Delaware has once again refined the contours of fiduciary duty law with the enactment of Senate Bill 154 (“SB 154”), effective for transactions occurring after January 1, 2025. SB 154 amends the Delaware General Corporation Law (“DGCL”) to provide clarity regarding the corporate opportunity doctrine, board ratification procedures and the treatment of conflicts involving directors who participate in overlapping business opportunities. Because many California headquartered companies are incorporated in Delaware, the amendments create important compliance and governance considerations for boards, officers and in-house counsel.

The corporate opportunity doctrine is rooted in the fiduciary duty of loyalty and requires directors and officers to present certain business opportunities to the corporation before pursuing those opportunities individually or through another entity. Delaware courts have long applied the four-factor test from Broz v. Cellular Information Systems, Inc., 673 A.2d 148 (Del. 1996), focusing on: (1) Whether the corporation is financially able to pursue the opportunity; (2) Whether the opportunity falls within the corporation’s line of business; (3) Whether the corporation has an interest or expectancy in the opportunity; and (4) Whether the director or officer would face a conflict by taking the opportunity personally.  Although this common law test has provided guidance for decades, the rise of venture backed companies, SPAC structures and overlapping investment platforms has created modern conflicts that were not squarely addressed by older jurisprudence. SB 154 addresses this gap.

To that end, SB 154 revises DGCL Section 122(17), which permits a corporation to renounce, in advance, its interest or expectancy in specified business opportunities. The amendment clarifies that: (a) Corporations may adopt renunciations that apply to specific classes or categories of opportunities; (b) Renunciations can apply to specified persons or to all officers, directors or stockholders; and (c) Renunciations may apply even if the corporation has not identified the specific opportunity at the time of the waiver. This codifies what many private equity sponsored and venture backed companies already attempted through charter provisions, and it provides greater predictability in Delaware courts.

In addition, SB 154 revises DGCL Section 144(a) clarifying how a board can cleanse conflicts of interest. The amendment reinforces that a conflicted transaction may be protected if it is approved by: (a) A majority of fully informed, disinterested directors; or (b) A majority of fully informed, disinterested stockholders. This is consistent with the Delaware Supreme Court’s interpretation in Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), which held that fully informed stockholder approval restores the business judgment rule in many conflict settings. SB 154 strengthens that framework by confirming that corporate opportunity waivers may coexist with properly ratified board or stockholder action. 

Many directors today serve on multiple boards or represent investment entities that invest in competing or adjacent companies. SB 154 formally acknowledges these realities and clarifies that renunciations may apply to persons who owe duties to multiple entities. This provides protection for venture capital managers, private equity principals and strategic investors who regularly evaluate opportunities across multiple portfolio companies, so long as the waiver is properly drafted and adopted.

California headquartered companies with Delaware charters should evaluate whether their current organizational documents contain renunciation provisions that comply with amended Section 122(17). Companies should consider: (a) Whether renunciations should be added for directors affiliated with investment sponsors; (b) Whether waivers should apply to entire categories of opportunities, such as opportunities arising in specific sectors or markets; and (c) Whether the corporation should adopt individualized renunciations for specific directors or officer roles.  Moreover, boards should confirm that conflict review procedures capture the requirements of revised Section 144, including: (a) Written disclosures detailing the director’s or officer’s interest; (b) Approval by disinterested directors or stockholders after full disclosure; and (c) Proper documentation in board minutes to preserve the business judgment rule. Given the prevalence of overlapping fiduciary roles in SPAC structures, SB 154 brings much needed clarity to the SPAC community. For sponsors and directors who evaluate multiple acquisition targets, an effective renunciation clause can reduce litigation exposure and fortify board decisions against post-merger challenges.

All of the above notwithstanding, companies should keep in mind that California courts apply a stricter version of the corporate opportunity doctrine based on the duty of loyalty codified in California Corporations Code Section 310 and related case law. While California headquartered companies often incorporate in Delaware for governance flexibility, counsel must consider whether operations, board meetings or executive offices located in California create any risk of California law applying in parallel.  At a minimum, California corporations should:  (a) Review charters and bylaws for conformity with amended DGCL Section 122(17); (b) Prepare or update corporate opportunity renunciation language, tailored to the company’s board composition and investment structure; (c) Confirm that board and stockholder approval processes satisfy amended DGCL Section 144; (d) Train boards and officers regarding updated fiduciary duty obligations and waiver requirements; (e) Document conflicts, recusal decisions and renunciation reliance with precision to preserve protection under Delaware law; and (f) Reassess governance frameworks for portfolio companies, joint ventures and entities with overlapping investors.

Ultimately, SB 154 modernizes Delaware’s approach to conflict management and the corporate opportunity doctrine in a way that reflects the realities of today’s investment and governance environment. For California headquartered companies incorporated in Delaware, the amendments offer both flexibility and responsibility. Properly drafted renunciations and well structured board approval processes can limit litigation risk and protect corporate decision makers. Companies potentially affected by SB 154 should take a moment to review governance documents and confirm compliance before disputes arise.