A significant revision to the Delaware General Corporation Law has changed how corporations approve transactions with their directors, officers, and controlling stockholders. The amendments include “safe harbor” protection from certain equitable and monetary claims for qualifying transactions. This Legal Update offers a step-by-step guide for boards evaluating transactions under this new framework.  

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In this episode (approx. 10 minutes), Professor Anat Alon-Beck of Case-Western Reserve University School of Law (follow her work on SSRN) talks to us about her scholarship. In particular, Prof. Alon-Beck discusses some of the findings regarding competition among states to attract businesses—including Texas and Nevada. Prof. Alon-Beck also discusses incorporation trends for growth companies and unicorns in her article, Incorporating Unicorns: An Empirical Analysis.

Watch our latest MB Sounding Board.

Delaware Governor Matt Meyer signed Senate Bill 21 (“SB 21”) into law Tuesday night, pushing forward a measure that has drawn strong criticism from shareholder and consumer advocacy groups.

The bill made its way to the governor’s desk after a debate in the House, where it passed with a 32 to 7 vote and two members absent on March 25, 2025. Attempts by House critics to amend the bill were rejected, clearing the way for final approval. On March 13, 2025, SB 21 sailed through the State Senate with a unanimous 20-0 vote. 

SB 21 provides a safe harbor for controlling shareholders, shielding them from certain legal challenges, as discussed in this blog post. It outlines procedures allowing companies and their controlling shareholders to carry out transactions—such as asset sales—while minimizing the risk of lawsuits from minority investors. 

The Delaware Secretary of State’s testimony before the Senate Judiciary Committee on March 12, 2025 revealed some notable statistics about Delaware entities. In 2024, more than 289,000 entities—including LLCs, corporations, LPs/LLPs and statutory trusts—were formed in Delaware. Of that total, 58,000 were corporations. Additionally, there were 2,166 conversions in 2024, including LLCs converting to corporations and Delaware LLCs converting to out-of-state entities.

According to the Governor’s press release, Delaware is home to 2.2 million registered entities and incorporated 81% of U.S. IPOs in 2024. The corporate franchise represents over one-third of Delaware’s state budget at roughly $2.2 billion. 

In his press release, Governor Meyer said: “Delaware is the best place in the world to incorporate your business, and Senate Bill 21 will help keep it that way, ensuring clarity and predictability, balancing the interests of stockholders and corporate boards…

The law will be effective back to February 17, 2025.

Mayer Brown partner Jennifer Zepralka will participate in the 2025 Corporate Governance Roundtable, hosted by the Harvard Program on Corporate Governance. The Roundtable focuses on current issues in corporate governance, including:

  • Legal/political changes at the federal level;
  • Issuers and the ESG backlash;
  • Investors and the ESG backlash;
  • Engagement practices;
  • Compensation issues;
  • Activism: Looking forward to 2025 and back to 2024;
  • Delaware’s proposed legislation.

    To learn more, visit the program website.

    The current proxy season presents new challenges and opportunities for U.S. companies as they face shifting expectations regarding board diversity. There are a number of notable developments. The Fifth Circuit Court of Appeals decision to vacate the Nasdaq diversity rules, which required Nasdaq-listed companies to disclose board diversity statistics and have a minimum number of diverse directors was the first. This ruling, along with recent updates to the proxy voting guidelines of proxy advisory firms and institutional investors, has created uncertainty and variability in the board diversity landscape. Moreover, recent presidential executive orders have put increased scrutiny on such initiatives. In this Legal Update, we discuss these developments and highlight some practical considerations for U.S. companies preparing for the upcoming proxy season.

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    On February 12, 2025, the staff of the Division of Corporation Finance (the “Staff”) of the U.S. Securities and Exchange Commission issued Staff Legal Bulletin No. 14M (“SLB 14M”), which rescinds in part Staff Legal Bulletin No. 14L (“SLB 14L”). In addition, SLB 14M provides guidance and clarification on the Staff’s views on the scope and application of Rule 14a-8(i)(5), Rule 14a-8(i)(7), and certain other aspects of Rule 14a-8, which governs the conditions under which a company can exclude a shareholder proposal from consideration in its definitive proxy statement. SLB 14M also provides guidance for companies that previously submitted and/or plan to submit no-action requests, pursuant to which the Staff agrees not to take action against the company for excluding a shareholder proposal on such grounds, during the 2025 shareholder proposal season.

