and regularly employed legislative power to amend the DGCL, including in response to common law developments, the Delaware Supreme Court held that the Court of Chancery was not improperly divested of its equitable jurisdiction via SB 21’s amendments to Section 144. The Supreme Court reasoned that the Court of Chancery remains empowered to adjudicate fiduciary duty claims and to determine whether the prerequisites for the safe harbor protections in Section 144 are achieved. Although two remedies previously available to the Court of Chancery — equitable relief and awards of monetary damages against directors, officers, controllers, or control groups — are now unavailable where the Section 144 safe harbor prerequisites have been met, the Court of Chancery retains jurisdiction over fiduciary duty claims. The Supreme Court viewed SB 21 as “a legitimate exercise of the General Assembly’s authority to enact substantive law that, in its legislative judgment, serves the interests of the citizens of our State.”

2. Second, the Delaware Supreme Court held that the retroactive application of SB 21 to transactions occurring prior to its enactment does not violate due process by eliminating vested fiduciary claims.

The Delaware Supreme Court held that SB 21’s retroactive application does not extinguish vested rights of action in a manner violative of constitutional due process rights. The Delaware Supreme Court questioned the premise that Rutledge had a vested property right prior to SB 21’s enactment because his interest was more in the form of an “anticipated continuance of” existing law. But it concluded that even assuming he had such a right, the Delaware General Assembly clearly intended that the statute apply retroactively and “exercise[d] its legislative authority in conformity with the dictates of due process” by crafting a statute reasonably related to a legitimate objective. As a result, SB 21 does not strip away vested claims in violation of due process and will apply equally to all acts and transactions on or before February 17, 2025, unless already then subject to an action, proceeding, or demand.

Key Takeaways for Boards and Dealmakers

Safe Harbor Certainty

First and foremost, Clearway preserves SB 21’s empowerment of disinterested decisionmakers to protect investors in transactions with interested fiduciaries. Corporations engaging in transactions with fiduciaries may confidently rely on the safe harbor frameworks in Section 144, which will continue to increase predictability and flexibility in corporate dealmaking while reducing litigation risk. Significantly, transaction planners can be confident that any act or transaction involving an interested director, officer, controller, or control group (other than a going private transaction) may be cleansed by either a special committee approval or by a majority-of-the-minority stockholder approval. Although Clearway settles SB 21’s constitutionality, all corporate law statutory frameworks necessarily reflect some degree of unpredictability when first enacted that will be reduced over time through case law development.

Compliance and Documentation

Parties and practitioners should take into account these amendments and design transactions to fit within Section 144’s safe harbor protections to avoid potential application of the “entire fairness” standard of review. Corporations and their counsel should continue to deploy best practices to monitor and carefully document compliance with the contours of the safe harbors. Some key areas for monitoring and documentation include:

• analysis of the disinterestedness of decisionmakers;
• disclosure of all material facts to disinterested directors;
• processes supporting a “good faith” approval of any such transaction by disinterested directors “without gross negligence”; and
• disclosure of material facts in connection with any disinterested stockholder approval of a transaction.

Reincorporation Considerations

Underpinning the Delaware Supreme Court’s constitutional analysis was a deep deference to the Delaware General Assembly’s ability to amend (often swiftly) Delaware’s corporate law statutes. The decision therefore bolsters one of the reasons many corporations have chosen to incorporate in Delaware: a fast-acting and responsive legislative branch. The substance of SB 21 is likewise an important consideration in any reincorporation discussion, because the Section 144 amendments provide a roadmap for transaction planners to follow that reduces unpredictability and overall litigation risk, although we anticipate that litigation challenges will be brought to develop the contours of the statute’s application.

