DGCL § 144 Amendment: A Carved-out Safe Harbor or a Replacement of Case Law

Professors Marcel Kahan and Edward Rock argue that the amended DGCL § 144 does not affect the case law governing conflicted controller transactions, as said in MFW, Kahn v. Lynch, Match Group, by examining the statute’s text and underlying rationale. What Newly Amended DGCL §144 Says (and Does Not Say) about Controlling Stockholder Transactions. However, some practitioners and scholars hold a different view, stating that this section is a substitute for the traditional definition of controlling shareholder, rather than a statutory safe harbor. Contract Rights and Control; Just Passed: Senate Bill Significantly Amends Delaware General Corporation Law – Publications. As formulated in Professor Rock, Kastiel and Bebchuk’s paper, such an interpretation may create distorted incentives for controlling shareholders with small minority stakes to extract personal benefit at the expense of firm value. Delaware and the Perils of Small Minority Controllers. Could the new DGCL § 144 mitigate this incentive by including small-minority controllers and offer equivalent protection from public investors as a substitute for case law?

A reading of subparagraph (b) suggests that it could. This paragraph defines a controlling shareholder without mentioning voting power, leaving room to include small-minority controllers. Even though less than 1/3 of voting power to elect directors is vested, a minority shareholder can be considered as a controller to whom special contracts or arrangements confers the power to elect directors and cast a majority vote for board decisions by binding other shareholders and directors to vote accordingly. Such control status may derive from the certificate of incorporation, bylaws, shareholder agreements, or special resolutions. In certain circumstances, personal ties to the founder or a superstar CEO that influences board voting can also be persuasive evidence. Therefore, subparagraph (b) can be construed to supplement the definition of the controlling shareholder by including those who own less than one-third of voting power but effectively control the election of directors and board decision-making.

Beyond the definition of a controlling shareholder, the procedural safeguards in conflicted-controller transactions under DGCL §144 differ from those under case law in the following respects:

• Under DGCL §144(b) and (c), a controller transaction for a non-buyout controller transaction may be cleansed solely by conditioning the transaction on its submission to a shareholder vote that is approved by an informed and uncoerced vote of a majority of the minority shareholders, whereas under MFW/Match, cleansing is available only if the transaction is conditioned ab initio on, andapproved by, both a fully independent, informed, and empowered committee and uncoerced majority of minority shareholders.

• Under DGCL §144, the base of the shareholder approval is the votes cast, rather than the votes present or outstanding, effectively enabling approval by a plurality rather than a true majority.

• The outcome of applying the safe harbor is “no equitable relief or award of damages”, rather than applying the business judgment rule under MFW/Match or shifting the burden of proof under Kahn v. Lynch. This relaxes the procedural constraints while producing a more defendant-favorable result. Key Amendments to Section 144 of the DGCL.

  
  

These changes diminish procedural protections for retail investors, who are particularly vulnerable in “substantive economic negotiations” against a controlling shareholder in the absence of an independent special committee, and who face a reduced capacity to oppose the transaction through both shareholder voting and litigation. Recent MFW-Related Developments in Delaware Courts.  But to what extent will this change the engagement of special committees and ultimately affect the deal process and price, or incentivize controllers and corporations to deviate from MFW/Match doctrines in practice? Will the dismissal of such derivative suits increase or decrease? Ideally, to avoid the entire fairness standard, controllers—if properly advised—may still choose to construct the process as robustly as possible, i.e., following the MFW/Match dual procedural safeguards, rather than merely satisfying the minimum safe harbor requirements. In practice, the market may bifurcate: those who meet the statutory definition of “controlling shareholder” may rely on §144, while the others still pursue the MFW/Match safeguards.

On the other hand, the “replacement” interpretation gives rise to the question of the control standard. What Newly Amended DGCL §144 Says (and Does Not Say) about Controlling Stockholder Transactions. Does it cover the standard of transaction-specific control, other than that of the election control and general managerial control, as it appears in §144(e)(2)? Delaware courts have explained in Tornetta v. Musk and Oracle that transaction-specific control encompasses multiple factors without mentioning voting power to elect directors or dictate board decision-making. However, §144(e) creates a restrictive, election-based statutory standard, compared to the broad, flexible, and transaction-specific standard from case law. It correlates to a prominent issue posed after the Moelis case and DGCL §122(18): a small-minority controller may be vested with certain governance rights or veto powers while holding minimal voting rights. One may further strengthen the controlling status through personal influence, long-term relationships with board members, and trust or reputation within the corporation. None of these factors would be captured by DGCL §144(e)(2) under a plain-text interpretation, rendering it insufficient to accommodate all sorts of “control”.

Although the Delaware Supreme Court's latest ruling on Tornetta v. Musk upheld the transaction-specific standard of control, which might indicate DGCL §144 as a safe harbor clause, the statute’s ability to resolve underlying doctrinal ambiguities and incentive misalignments remains unsettled.  The ongoing debate between the “carved-out safe harbor” and “replacement” interpretations of §144, therefore, may persist until its constitutionality and practical consequences for conflicted controller transactions are more clearly established.

Fulin Wang is an LLM (General) candidate at the NYU School of Law, where he serves as a Graduate Editor for the Journal of Law and Business. Prior to commencing his LLM, he interned at leading international and China law firms in Capital Markets, Funds and M&A teams. He graduated with a LL.B. degree and Distinction from China University of Political Science and Law in 2025, where he completed a distinctive graduation thesis related to the application of business judgment rule in China. Besides, he attended the Philip C. Jessup International Law Moot Court Competition and won first prize in China national round.