Delaware Just Changed the Rules on Insider Deals and Records Requests. What Does It Mean for My Startup?

Your startup has raised outside funding, and your board is preparing to approve a transaction involving one of your major investors.

Everyone agrees the deal makes business sense.

Then someone asks whether the investor should vote on the transaction and whether shareholders could later challenge it in court.

These questions have become even more important after Delaware updated its corporate law.

On March 25, 2025, Delaware Governor Matt Meyer signed Senate Bill 21 (SB 21) into law, significantly changing Section 144 and Section 220 of the Delaware General Corporation Law. Later, on February 27, 2026, the Delaware Supreme Court unanimously upheld these amendments in Rutledge v. Clearway Energy Group LLC, confirming that the new framework is constitutional.

For founders, these changes provide clearer rules for approving insider transactions while narrowing the types of corporate records shareholders can inspect.

What Changed Under Senate Bill 21?

SB 21 focuses on two areas that frequently affect venture-backed startups:

• Section 144, which governs transactions involving interested directors and controlling stockholders.
• Section 220, which governs shareholder requests to inspect corporate books and records.

Both provisions have long played an important role in startup governance, especially as companies raise multiple financing rounds and investor relationships become more complex.

The amendments provide greater certainty, but only for companies that follow the required procedures.

Section 144 Creates Clear Safe Harbors for Insider Transactions

Startup boards regularly consider transactions involving founders, directors, or significant investors. These situations are not automatically improper, but they can create conflicts of interest.

SB 21 establishes statutory safe harbors that help protect these transactions from claims for damages or equitable relief when the approval process satisfies specific legal requirements.

A conflicted transaction may qualify for protection if it is approved through one of the following methods:

• Approval by an independent, disinterested committee of the board.
• Approval by a majority of the disinterested stockholders.

Following one of these procedures helps reduce litigation risk and provides a more predictable framework for approving transactions involving insiders.

Delaware Now Defines a Controlling Stockholder

Before SB 21, determining whether someone qualified as a controlling stockholder often depended on judicial decisions evaluating the facts of each case.

The amended statute introduces a clearer standard.

A controlling stockholder now includes a person who:

• Holds at least 33.3% of the company’s voting power, and
• Exercises managerial authority over the company.

This definition gives founders and investors a more objective starting point when evaluating governance obligations.

However, ownership percentage alone is not enough. Managerial authority remains an important part of the analysis.

Section 220 Narrows Shareholder Records Requests

SB 21 also changes the scope of shareholder inspection rights under Section 220.

Previously, shareholders sometimes sought broad categories of company records during disputes.

The amended law focuses inspection rights on defined corporate records such as:

• Charter documents and bylaws.
• Board and committee minutes and written consents.
• Stockholder meeting minutes and communications.
• Annual financial statements.
• Director and officer independence questionnaires.

These changes provide companies with greater certainty regarding the documents that are ordinarily subject to inspection.

Emails and Text Messages Are Harder to Obtain

Many founders worry that every internal email or text message could become discoverable during a shareholder dispute.

The revised Section 220 provides additional protection.

Emails, text messages, and similar informal communications are generally not subject to inspection as part of an ordinary books-and-records request.

However, they are not completely protected.

A shareholder who demonstrates a compelling need supported by clear and convincing evidence may still obtain access to these communications in appropriate circumstances.

For that reason, founders should continue communicating professionally, particularly when discussing conflicted transactions or important governance matters.

Process Matters More Than Ever

Perhaps the most important lesson from SB 21 is that legal protection depends on following the proper process.

The safe harbor procedures are designed to be used before or during the approval of a conflicted transaction.

They cannot simply be added after a deal has already closed. Likewise, narrowing shareholder inspection rights does not eliminate the need for accurate corporate records.

Board minutes, written consents, stockholder communications, and governance documents should continue to reflect how decisions were actually made.

Strong governance remains one of the best ways to reduce disputes during fundraising, acquisitions, and future litigation.

Common Founder Mistakes

• Assuming the new rules only matter for public companies: Venture-backed startups with significant investors and active boards may already have transactions that fall within the amended Section 144 framework.
• Completing an insider transaction before following the safe harbor process: Independent committee approval or approval by disinterested stockholders should occur as part of the transaction process rather than after the deal has already been completed.
• Ignoring whether an investor qualifies as a controlling stockholder: An investor holding at least 33.3% of the voting power while exercising managerial authority may trigger the new statutory definition and related governance requirements.
• Treating narrower Section 220 inspection rights as permission to maintain poor corporate records: Formal governance documents remain subject to inspection, and emails or text messages may still become discoverable when a shareholder establishes a compelling need supported by clear and convincing evidence.

10-Minute Delaware Governance Self Check

• Does any investor own at least 33.3 % of the company’s voting power?
• Does that investor also exercise managerial authority?
• Do we have an independent, disinterested committee available to review conflicted transactions?
• Are insider transactions approved before they close?
• Are our board minutes, written consents, and governance records complete and accurate?
• Do we understand which records remain subject to inspection under the amended Section 220?

If you cannot answer yes to all of these, additional review may be worthwhile.

Bottom Line

Delaware’s SB 21 provides founders with clearer statutory guidance for approving insider transactions and responding to shareholder records requests. The new safe harbors can reduce litigation risk, while the revised Section 220 limits routine inspection of certain company records. However, these protections depend on following the required governance procedures before conflicts arise. Companies that maintain strong corporate governance and document important decisions carefully will be in a much better position if their actions are later questioned.

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