The Delaware Court of Chancery threw out all twelve claims a group of Jenzabar stockholders brought against the company’s founder, his former spouse, and the board. The stockholders complained about two things: that the company had paid the founder’s appeal bond and legal fees in an earlier case where he was found to have taken a corporate opportunity worth US$81 million, and that a decade of generous stock and bonus awards had let the founder and his ex-wife grow their ownership from 18% to 91% while diluting everyone else. The court held that dilution claims like these belong to the company, not to individual stockholders, so they had to be brought as derivative claims on the company’s behalf.

The rest of the case failed on timing. The claims about the appeal bond and legal fees were filed too early, because the indemnification agreement required an independent lawyer to decide whether the founder was entitled to be reimbursed, and that process was still underway. The compensation claims were filed too late, since the events happened between 2012 and 2015 and Delaware applies a three-year clock. The practical lesson for founders and counsel is that indemnification and advancement are different promises with different timing, and that if your equity grants ever draw scrutiny, the clock starts running when stockholders have enough information to ask questions.

Delaware has long been the default jurisdiction of incorporation of high-growth emerging companies due to its advanced, and evolving, body of corporate law, a specialized Court of Chancery, and decades of corporate law cases and precedents. But that default assumption has now come into question.

In recent years, Delaware’s courts have issued a series of decisions that have left some founders of high-growth companies unsettled. See, for instance, the recent Tesla cases, following which Elon Musk publicly blasted Delaware and both Tesla and SpaceX reincorporated in Texas. Musk is not alone in this trend toward “DExit” – TripAdvisor, Dropbox, AMC Networks, and Roblox are among those reincorporating in Nevada, and Dillard’s joined Tesla and SpaceX by reincorporating in Texas. Even Meta publicly announced that it was exploring a move out of Delaware in 2025.

In response, Delaware’s legislature adopted major reforms in 2024 and early 2025 (SB 313 and SB 21) codifying safe harbors for conflicted transactions, narrowing books-and-records access, and strengthening management’s shield against litigation.

More and more founders and GCs of later-stage companies are now wondering if Delaware should still be the default.

So, should you care and, if so, where are companies moving?

“Y’all Street” as an Alternative?

In recent years, Texas lawmakers have aggressively reformed state law to attract corporations. The state’s pitch? A pro-business legal climate, big-market economy, and fewer stockholder hassles. In 2024, Texas launched a new statewide Business Court system modeled on Delaware’s Chancery Court, with specialized judges to handle complex corporate cases. This was quickly followed in May 2025 with sweeping legislated changes (SB 29) to the Texas Business Organizations Code, in a package branded as “Texas: Open for Business." Key provisions include:

Codification of the Business Judgment Rule:

Texas now explicitly codifies the business judgment rule and the high bar to rebut it, giving directors stronger protection when their decisions are challenged.

Limits on Derivative Lawsuits:

Allowing corporations to set a minimum ownership threshold (up to 3%) for stockholder-plaintiffs to bring a derivative suit. This threshold is higher than most states and drastically curbs the ability of small stockholders to sue on behalf of the corporation.

Records and Litigation Procedure:

Limiting what constitutes corporate “books and records” available for stockholder inspection. For instance, emails and electronic communications are excluded. It also allows companies to include provisions in their charters or bylaws waiving the right to jury trials in corporate disputes, meaning cases would be heard solely by judges (as they are in Delaware’s Chancery Court).

In addition to the changes effected by SB 29, Texas later enacted several additional measures to allow certain Texas-listed public companies to adopt higher thresholds for stockholder proposals and to authorize the board of directors to delegate more discretion to the corporation’s executives.

Pros and Cons of the Y’all Street

The Texas proposals seem very attractive, especially to issuers and their insiders, but, in practice, their effectiveness is hard to measure. The new courts lack Delaware’s decades of precedent, making Texas less predictable for companies. So, certainty with respect to a few specific matters is offset by uncertainty with respect to treatment of a myriad of others. Additionally, incorporating in Texas might expose a corporation to Texas venue for certain lawsuits.

Texas has certainly had some luck in attracting private and public companies as of late, and we are working with a number of companies exploring Texas as a potential alternative to Delaware.

