Delaware Responds to Critics: SB21 Reshapes Corporate Landscape
The State of Delaware has long held the title of corporate capital of the world, and for good reason. More than two-thirds of Fortune 500 companies call Delaware their legal home, and over 79% of new IPOs each year are incorporated in Delaware. The state's corporate law structure and its specialized business court, the Court of Chancery, have played crucial roles in maintaining Delaware's premier status as a business-friendly state.
However, over the past year, Delaware's position has faced scrutiny, and challenge from some of today's most influential entrepreneurs, including Tesla's Elon Musk and Meta Platforms' Mark Zuckerberg. This scrutiny comes on the heels of several controversial rulings from the Court of Chancery—rulings that critics have described as "overzealous".
In response to these concerns, Delaware lawmakers have moved swiftly to address potential gaps and issues raised by recent court decisions. Late on March 25th, 2025, the Delaware legislature approved Senate Bill 21 (SB 21). This bill specifically impacts companies with controlling shareholders. Under the general provisions of SB 21, corporations may now engage in certain transactions or agreements with controlling shareholders that, under certain circumstances described in the bill, could potentially be protected from legal challenges by minority investors or other stakeholders.
It's important to keep in mind that SB 21 exclusively pertains to corporations, primarily larger entities, incorporated under Delaware's General Corporation Law (DGCL). Notably, nearly 70% of new entities formed annually in Delaware are actually Limited Liability Companies (LLCs), governed by the Delaware LLC Act rather than the DGCL. Consequently, most Delaware companies, which are LLCs, won't be affected by these changes.
Critics of the new legislation have expressed concerns that the law could potentially lead shareholders to further encourage companies to leave Delaware, particularly for minority shareholders who may feel disadvantaged by their potentially reduced ability to challenge certain corporate actions in court. This tension highlights the delicate balance Delaware must maintain as it seeks to remain both business-friendly and protective of investor interests.
While the full implications of SB 21 will become clearer over time, what remains evident is Delaware's commitment to adapting its corporate legal framework in response to market and investor demands. The only question now is whether Delaware will be able to hang on to its position as the corporate capital of the world.
In light of these developments, has SB 21 prompted you to reconsider Delaware for your company's formation? At Harvard Business Services, Inc., we remain your trusted Delaware formation specialist and Registered Agent. If Delaware no longer suits your plans, we've still got you covered—our experienced team can assist with company formation in all 50 states. Reach out today and let our friendly, expert staff guide you smoothly through the process of starting your new business!
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