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    On February 10, 2025, the Ninth Circuit Court of Appeals ruled in favor of Slack Technologies LLC, dismissing an investor class action lawsuit brought under Sections 11 and 12(a)(2) of the Securities Act.  This decision follows the 2023 U.S. Supreme Court ruling, which held that the Slack plaintiffs must trace their purchased securities to the particular registration statement alleged to be false or misleading in order to bring a Section 11 claim.  The Supreme Court declined to render judgment on the Section 12 claim.  At that time, the case was remanded back to the Ninth Circuit for reconsideration.

    In the context of Slack’s direct listing, the traceability requirement posed challenges for investors.  In order to satisfy the requirement, an investor must show a direct connection between the shares purchased and the specific document containing the alleged misstatement.  In traditional IPOs, this chain of title is typically well-documented.  However, because a direct listing involves the simultaneous public trading of pre-existing shares—without underwriters or lockup periods—the mingling of registered and unregistered shares makes it challenging to trace their individual origins.

    On appeal for the Section 11 claim, the Slack plaintiffs sought to establish traceability through a statistical analysis.  They argued that traceability should not require proving the registration status of particular shares but rather whether the plaintiffs can plausibly allege that at least some registered shares were purchased pursuant to the registration statement.  According to the plaintiffs, traceability should be established by simply relying on the statistical inference that given the number of shares purchased and the percentage of shares on the exchange that were registered (approximately 42%), “the likelihood that none of the 30,000 shares was registered is infinitesimally small.”  However, the appeals court rejected the plaintiff’s statistical inference theory as both factually and legally flawed and inconsistent with applicable judicial precedents.

    The appeals court also separately confirmed that the tracing requirement similarly applies to a Section 12(a)(2) claim.  Under Section 12(a)(2), a plaintiff must show that the security was offered or sold by means of a prospectus containing a material misstatement or omission.  The appeals court rejected the Slack plaintiffs’ argument that the provision should cover non-public offerings or exempt transactions.  Since the Slack plaintiffs conceded that it was impossible to trace their shares back to the registration statement, they failed to state a claim and the appeals court reversed the district court’s decision and remanded with instructions to dismiss the complaint in full and with prejudice.

    The court’s ruling narrows Sections 11 and 12(a)(2) liability by requiring investors to prove that their shares are linked to an offering’s registration statement to have standing to sue for disclosure deficiencies.  This narrowing of liability is likely to influence how companies consider direct listings as a means of listing their securities in the future.  Going forward, companies may see direct listings as more favorable for avoiding certain types of liability, given the added complexity in tracking which shares are linked to the registration statement.  A link to the court’s opinion can be found here.

    In late 2023, California enacted “first-of-its-kind” climate-related disclosure laws, addressing disclosures on greenhouse gas emissions and climate-related financial risks as well as disclosures aimed at increasing transparency and accountability around certain climate-related claims and use of voluntary carbon offsets. In this Legal Update, we provide a high-level refresher of the requirements of (and recent updates to) these laws, and identify key steps that businesses can take to prepare for compliance.

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    Last week, the U.S. Securities and Exchange Commission’s (the “Commission”) Division of Corporation Finance revised two Compliance and Disclosure Interpretations (“C&DIs”) relating to beneficial ownership disclosures on Schedules 13D and 13G.  Schedule 13D is required to be filed to report 5% or greater ownership of a class of equity securities of a public company, while the short-form Schedule 13G is available to certain beneficial owners who meet the Schedule 13G eligibility requirements. In order to report on Schedule 13G, the beneficial owner must certify that the subject securities  were not acquired and are not held “for the purpose of or with the effect of changing or influencing the control of the issuer.”  The C&DIs, which replaced existing guidance, will lead asset managers and other investors to carefully weigh their approach to engagement with SEC reporting companies if they wish to avoid Schedule 13D reporting, as opposed to the less-onerous Schedule 13G reporting.  This change is one of several the SEC has made in recent weeks that seem to align with the current Republican-led Commission’s pro-issuer stance, especially as relates to shareholder involvement in social policy issues.