The “Silver Sanctuary”?

Like Texas, Nevada’s appeal lies in providing certainty to companies and their insiders with respect to certain specific common transactions. It automatically offers directors and officers strong protections. Key features of Nevada’s corporate environment include:

Robust Liability Shields

Nevada law automatically exculpates directors and officers from personal liability for breaches of fiduciary duty (except in cases of intentional misconduct, fraud, or knowing law violations). In Delaware, by contrast, corporations must opt in to exculpation (and even then, it covers only duty of care, not loyalty, and only recently were officers allowed similar protection). Nevada’s default rule thus gives executives peace of mind that honest mistakes won’t easily lead to personal liability. Likewise, Nevada statutes make it easier to indemnify and protect managers, which can reduce D&O insurance costs.

Consideration of Other Interests

Nevada explicitly permits boards to consider long-term corporate interests and the impacts on employees, customers, the community, etc., when making decisions. Directors are not strictly bound to maximize immediate stockholder value at all costs. This allows directors to justify decisions that favor sustainable growth or other constituencies, without breaching their duty to stockholders. This contrasts with states like Texas or Delaware, where directors must generally act in the best interests of the corporation and its stockholders, with true stakeholder balancing available only if the corporation opts into a Public Benefit Corporation framework.

No Franchise Tax

From a financial perspective, Nevada imposes no corporate franchise tax and so may prove cheaper to operate in, especially for early-stage companies.

Pros and Cons of the Silver Sanctuary

Nevada offers what Nevada usually offers: more freedom to operate at the expense of less predictability. Nevada’s business courts were established in 2001, but those courts have not published nearly as many written opinions, or as routinely, as Delaware’s Court of Chancery. The law, while more insider-friendly, is also less modernized in other areas.

So, in the end, what should you do?

The answer is not clear-cut. For now, there is no mass flight out of Delaware, but certainly lots of discussions are taking place. No clear winner has emerged for the alternatives, but it does appear that more public companies are leaning towards Texas while more private companies are considering Nevada. But the vast majority of new incorporations are still taking place in Delaware.

It all comes down to perception, expectation, and, perhaps in the future, actual experience. To help your thinking, a chart summarizing some, but certainly not all, of the key features of the three regimes may be found here:

In Fortis Advisors v. Krafton, the Delaware Court of Chancery awarded a striking equitable remedy: it ordered the reinstatement of a CEO who was wrongfully terminated using a strategy developed with ChatGPT, and extended the earnout period by the full duration of his improper exclusion. The buyer had used AI to strategize avoidance of a US$250 million earnout, but because that advice was generated outside the attorney-client relationship, it was not privileged and became damning evidence at trial. The decision puts buyers on notice that depriving seller-managers of bargained-for post-closing operational control may result in not just damages, but equitable remedies that restore control and reset the earnout clock.

In a US$250 million acquisition, the buyer refused to pay one stockholder his merger proceeds unless he first signed a joinder agreement that included a sweeping release of any claims he might have against the companies. After trial, the Delaware court held that withholding payment on that condition breached the company’s charter. A stockholder cannot be forced to give up legal claims just to collect money he is already owed, unless he receives something extra in exchange for that release. The company eventually conceded the point.

The Delaware Supreme Court recently affirmed that, with respect to limited liability companies (LLCs), courts will not fill gaps with implied duties that parties chose not to include in the LLC’s operating agreement. In Khan et al. v. Warburg Pincus, LLC, the Court found that minority LLC members could not use the implied covenant of good faith and fair dealing to challenge the outcome where the LLC agreement expressly waived fiduciary duties, authorized self-interested conduct by the majority investor, and provided a specific amendment mechanism for differential consideration. The Court refused to import corporate-style fairness and disclosure obligations where parties had negotiated a detailed contractual governance scheme, reinforcing Delaware’s highly contractarian approach to LLCs.

