Blog: VLP Speaks

Delaware’s New Protections for Interested Party Transactions. What You Need To Know. – A Blog Post by David Goldenberg

Posted on Apr 28, 2025 in New and Emerging Companies, Blog by David Goldenberg

Delaware’s new SB21 law simplifies the approval process for transactions involving interested directors or officers. What does this mean for founders and investors navigating potential conflicts of interest?

Delaware has long been the preferred jurisdiction of incorporation for startups, and the recent enactment of a new law (SB21) enhances its role by providing more clarity on interested-party transactions. Under this law, Delaware corporations can now more easily approve transactions involving directors or officers who have conflicts of interest — as long as those transactions are properly ratified by disinterested board members or shareholders.

What Changed — and Why It Matters

Before SB21, transactions involving directors or officers with a conflict of interest could be subject to stricter scrutiny (i.e., second guessing by courts and even potential lawsuits by shareholders who didn’t like the transaction), potentially putting companies in difficult legal positions. SB21 allows for these transactions to be approved more efficiently, either by a majority of disinterested board members or by a vote of disinterested stockholders. This streamlines the approval process and provides greater certainty for corporations looking to execute such transactions.

For example, if a founder also sits on the board and has a financial interest in a transaction, SB21 sets out clear guidelines for approval of that transaction. This helps protect the company from future legal challenges, as long as the transaction is properly disclosed and approved.

Implications for Founders and Investors

For founders and executives, SB21 means that transactions involving potential conflicts of interest — whether it’s an equity grant or a related-party acquisition — are easier to handle from a legal standpoint. However, it’s crucial to ensure that proper approval procedures are followed to avoid complications.

For investors, especially those sitting on boards, this change not only provides more certainty around the legality of transactions involving management and insiders, but also approvals of insider-led rounds and rounds in which the VC director participates. This could be especially useful in early-stage companies, where conflicts of interest often arise during fundraising rounds or strategic acquisitions.

What Should You Do Now?

If your company is incorporated in Delaware, here’s what we recommend:

1. Review your charter and other governing documents to understand how interested-party transactions are addressed.
2. Ensure you have clear processes in place for board or stockholder approval, especially for any upcoming transactions.
3. Consult legal counsel if you’re involved in a transaction that could trigger SB21’s rules.

 Conclusion

At VLP, we’ve been helping clients navigate these updates and ensure that their governance practices are aligned with Delaware’s evolving legal landscape.

Have questions about how SB21 affects your business or portfolio?
Feel free to reach out. We’re happy to assist with any questions or guidance on this new law.