Major Decisions and Legislative Reforms Shape Corporate Governance
If 2024 was the year Delaware's corporate law establishment got nervous, 2025 was the year it fought back. And fought back hard.
For those of us who follow Delaware corporate law closely, the past year has been nothing short of remarkable. What began with hand-wringing over the Tesla compensation decision and a nascent ‘DeExit' movement ended with Delaware courts and the General Assembly working in concert to restore what many saw as the proper balance between stockholder rights and board authority. This blog post examines the major judicial decisions and legislative reforms that defined 2025—a year that may well be remembered as a turning point in the evolution of Delaware corporate governance.
The theme running through the year was unmistakable: a return to traditional principles of judicial deference to informed, disinterested business decision-making. Whether this represents a necessary course correction or an overcorrection depends largely on where you sit, but there's no denying that Delaware sent a clear message to the business community that it remains committed to being the premier jurisdiction for corporate incorporation.
1. The Tesla Compensation Saga: A Stunning Reversal
Decision: In re Tesla, Inc. Derivative Litigation, No. 534, 2024 (Del. Dec. 19, 2025)
Let's start with the elephant in the room—or perhaps more accurately, the $56 billion question that dominated headlines for much of the year.
On December 19, 2025, just days before the holiday recess, the Delaware Supreme Court issued what may be the most consequential corporate law decision in recent memory. In a per curiam opinion, the court reversed the Court of Chancery's rescission of Elon Musk's 2018 Tesla compensation package. For those keeping score, that's the package that was worth approximately $56 billion when initially challenged and has since ballooned to a reported value exceeding $100 billion.
How We Got Here: The backstory is by now familiar to most practitioners. In 2018, Tesla's board approved an extraordinary equity compensation plan for Musk—12 tranches of stock options tied to ambitious market capitalization and operational milestones. The plan was, by any measure, unprecedented in its size and structure. And here's the thing: Musk actually delivered. By early 2023, he had met all the milestones, and the options fully vested.
Enter shareholder Richard Tornetta, who owned all of nine shares of Tesla stock. Tornetta challenged the plan on grounds that Musk, as a controlling stockholder, had exercised undue influence over the board and that the approval process was fundamentally flawed. In January 2024, Chancellor Kathaleen McCormick agreed, finding breaches of fiduciary duty and ordering complete rescission of the package. She also awarded plaintiffs' attorneys $345 million in fees—a figure that would itself become controversial.
What made the Chancery decision particularly striking was its timing and scope. Musk had already performed under the agreement for six years and met every single milestone. Tesla's stockholders had ratified the package not once, but twice—including a resounding approval in June 2024 after the initial Chancery ruling. Yet Chancellor McCormick held firm, declining to alter her judgment even in light of the subsequent ratification vote.
The Supreme Court's Approach: The Supreme Court could have taken several paths on appeal. It could have addressed whether Musk was truly a controlling stockholder. It could have examined the adequacy of the board's process. It could have analyzed whether the post-trial stockholder vote constituted effective ratification.
Instead, the court chose what it called the ‘narrower path'—focusing exclusively on whether rescission was an appropriate remedy. And on this question, the justices were unanimous: it was not.
The court's reasoning was straightforward but powerful. Rescission is an equitable remedy that requires restoring parties to the status quo ante—putting them back where they were before the transaction. Here, that was simply impossible:
- Musk couldn't unwork the six years he spent driving Tesla to meet the performance milestones
- Stockholders couldn't return the massive increase in value their shares had experienced since 2018
- The scrambled eggs of Tesla's success over those six years couldn't be unscrambled
Given these realities, the court held that rescission was neither possible nor equitable. Instead, it awarded nominal damages of $1—a remedy that, while perhaps unsatisfying to the plaintiff, at least avoided the impossibility of unwinding years of corporate history.
And those attorneys' fees? Slashed from $345 million to approximately $54 million (calculated as a four-times multiplier on the lodestar). A far cry from the nearly $6 billion in Tesla stock that plaintiffs' counsel had initially sought.
What It Means: The Supreme Court's decision was notable as much for what it didn't say as for what it did. By not addressing the underlying liability findings, the court left some important questions unanswered. But its message on remedies was crystal clear: completed transactions deserve respect, and courts should be extremely cautious about unwinding deals years after the fact when true restoration to the original position is impossible.
2. The TripAdvisor Reincorporation Case: Opening the Exit Door
Decision: Maffei v. Palkon, No. 125, 2024 (Del. Feb. 4, 2025)
While the Tesla decision captured the public's attention, those of us who practice in this area were equally riveted by the Delaware Supreme Court's early-2025 decision in the TripAdvisor reincorporation case. In some ways, this case was even more fundamental to Delaware's competitive position.
The question was simple to state but devilishly complex to answer: When a Delaware corporation decides to reincorporate in another state—say, Nevada or Texas—should that decision be reviewed under the deferential business judgment rule or the far more demanding entire fairness standard?
