Delaware has given companies a clearer way to handle transactions involving directors and officers—but the process must be set up before the vote.
Imagine this: your company needs financing, a key contract, or a strategic acquisition. A director has a connection to the other side of the deal. All the parties know about it, the economics look reasonable, and the board approves the transaction. Months later, a stockholder challenges the deal—and the company discovers that “everyone knew” was not the same as following the right process.
That is the business risk behind Delaware’s recent change to Section 144 of the Delaware General Corporation Law. A board can easily assume it is protected because the interested director disclosed a relationship or stepped out of the room for the vote — when in fact the disinterested directors never received the full picture, or the company used the wrong decision-making structure entirely. The statute now offers protection from liability using a clearer path for validly approving transactions involving directors or officers who have a personal or financial interest. More specifically, the statute provides that protection is earned through a careful process, not simply by taking a vote, and the process has to be in place before the board acts, not reconstructed afterward.
The cost of getting it wrong is generally not limited to litigation. A weak record can delay financing, complicate an acquisition, concern investors, distract management, and in some cases, undermine confidence in the board. Getting it right means being able to show that disinterested directors, in possession of the material facts, decided the transaction served the company, which is what the Delaware law now asks you to prove.
What the Law Now Requires
Delaware amended Section 144 in 2025 through SB 21, and in February 2026 the Delaware Supreme Court upheld the amendments. The amended statute changed the landscape in four ways that matter operationally:
- Protection from liability, not just voidability.
Previously, Section 144 prevented a transaction from being void or voidable solely because of a director’s or officer’s conflict, but compliance did not itself shield directors from fiduciary duty challenges. The amended version expressly bars equitable relief and damages against directors or officers based on the specified conflicts when a statutory safe harbor is satisfied. - More specific director-approval requirements.
Both versions permit approval by a majority of disinterested directors after disclosure of material facts. The amended provision expressly requires that they also act in good faith and without gross negligence. If a majority of the board is not disinterested, the director-approval safe harbor now requires a committee of at least two directors, each determined by the board to be disinterested. The former statute imposed no committee-size requirement. - An express disinterested-stockholder voting standard.
The former provision required disclosure and stockholder approval in good faith, without expressly specifying disinterested voters. Now, the law requires an informed, uncoerced majority of the votes cast by disinterested stockholders, and expressly permits ratification. - Statutory standards for disinterestedness.
The amendments define disinterested directors, material interests and material relationships. Notably, nomination or election by an interested person does not, standing alone, establish a director’s conflict.
The fairness alternative remains available, but is reformulated: a transaction may qualify without either approval mechanism if it is fair to both the corporation and its stockholders, rather than the former standard of fairness to the corporation at the time of authorization, approval, or ratification.
Finally, it is important to note that transactions involving a controlling stockholder now fall under separate provisions. Non-going-private controller transactions can qualify through either a properly empowered disinterested committee or disinterested stockholder approval. Going-private transactions require both procedural protections, unless fairness is established.
The Three Routes — and the One Most Companies Use
For a typical transaction involving an interested director or officer, the company now has generally three paths to the statute’s protection: (1) approval by properly informed, disinterested directors; (2) approval by properly informed, disinterested stockholders; or (3) proof that the transaction was fair to the company and its stockholders.
For most operating companies, the first route—approval by disinterested directors—is often the most practical one. The statute requires more than asking the interested director to step out of the room. The disinterested decision-makers must be made aware of the material facts of the transaction, including the interested person’s interest or role in the transaction, and then approve the transaction in good faith and without gross negligence. Any minutes or written consent should seek to clearly identify the interests of the interested directors in the transaction and document the careful consideration of the disinterested board members.
If most of the board is conflicted, the rules become more demanding. The statute requires that the company use a committee of at least two directors the board has determined are disinterested for that particular transaction, obtain the approval of a majority of the disinterested stockholders, or demonstrate that the transaction is fair to the corporation and its stockholders.
Where a committee is used, it is required to be formed early enough to do real work; not assembled at the last minute to bless a deal that is already finished. And, where disinterested stockholder approval is sought, the statute requires that stockholders receive all material facts relating to the interests and the transaction, and that approval be uncoerced. Absent either procedural routes, the board may need to build a record demonstrating that the transaction is fair to the corporation and its stockholders.
Six Questions Worth Asking Before the Board Meeting
- Who has an interest in the deal? Interest isn’t limited to direct ownership. Family, employment, investment, and advisory relationships can all bear on whether a director is disinterested or appear to.
- What has each person done so far? Who introduced the opportunity, negotiated terms, selected advisors, influenced pricing, or pushed the timing. These facts carry more weight than titles do, and they are considerably harder to establish after closing than before.
- Who can make the decision? The statute asks whether a director is disinterested in this transaction. A director described as “independent” in another context may not be.
- Does the board need a committee? Where a majority of the board is not disinterested, the director-approval safe harbor requires a committee of at least two disinterested directors. A committee formed early, with a clear mandate and real access to information, is better positioned to do what the statute contemplates than one assembled to ratify a finished deal.
- Is stockholder approval required? Where two disinterested directors are not available, or independence is contested, the stockholder route is the alternative. It requires an informed, uncoerced majority of the votes cast by the disinterested stockholders.
- Will the minutes tell the real story? The record is what a court will have. Minutes capturing the conflict, the information provided, the alternatives considered, the questions asked, and the reasoning behind the conclusion tell a different story than minutes recording only a vote.
A Policy on the Shelf Is Not Enough
Many companies have conflict-of-interest policies and annual board questionnaires. Those are useful, but they may not automatically satisfy the new law on their own. Each transaction requires its own analysis. A relationship that is harmless in one situation may be important in another, and a director who can decide one matter may not be the right person to decide the next.
Committee charters, board resolutions, approval checklists, and minute templates may also need a second look. Documents written for the prior version of the law may not prompt management or the board to collect the facts and make the decisions that now matter most.
When to Call Counsel
Consider bringing in counsel early – as soon as a potential conflict is identified, rather than waiting until after the vote. The most useful legal work usually happens at the beginning: identifying the conflict, choosing the right decision-makers, defining the committee’s authority, organizing the disclosures, and creating a record that supports the board’s good faith business judgment.
If your company is considering a financing, acquisition, compensation arrangement, affiliate contract, founder transaction, or any other deal involving a director or officer, we can assess whether Section 144 is in play and help structure the approval process. A short review before the meeting can be far less disruptive than defending an incomplete process after closing.
The question is not only whether the deal is good. It is whether the company can show that the right people, with the right information, made the decision in the right way.
Janice Gunst is a Partner in our Corporate and Finance practice with more than 25 years of experience advising corporate leadership and boards on complex legal and business matters. She is particularly valued for her ability to translate complex legal issues into clear, actionable guidance that supports strategic decision-making.