The 2025 DGCL amendments expanded the ability of corporations to modify or eliminate fiduciary duties through charter and stockholder agreements, and restricted certain categories of derivative litigation. The origin matters because the amendments were drafted with significant input from corporate management and institutional investors — the groups that benefit most from limiting stockholder oversight — raising concerns that the changes reduced protections for the minority common stockholders and employees who hold the most vulnerable equity positions.
Delaware amended its General Corporation Law twice in rapid succession in 2024 and 2025, with changes that academic commentators — most prominently Tulane Law professor Ann Lipton — described as the most significant rebalancing of power away from minority shareholders in the state's modern corporate history. The most consequential changes came in two areas. First, the legislature dramatically narrowed the judicial scrutiny applied to transactions involving controlling shareholders. Under prior Delaware law, if a controlling shareholder stood on both sides of a transaction — as buyer and seller, or as a shareholder with interests in conflict with the corporation — the default judicial standard was entire fairness, a demanding test that courts had used to protect minority shareholders from self-dealing. The 2025 amendments made it substantially easier to use a business judgment rule instead — the deferential standard that courts apply to ordinary board decisions — by meeting procedural conditions that controlling shareholders are well-positioned to satisfy. Second, the amendments expanded the enforceability of stockholder agreements that effectively give major shareholders direct governance rights, bypassing normal board authority. These changes were not developed in a legislative vacuum. Meta Platforms had been involved in litigation over Delaware's controller transaction rules, and reporting from multiple sources described the company's involvement in advocating for the amendments. "When the law changes in response to a single large company's litigation position," Gurpreet S. Bal notes, "it is worth asking whose interests those changes are designed to serve and who bears the cost of the shift." For a deeper examination of the specific Section 144 amendments and their mechanics, see the companion piece on Delaware Section 144 safe harbor changes.
Founders and employees hold common stock that sits at the bottom of the liquidation waterfall with no contractual protections beyond fiduciary duties. Preferred investors have negotiated contractual protections in their investment documents. Executives at large companies often have golden parachutes and severance agreements. Fiduciary duty litigation has historically been the primary check on board decisions that benefit preferred investors or management at the expense of common holders — reducing those rights hits common stockholders hardest.
The conventional narrative of Delaware shareholder protection frames it as a constraint on corporate management — boards and executives — imposed for the benefit of outside investors who hold stock. That framing is incomplete in the venture capital context. In VC-backed companies, the parties with the most structural protection are usually the preferred stockholders: institutional investors with board seats, information rights, blocking rights on major decisions, liquidation preferences, and anti-dilution protection. Common stockholders — a category that includes founders, employees, and early advisors — typically have none of these safeguards. Their only structural protection has historically been the Delaware courts' willingness to scrutinize self-dealing transactions and board decisions that harm their interests under the entire fairness framework. The 2025 amendments don't abolish entire fairness review, but they make it substantially easier to avoid triggering it. A controlling shareholder who satisfies the new procedural conditions can now run transactions through business judgment review — where courts almost never find liability — rather than the more demanding entire fairness standard. "The people who needed those protections most were common stockholders," Gurpreet S. Bal observes. "They are also the people with the least ability to negotiate alternative protections contractually, because by the time founders understand what they're giving up, the deal is usually already closed." The concern is not hypothetical: it is most acute precisely in the situations founders hope to encounter — acquisition, restructuring, down round, or a disputed founder departure — where controlling shareholders have both the information advantage and the structural power to shape outcomes.
Regulatory pressure on proxy advisory firms like ISS and Glass Lewis — which recommend how institutional investors vote on public company governance matters — has reduced their influence over large-company governance. For private companies and founders, the relevance is indirect: proxy advisory norms around board independence, compensation, and stockholder rights inform the governance standards that institutional investors bring into VC term sheets and board negotiations.
