Delaware committee releases bill to revise corporate law after hours-long hearing

Senate Substitute 1 for Senate Bill 21, a set of changes to the Delaware General Corporation Law, was released from the House committee after an extended hearing that drew corporate lawyers, legal scholars, the secretary of state and dozens of public commenters.

The bill would amend Title 8 of the Delaware Code to clarify how certain conflicted transactions involving directors, officers and controlling stockholders may be validated and would narrow the scope and process for stockholder books-and-records demands under Section 220. Committee members voted by roll call to release the substitute for signatures; the motion passed and the bill will be reported out of committee.

Why it matters: Delaware’s corporate code and the Court of Chancery together underpin the state’s role as the premier U.S. corporate domicile. Witnesses who supported the bill said it restores predictability that some corporate clients are demanding; critics said the statute would overturn decades of Delaware precedent, weaken investor protections and risk economic harm to Wilmington and the state.

Amy Zimmerman, a corporate lawyer at Wilson Sonsini, told the committee that her firm had had “15 significant companies” recently asking whether to leave Delaware and that client conversations “paused” after the substitute was introduced. "It's not just chatter," Zimmerman said. "We are seeing companies leave," she told members, and described market materials and law-firm marketing that, she said, show reincorporation is an active consideration for some companies.

Opponents, including law professors and plaintiff-side lawyers who practice in Delaware, countered that the bill would erase or significantly alter long-standing judicial protections. Professor Eric Talley of Columbia Law School and several public pension advocates warned that institutional investors could respond by directing portfolio decisions away from Delaware companies if the statutory changes reduce investor protections. "Passage of this bill would weaken shareholder rights and would harm employees and retirees who rely on those protections," a representative of the New York City pension systems said.

The bill addresses two main areas: Section 144-style conflicts and Section 220 books-and-records practice. Professor Lawrence Hamaramesh, who helped draft the ideas the legislature is considering, described the Section 144 changes as a clearer, rule-based framework for when a conflicted transaction can be validated — for example by approval of an independent committee of directors or by a vote of disinterested stockholders — and said the statute aims to make the rules more predictable for transactional planners.

On books-and-records, witnesses and drafters said the proposal limits routine, broad discovery under Section 220 to a narrower set of materials unless a stockholder can make a specific showing of need. Professor Hamaramesh said the current Section 220 practice "has gotten way outside the bounds that it was designed to serve," becoming lengthy and costly rather than a quick, efficient remedy.

Secretary of State Charney Padibanda Sanchez, who described outreach to corporate leaders after press reports that several large companies were considering leaving Delaware, said the corporate franchise generates about $2,000,000,000 in revenue for the state budget and that the governor's office and Secretary of State's office had taken system-level outreach steps to understand business concerns. She told lawmakers the substitute reflected input from many stakeholders and that some more extreme requests from businesses — for example, thresholds to bar derivative suits — were not adopted.

Opponents argued the process was rushed and one-sided. Multiple former Court of Chancery clerks, current litigators and corporate governance scholars testified that the bill would overturn or blunt dozens of precedents and would limit the court's equitable reach. Public commenters, including representatives of public pension funds and plaintiffs' firms, urged the committee to slow down or adopt an opt-in approach that would allow individual corporations to choose the new statutory regime only with shareholder approval.

Committee discussion included repeated questions about retroactivity. The substitute as drafted contains retroactivity language but carves out pending and already-adjudicated cases and books-and-records demands outstanding as of February 17, 2025; witnesses including former judge Joseph Slides told the committee that, as written, the bill would not apply to cases already pending in court as of that date.

After nearly three hours of testimony and public comment — from corporate representatives, law firms, chambers of commerce, hospital associations and dozens of individual Delaware residents and lawyers — the committee took a roll-call vote to release Senate Substitute 1 for Senate Bill 21. Committee members present voted to release the bill; Representative Bush made the motion to release. Representative Phillips recorded a no vote during the roll call.

What comes next: Because the committee released the substitute, it may be presented for a vote before the full House and will continue to draw advocacy from both business and investor interests. Supporters say the bill restores needed predictability for transaction planning; opponents want either a slower process, more stakeholder negotiation, or an opt-in mechanism that would let corporations elect the new rules only after a shareholder vote.

Public comment: Dozens of speakers addressed the committee. Supporters included chambers of commerce, law firms and health-care organizations that emphasized jobs, state revenue and the local economic multiplier. Opponents included law professors, public pension representatives and plaintiff-side lawyers who argued the bill reduces shareholder protections and could prompt investors to reconsider whether to invest in Delaware companies.

The committee adjourned after the vote. The substitute will now proceed through the legislature according to the General Assembly’s rules and calendar.