The Factual Setting: TripAdvisor's board, controlled by Gregory Maffei (who held 43% of the voting power through super-voting stock), voted to reincorporate from Delaware to Nevada. The company was refreshingly candid about why: Nevada law offers lower fiduciary standards for directors and officers, reduced franchise fees, and better conditions for recruiting corporate managers. In other words, Nevada is more management-friendly. The minority stockholders, predictably, were not thrilled.
Vice Chancellor Laster, writing for the Court of Chancery, denied the defendants' motion to dismiss. His reasoning? The reincorporation would give the directors and controlling stockholder a material, non-ratable benefit in the form of reduced litigation exposure under Nevada's more protective laws. That benefit, he concluded, triggered entire fairness review.
The Supreme Court had a very different view.
The Supreme Court's ‘Clear Day' Doctrine: Writing for a unanimous en banc court, Justice Karen Valihura reversed and, in doing so, established what practitioners are already calling the ‘clear day' doctrine for reincorporations.
The court's holding was straightforward: when a corporation decides to reincorporate on a ‘clear day'—meaning there's no existing litigation it's trying to dodge and no specific transaction in the works—the business judgment rule applies. The alleged benefit of reduced future litigation risk is simply too speculative to constitute the kind of material, non-ratable benefit that would trigger entire fairness review.
What made the opinion particularly noteworthy was its emphasis on temporal distinctions. The court explained that there's a meaningful difference between existing potential liability (which could trigger scrutiny) and purely future, hypothetical liability (which doesn't). This distinction, the court noted, is both workable and consistent with other areas of Delaware law, such as ripeness and standing doctrines.
The court also made clear that it's not the judiciary's role to compare and rank different states' corporate governance regimes. Those policy decisions belong to state legislatures and corporate boards, not judges.
Practical Implications: For Delaware corporations contemplating a move elsewhere, this decision removes a significant procedural obstacle. As long as you're not trying to evade existing liability or structure a specific conflicted transaction, the decision to reincorporate will receive business judgment deference. That's a much easier standard to satisfy than entire fairness, and it gives boards meaningful breathing room to evaluate competitive considerations across different jurisdictions.
3. Senate Bill 21: Delaware's Legislative Counter-Offensive
Enacted: March 25, 2025
If the judicial decisions showed Delaware's courts getting back to basics, Senate Bill 21 showed Delaware's legislature wasn't content to sit on the sidelines. Signed into law by Governor Matt Meyer on March 25, 2025, after swift passage through both houses of the General Assembly, SB 21 represents the most comprehensive overhaul of Delaware corporate law in recent memory.
The bill didn't emerge in a vacuum. It came in direct response to the Court of Chancery decisions—particularly the Tesla ruling—that sparked the ‘DeExit' movement. When companies like Tesla announced plans to reincorporate in Texas or Nevada, alarm bells went off in Dover. Delaware's franchise tax revenue and its reputation as the gold standard for corporate law were both at risk.
The legislature's response was both swift and sweeping. SB 21 made significant changes to two critical sections of the DGCL: Section 144 (governing interested transactions) and Section 220 (governing stockholder inspection rights). Let me walk through the key provisions.
Section 144: Safe Harbors for Conflicted Transactions
The amendments to Section 144 fundamentally changed the landscape for controlling stockholder transactions. Prior to SB 21, it wasn't entirely clear whether Section 144's safe harbor even applied to controller transactions, and case law required satisfaction of both procedural protections (independent committee approval AND majority-of-minority stockholder vote) to obtain business judgment review.
The new statute provides much-needed clarity—and, critics would say, significant new protections for controllers:
- For non-going-private controller transactions: Either independent committee approval OR majority-of-minority stockholder approval provides a safe harbor from both equitable relief and monetary damages. You no longer need both.
- For going-private transactions: The statute codifies the MFW doctrine, requiring both protections. However, it eliminates the requirement that both be conditioned ab initio—a meaningful relaxation of the prior standard.
- Clear definitions: The statute provides bright-line definitions for who counts as a ‘controlling stockholder' or ‘control group,' removing considerable uncertainty from deal structuring.
- Duty of care shield: Controllers can no longer be held liable for monetary damages for breaches of the duty of care in their capacity as controllers (though duty of loyalty claims remain fair game).
For practitioners, these changes represent a significant shift. Transactions that previously would have been subject to entire fairness review can now obtain safe harbor protection through a single procedural mechanism rather than the full MFW treatment.
Section 220: Limiting Books and Records Demands
The amendments to Section 220 may have received less press coverage than the Section 144 changes, but they're no less significant for practitioners who regularly handle books and records demands.
Prior to SB 21, ‘books and records' was essentially undefined in the statute, leading to expansive demands that often included director and officer emails, text messages, and other communications. The new statute takes a much more restrictive approach, limiting the scope primarily to formal board-level materials: governing documents, board minutes, committee actions, financial statements, and director independence questionnaires.
Director and officer communications—those email chains and text messages that plaintiffs' counsel love to mine for smoking guns—are now generally off-limits unless the stockholder can demonstrate by clear and convincing evidence that they're necessary and essential to a proper purpose.
The statute also requires stockholders to describe their purpose and requested records with greater particularity, and it provides that documents obtained through Section 220 are incorporated by reference into any subsequent complaint. That last provision is particularly significant—it means courts can consider Section 220 materials at the motion to dismiss stage, potentially enabling earlier resolution of meritless claims.