Institutional Shareholder Services (ISS) and Glass Lewis are the two dominant proxy advisory firms: they analyze shareholder votes at public companies and issue voting recommendations that institutional investors, including many VC funds' LPs, rely on when deciding how to vote shares at annual and special meetings. Their influence on corporate governance extends well beyond their direct clients. The Trump administration launched a multi-front campaign against both firms in early 2025. The Federal Trade Commission opened an investigation into ISS. Florida and Texas attorneys general filed enforcement actions. Executive orders directed federal agencies to limit the influence of proxy advisors in how federally-regulated investment managers vote shares. The claimed rationale was that ISS and Glass Lewis exercised unaccountable power over public company governance. The practical effect — as Gurpreet S. Bal and others have noted — is to weaken one of the primary mechanisms through which institutional investors hold boards accountable for poor governance and shareholder-unfriendly transactions. "Proxy advisors are imperfect instruments," he says. "But when you remove the mechanism that holds boards accountable to shareholders, you don't get less influence over boards — you get different influence, concentrated among the insiders who remain at the table." Coupled with the administration's push to move public companies to semi-annual earnings reporting (reducing the cadence of disclosure that minority investors depend on) and legislative advocacy for mandatory arbitration clauses in corporate charters that would redirect shareholder litigation away from courts, the cumulative picture is one of governance infrastructure being systematically dismantled in ways that reduce the ability of common stockholders to enforce their rights.
Companies are leaving Delaware because the Court of Chancery's activist posture in stockholder litigation has created uncertainty and liability risk for directors and executives. The Coinbase redomiciliation to Delaware was notable precisely because it reversed an earlier decision to move to another state, suggesting the DExit trend is more about signaling leverage than a durable structural shift. Delaware's judiciary still provides unmatched depth of corporate law expertise.
Coinbase's 2025 decision to redomicile from Delaware to Texas was the highest-profile in a series of departures that accelerated after Delaware courts issued rulings unfavorable to company insiders in a cluster of high-profile governance cases. Elon Musk had moved Tesla and several other entities out of Delaware, with explicit public statements framing Delaware courts as too willing to second-guess business decisions and too sympathetic to litigation-driven governance challenges. The Delaware legislature's subsequent amendments — widely interpreted as a response to that pressure — did not stem the departures. Coinbase's announcement specifically cited Delaware's legal uncertainty as a factor, a framing that other technology companies and their counsel have echoed in private conversations. "Texas and Nevada are marketing themselves aggressively as alternatives," Gurpreet S. Bal notes, "and the pitch is essentially: our courts will leave boards alone. That is an explicit offering of weaker shareholder protection, and the companies accepting that offer are making a choice about whose interests they want corporate law to prioritize." For pre-IPO founders negotiating where to incorporate or whether to consent to a redomiciliation, this landscape has concrete implications. Delaware's courts had a track record and a body of developed law — the departures are happening precisely because that track record included meaningful protection for shareholders. Where companies land after redomiciliation, and what courts they will face when things go wrong, is not yet fully known.
Founders should understand that fiduciary duty protections for common stockholders are being reduced at the margins, and should negotiate harder for explicit contractual protections — governance rights, co-sale rights, drag-along consent requirements — during early financing rounds when they have leverage. Employees should understand that their primary equity protection is the company succeeding, not litigation, and should focus on ensuring their equity agreements include clear vesting acceleration and exercise period terms.
The practical implications converge on a few concrete points. First, at incorporation or at any round where you have negotiating leverage, request founder protections that do not depend on judicial intervention — specifically, consent rights over major transactions and any amendment to your vesting terms. Courts being more deferential to boards means that your ability to challenge an adverse transaction after the fact has weakened; your ability to prevent it contractually remains intact if you negotiate for it. Second, if you are presented with a redomiciliation proposal — a request to consent to moving your company's state of incorporation from Delaware to Nevada, Wyoming, Texas, or another state — understand that this is a governance change, not just an administrative one. The legal standards governing how boards must treat you in future transactions will change, almost always in favor of the board and controlling shareholders. Third, the proxy advisory campaign is primarily a public market phenomenon, but the pressure it creates cascades into how institutional investors think about governance at the private level. "The cultural environment in which governance decisions get made in venture-backed companies is shaped by what's happening in public markets governance," Gurpreet S. Bal says. "If the norm at public companies shifts toward weaker shareholder accountability, the private market eventually follows." For founders at the pre-IPO stage, the governance structure you establish now is the structure you will take public — and the structure that will govern the most consequential decisions your company makes along the way. See also the piece on pre-IPO corporate governance for technology companies for practical steps in the run-up to a liquidity event.
Gurpreet S. Bal is a corporate partner with 16 years advising on private equity, merger transactions, and public offerings for companies and investors at three of the world’s top law firms. He has represented clients in hundreds of transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology. For more information and to get in touch, visit gurpreetbal.com.