    As revised, C&DI 103.11 states that The Hart-Scott-Rodino (“HSR”) Act provides an exemption from certain HSR Act provisions for an acquisition of securities made “solely for the purpose of investment,” where the acquiror has “no intention of participating in the formulation, determination, or direction of the basic business decisions of the issuer.”  The C&DI clarifies that an acquiror who is unable to rely on this HSR Act exemption is not necessarily required to file a Schedule 13D.  Instead, the acquiror should determine its eligibility to file a Schedule 13G based on a facts-and-circumstances analysis of factors such as “whether the shareholder acquired or is holding the subject securities with the purpose or effect of changing or influencing control of the issuer” (as “control” is defined in Exchange Act Rule 12b-2). 

    Revised C&DI 103.12 addresses the circumstances under which a shareholder’s engagement with an issuer’s management could disqualifying a shareholder from certifying that the subject securities were not acquired and are not held “for the purpose of or with the effect of changing or influencing the control of the issuer,” such that the shareholder would be required to report on Schedule 13D.  Similar to C&DI 103.11, the C&DI states that this determination must be made via a facts-and circumstances analysis, considering whether the shareholder acquired or is holding the subject securities with a purpose or effect of “changing or influencing” control of the issuer (as “control” as defined in Exchange Act Rule 12b-2). 

    However, the C&DI goes on to state that the subject and/or the context of the shareholder’s engagement with management can be important in making this determination.  The C&DI draws a line between a shareholder who discusses their views on an issue with management and one who “exerts pressure on management to implement specific measures or changes to a policy,” which is more likely to result in an obligation to file a Schedule 13D.  Specifically enumerated examples of shareholders who may be ineligible to file a Schedule 13G include:

    • A shareholder who “recommends that the issuer remove its staggered board, switch to a majority voting standard in uncontested director elections, eliminate its poison pill plan, change its executive compensation practices, or undertake specific actions on a social, environmental, or political policy and, as a means of pressuring the issuer to adopt the recommendation, explicitly or implicitly conditions its support of one or more of the issuer’s director nominees at the next director election on the issuer’s adoption of its recommendation; or
    • discusses with management its voting policy on a particular topic and how the issuer fails to meet the shareholder’s expectations on such topic, and, to apply pressure on management, states or implies during any such discussions that it will not support one or more of the issuer’s director nominees at the next director election unless management makes changes to align with the shareholder’s expectations.”

    Find the revised C&DIs here.

    Seminar: February 24, 2025
    6:00 – 8:00 p.m.
    Register here.

    Join the leaders of prominent university corporate governance centers for a discussion on one of the hottest topics in the field: Delaware’s continued leadership in the corporate chartering business. Delaware’s legislature began considering reforms to its corporate law addressing oversight of controlling shareholder transactions. See our recent post. We will discuss during our session.

    Panelists

    • Lawrence A. Cunningham, Director, John L. Weinberg Center for Corporate Governance, University of Delaware, Alfred Lerner College of Business and Economics, and Henry St. George Tucker III Research Professor of Law Emeritus, The George Washington University Law School.
    • Sean J. Griffith, Former Director, Fordham Corporate Law Center, and T. J. Maloney Chair in Business Law, Fordham University Law School.
    • Dorothy S. Lund, Co-Director, Ira M. Millstein Center for Global Markets and Corporate Ownership, and Columbia 1982 Alumna Professor of Law, Columbia University Law School.
    • Edward Rock, Co-Director, Institute for Corporate Governance & Finance, and Martin Lipton Professor of Law, New York University Law School.

    Moderator

    • Anna T. Pinedo, Capital Markets Partner, Mayer Brown, Adjunct Professor, The George Washington University Law School, and Member of Advisory Board of The George Washington University Center for Law, Economics & Finance (C-LEAF).