The Retroactivity Question and the Controversy
Here's where things get particularly interesting: SB 21 applies retroactively to all acts and transactions, subject only to narrow exceptions for pending litigation and Section 220 demands made on or before February 17, 2025. That retroactive application has raised constitutional eyebrows, and as I write this, a challenge to the amendments is pending before the Delaware Supreme Court.
The political battle over SB 21 was fierce. Critics—including some prominent plaintiffs' attorneys and stockholder advocates—dubbed it the ‘billionaire's bill' and argued it represented an unwarranted giveaway to corporate insiders. The fact that the bill largely bypassed the usual vetting process through the Delaware State Bar Association's Corporation Law Council only added fuel to the fire. Yet the bill passed with strong bipartisan support, suggesting Delaware's political establishment views it as essential to maintaining the state's competitive position.
4. Other Noteworthy Decisions
While Tesla and TripAdvisor grabbed the headlines, several other decisions from 2025 merit attention:
Desktop Metal v. Nano Dimension (March 24, 2025): Chancellor McCormick ordered specific performance where a buyer failed to use reasonable best efforts to close an acquisition of a financially distressed target. The decision reinforced the importance of carefully negotiated deal protections and sent a message the Chancellor herself characterized as a ‘victory for deal certainty.' For targets facing solvency concerns, this case provides a roadmap for protecting their position through specific contract terms around regulatory approvals and closing efforts.
Manti Holdings v. The Carlyle Group (December 2025): After losing a motion to dismiss battle in 2022, defendants prevailed at trial on claims alleging breaches of fiduciary duty in the sale of a company majority-owned by private equity affiliates. The case is a reminder that surviving a motion to dismiss is one thing; prevailing at trial is quite another.
Delaware Rapid Arbitration Act Cases: The Court of Chancery issued several decisions interpreting the DRAA, an area that remains relatively underdeveloped in terms of published precedent. These decisions provide helpful guidance on procedural matters like panel appointments.
5. Themes and Takeaways
Stepping back from the individual decisions and looking at 2025 as a whole, several themes emerge that are worth noting.
The Return to Deference
Perhaps the clearest theme is Delaware's recommitment to traditional principles of judicial deference to informed, disinterested business judgment. Whether you view this as a necessary course correction or an overcorrection likely depends on your perspective, but the trend is unmistakable. Both the courts and the legislature have signaled that they're less interested in second-guessing corporate decisions than they appeared to be in recent years.
The Attorneys' Fee Issue
The dramatic reduction in the Tesla fee award—from $345 million to $54 million, with plaintiffs' counsel having sought nearly $6 billion—sent shockwaves through the plaintiffs' bar. When combined with Senate Concurrent Resolution No. 17, which requested a formal study of attorneys' fees in corporate litigation, it's clear that Delaware sees excessive fee awards as part of the problem driving what some view as frivolous stockholder litigation.
Interstate Competition
Make no mistake: Delaware is feeling competitive pressure. Texas enacted significant amendments to its Business Organizations Code in 2025, Nevada has been marketing itself aggressively, and the ‘DeExit' movement—whether overblown or not—got Delaware's attention. The question going forward is whether 2025's reforms will be enough to stem the tide or whether we're entering a new era of genuine interstate competition for corporate charters.
Unfinished Business
The constitutional challenge to SB 21's retroactive application remains pending before the Delaware Supreme Court. While most observers expect the statute to be upheld, the outcome is not certain. And even if the statute survives constitutional scrutiny, its practical impact on litigation volume and outcomes remains to be seen. We're still in the early days of understanding how these changes will play out in real cases.
Conclusion
So what should we make of 2025?
If you're a corporate board or management team, the year brought welcome relief. Delaware has signaled—loudly—that it's returning to core principles of business judgment deference and deal certainty. The combination of the Supreme Court's reversals and SB 21's safe harbors provides significantly more breathing room for structuring transactions and making strategic decisions.
If you're a stockholder advocate or plaintiffs' attorney, the year was probably less satisfying. The doors to books and records have been narrowed, the path to challenging controller transactions has gotten steeper, and the prospect of eye-popping fee awards has dimmed considerably.
From where I sit, 2025 represents something of a pendulum swing—perhaps an inevitable one after years of expanding scrutiny and stockholder rights. Whether Delaware swung the pendulum back to the right spot or overshot is a question that will likely take years to answer. What's clear is that the debate over Delaware's future as the dominant incorporation jurisdiction is far from over.
Other states are watching closely and adjusting their own statutes to compete. The business community's verdict on whether Delaware has done enough to restore confidence remains divided. And the practical impact of SB 21 on actual litigation outcomes is still largely unknown.
As we head into 2026, Delaware's corporate law system finds itself at something of a crossroads. The reforms of 2025 have bought some time and goodwill, but they've also sparked significant controversy and uncertainty. How this all plays out—whether Delaware maintains its dominance, whether other states emerge as genuine competitors, whether the reforms achieve their intended goals—will be one of the most important corporate law stories to watch in the coming years.
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