Delaware lawmakers have introduced bipartisan legislation aimed at limiting shareholder lawsuits, following threats from prominent companies to relocate their legal domiciles to states with more favorable litigation environments.
The proposed bill seeks to protect corporate boards and controlling shareholders from litigation over alleged conflicts and restricts the types of internal records shareholders can access, thereby limiting their ability to initiate lawsuits.
This move comes in response to companies like Meta Platforms and Tesla expressing intentions to move their incorporations due to unfavorable legal judgments in Delaware.
The legislation aims to make it more challenging for shareholders to prove that a corporate director is conflicted in a deal, which would protect transactions benefiting controlling shareholders from litigation.
Additionally, it seeks to restrict access to directors’ emails and text messages, which are often used as evidence in shareholder lawsuits.
Lawmakers emphasize the urgency of this bill to maintain Delaware’s status as a corporate hub, especially as other jurisdictions like Texas establish business courts to attract companies.
The proposed changes have elicited mixed reactions. Some experts argue that limiting shareholder litigation could undermine corporate governance by reducing accountability, while others believe it could prevent frivolous lawsuits that act as a tax on companies.
The bill is expected to move quickly through the legislative process, reflecting Delaware’s commitment to retaining its corporate clientele.