Ordinary Delaware law tells a board selling control to get the best price reasonably available; however, by statute, directors of a public benefit corporation must balance stockholders’ financial interests against the interests of other people affected by the business and the company’s stated public mission. In Drakes Landing Associates, L.P. v. Tilden Park Capital Management, L.P., the court held that the Revlon stockholder value maximization standard of conduct does not apply to these directors, though courts may still review their decision-making under an enhanced scrutiny standard. The case was dismissed on a separate ground: the directors were protected by a statutory safe harbor, given that their decision was found to be informed, disinterested, and not one that no sensible person would approve. Here, an independent special committee with its own lawyers and a banker ran a market check before approving emergency financing that heavily diluted existing holders.

Dodiya v. Franklin tested the limits of the safe harbors added in 2025 to Section 144 of the Delaware General Corporation Law. Those amendments can preclude equitable relief and eliminate damages claims in certain conflicted transactions that may involve insiders or a controlling stockholder by having it approved either by disinterested directors acting in good faith and without gross negligence, or by an informed vote of disinterested stockholders. In Dodiya v. Franklin, a company’s CEO leaked confidential valuation and process information to his father’s investment firm, which bought stock cheaply and then took the company private. The board continued to give the CEO access to deal materials and allowed him to attend a board meeting about the deal even after he recused himself, and despite the board’s knowledge of the leak.  Despite this, the proxy statement stated he had not participated in the sale process after his recusal. In August 2026, the Delaware Court of Chancery found that the board acted with “reckless indifference” and that it was reasonably conceivable that the merger proxy statement contained a material misstatement, making both safe harbors unavailable. The safe harbor protection is real, but its availability depends on the board’s process and the accuracy of its disclosures.

Texas overhauled its business organizations code last year through Senate Bill 29, part of a broader effort to make the state a more attractive home for companies looking beyond Delaware. One of the changes lets certain corporations, including publicly traded ones and other opt-in companies with more than 500 shareholders, adopt a bylaw requiring a shareholder to hold at least 3% of the company’s stock before bringing a lawsuit on the company’s behalf against its own directors or officers.

A federal court has now applied that provision, dismissing a derivative case against Southwest Airlines’ board because the plaintiff held far too little stock to clear the company’s 3% bylaw. The court also rejected the argument that a pre-suit demand letter sent before the new rules took effect counted as starting the proceeding. For companies weighing where to incorporate, the case is an early signal that Texas courts are giving the state’s new corporate litigation protections real effect.

A stockholder of a Delaware e-commerce company sent a formal demand to inspect company books and records while the company was being acquired. The company objected, claiming the demand was too broad and lacked a proper purpose, but offered to negotiate a narrower production. The stockholder did not respond. The merger closed a week later, cancelling the stockholder’s shares, and the stockholder filed suit to enforce her demand 12 days after that. The Delaware court dismissed the case: under the state’s books-and-records statute, often called Section 220, you must actually be a stockholder on the day you file the lawsuit, not merely on the day you send the demand. Once the merger wiped out her shares, she no longer qualified.

The court also refused to excuse the delay on fairness grounds, noting the company had never agreed to produce anything nor promised a schedule, so nothing it did invited her to wait. The court left open, without deciding, whether a fairness exception could ever apply, and cautioned companies that stringing a stockholder along before closing could weaken that defense.

By the time a venture-backed company reaches its mid to late stages, its board is usually built out of overlapping interests. Directors are affiliated with the funds that led earlier rounds, a founder may hold a large voting block, and executives and investors alike see a steady stream of opportunities, some of which look a lot like the company’s own roadmap. Generally, Delaware corporate law treats these relationships not as misconduct but as a process question. Most recently, Delaware corporate law received meaningful codified updates to its conflicted transaction rules and the key in evaluating such transactions remains to ensure that process follows the most recent developments in the law.

