Delaware Supreme Court upholds controversial overhaul of state corporate law

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The Delaware Supreme Court sided with state lawmakers and Gov. Matt Meyer on Friday, ruling that controversial changes to the state’s corporate laws are constitutional.

Meyer signed what critics have dubbed the “billionaires bill” nearly a year ago, and it’s been the subject of several legal challenges. The law reduces the legal guardrails for corporate founders and powerful executives making deals inside massive companies.

The overhauled state law defines a “controlling shareholder” within a company as someone who owns at least half of a company’s shares or a third of shares plus a managerial role. It reduces the amount of deep internal scrutiny for deals between powerful business leaders and their companies when there’s a conflict of interest.

It also restricts what internal documents shareholders can request to investigate those deals.

Those who supported the new law have said it was necessary to prevent what would have been a “DExit” of corporations moving to other states to incorporate. Opponents argued the bill tilted the scales in favor of company founders and executives at the expense of major shareholders.

Delaware is the corporate home to 2.2 million registered entities. The profitable corporate franchise represents more than one-third of the state budget.

Meyer cheered the court’s decision.

“Delaware is the gold standard locale for global companies to do business, as it has been for more than 100 years, and today’s Supreme Court decision further affirms that fact,” he said in a statement. “The Delaware franchise remains strong because of our state’s commitment to providing clear and predictable corporate governance rules and our ability to sustain a business-friendly environment.”

Following recent state Chancery Court rulings, powerful corporate executives, such as Elon Musk, complained that the court gave too much power to small investors. Alarm grew in some political and legal spheres after Musk yanked Tesla and SpaceX out of the state last year after losing a $56 billion pay package in Chancery Court. The Delaware Supreme Court ruled in Musk’s favor in December, restoring it.

Meyer and state lawmakers started meeting to draft the legislation last year shortly after Meta, Dropbox and Pershing Square Capital Management openly discussed reincorporating elsewhere.