Loyalty Sets the Baseline

Directors and officers of a Delaware corporation owe fiduciary duties of care and loyalty to the corporation. The duty of loyalty bars a fiduciary from using a position of trust to advance personal interests at the corporation’s expense, and it is the source of both bodies of law discussed here. A conflict of interest does not by itself make a transaction wrongful; what it changes is the standard of judicial review if the transaction is later challenged. A conflicted transaction that has not been properly cleansed risks review for entire fairness, the most demanding standard under Delaware law, while a transaction that satisfies the statutory safe harbors described below is insulated from fiduciary duty damages and equitable relief.

Conflicted Transactions Under Section 144

DGCL Section 144 gives boards a set of alternative cleansing paths. An act or transaction involving a conflicted director or officer qualifies for the safe harbor if any one of the following is true: the material facts of the interest and the transaction are disclosed or known to the board or a committee, and a majority of the disinterested directors approve it in good faith and without gross negligence; the transaction is approved or ratified by an informed, uncoerced, affirmative vote of a majority of the votes cast by the disinterested stockholders; or the transaction is fair to the corporation and its stockholders. However, if a majority of the board is conflicted, the director-approval route must run through a committee of at least two disinterested directors.

Controlling stockholder transactions have their own rules, and the statute defines who is a controller: a person who owns or controls a majority of the voting power, has the right to cause the election of a majority of the board, or holds at least one third of the voting power together with the power to exercise managerial authority over the corporation’s business and affairs. On a maturing cap table, that can describe a founder with high-vote stock or, in some circumstances, a lead investor, and stockholders acting together under an agreement or understanding can constitute a control group. A controlling stockholder transaction (other than a going private transaction) qualifies for the safe harbor if it is approved or recommended by a committee of at least two disinterested directors with express authority to negotiate and to reject the transaction, or if it is conditioned on and receives an informed, uncoerced majority-of-the-minority vote. Only a going private transaction requires both protections, a deliberate departure from prior case law, under which both were generally required for a controller transaction to earn business judgment review.

The statute also defines disinterestedness. A disinterested director is one who is not a party to the transaction and has no material interest in it or material relationship with a person who does, with materiality keyed to whether the director’s objectivity would reasonably be expected to be impaired. Directors of exchange-listed companies also receive a heightened presumption of disinterestedness if the board has determined they are independent under exchange rules, a provision that becomes relevant after an IPO.

The Corporate Opportunity Doctrine

The corporate opportunity doctrine answers a different loyalty question: when a business opportunity belongs to the corporation rather than to the fiduciary who learned of it. A director or officer of a Delaware corporation may not take an opportunity for personal benefit if the corporation is financially able to undertake it, the opportunity falls within the corporation’s line of business and would be of practical advantage to it, the corporation has an interest or reasonable expectancy in it, and taking it would place the fiduciary’s self-interest in conflict with the fiduciary’s duties. The Delaware Supreme Court has emphasized that the factors are weighed together and that no single factor is dispositive.

In the venture ecosystem, fund-affiliated directors see deal flow across an entire portfolio, and founders and executives routinely encounter ideas adjacent to the corporation’s business. A fiduciary who takes an opportunity that a court later decides belonged to the corporation faces disgorgement of the opportunity or its proceeds. However, a fiduciary who presents the opportunity to the board and obtains a rejection from disinterested directors gains the benefit of a safe harbor, mitigating the risk of an after-the-fact judicial determination that the opportunity was usurped. Presentation is not legally required, but it creates a clean contemporaneous record, and the rejection should be clearly documented in the minutes.

Advance Waivers Under Section 122(17)

Delaware also permits much of this to be resolved in advance. Section 122(17) of the DGCL authorizes a corporation to renounce, in its certificate of incorporation or by action of its board, any interest or expectancy in specified business opportunities or specified classes or categories of business opportunities, whether presented to the corporation or to one or more of its officers, directors, or stockholders. Waivers of this kind are common in venture capital investments, where a firm and its designees may hold positions and board seats across a sector, and it is recommended to build them into the certificate of incorporation at the time of investment (which is consistent with the NVCA model certificate of incorporation). Note that such a waiver addresses only the corporate opportunity doctrine, not confidentiality. Accordingly, funds holding positions in competing companies should maintain information screens and avoid seating the same designee on the boards of competitors.

That said, advance waivers may not be an absolute shield to all issues arising out of potential corporate opportunities. Although details are scant as of the time of writing, and we expect to publish more detailed analysis once information becomes available, in August of 2026 the U.S. Department of Justice has been investigating certain venture capital firms with partners serving on boards of competing companies, potentially raising antitrust concerns, separate from the corporate law concepts of corporate opportunity.

DO’S & DON’TS:

Board Process for Conflicted Transactions

DO: Surface conflicts early and choose the cleansing path before approval. Disclose all material facts about the fiduciary’s interest and involvement, obtain approval from a majority of the disinterested directors acting in good faith and without gross negligence, and use a committee of at least two board-determined disinterested directors whenever a majority of the board is conflicted.

DON’T: Treat a conflicted deal as either automatically prohibited or automatically safe because the terms feel like market. Without disinterested director approval, a qualifying disinterested stockholder vote, or provable fairness, the transaction and the fiduciaries remain exposed.

Controlling Stockholders and Investor Directors

DO: Test whether a founder, investor, or group acting together is a controlling stockholder or control group under Section 144(e) before structuring any related party transaction. For controller transactions, use a fully empowered committee of at least two disinterested directors or a conditioned majority-of-the-minority vote, and use both for a going private transaction.

DON’T: Assume control requires majority ownership; one third of the voting power plus managerial authority can suffice. And do not rely on a stockholder vote to cleanse a controller transaction unless the deal was conditioned on disinterested stockholder approval by its terms when submitted for the vote.

Corporate Opportunities

DO: Adopt a simple protocol: fiduciaries promptly disclose opportunities arguably within the corporation’s line of business, the board or its disinterested members decide whether the corporation will pursue them, and any rejection is documented in the minutes before the fiduciary proceeds.

DON’T: Let a director or officer pursue such an opportunity quietly, or with the corporation’s resources, personnel, or information. Informal assurances from management are not a substitute for board-level disclosure and a documented rejection.

Waivers and Information Hygiene

DO: Consider a Section 122(17) waiver in the certificate of incorporation tailored to fund-affiliated directors and stockholders, revisit its scope at each financing, and pair it with confidentiality screens where investors hold competing positions.

DON’T: Seat the same designee on the boards of competing portfolio companies or treat a waiver as permission to share the corporation’s confidential information.

A Delaware Court of Chancery post-trial opinion in Holzbaur v. Trolley Square Hospitality, LLC serves as a cautionary tale about imprecise LLC agreement drafting. The plaintiff believed he was a “cash contributing member” with irremovable status, but contradictory language in the agreement led the court to rely on extrinsic evidence (including emails, pre-formation conversations, and drafting history) to find he was actually a “sweat equity” member subject to removal at will. The case underscores that the flexibility of the LLC form carries drafting responsibility: internal inconsistencies open the door to costly litigation and invasive discovery, and ambiguities will be resolved based on the parties’ actual intent, not favorable contract language.

In Fortis Advisors, LLC v. Stillfront Midco AB, the Delaware Supreme Court strictly enforced an arbitration clause in a merger agreement, finding that a seller’s bad faith claims regarding earnout manipulation fell within the alternative dispute resolution (ADR) provision’s scope because they were fundamentally a dispute about the calculation of the earnout. The court looked at the substance of the claims, concluding that “why” the earnout calculation was wrong cannot be severed from an arbitration clause covering calculation disputes. The decision is a strong reminder to dealmakers to precisely delineate which disputes are reserved for courts versus arbitration, and to draft ADR provisions with enough specificity to avoid costly threshold litigation over arbitrability.