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Editorial 6 MIN READ

Moelis, SB 313, SB 21: Delaware's private-ordering turn

One Chancery opinion, two statutes, and a live re-examination of what a stockholder agreement can legally do

The Editors
Staff, Incorporator.org
6 min read Updated
Contents 7 sections
  1. What Moelis actually held
  2. How fast the legislature moved
  3. SB 21 and the controller-transaction rewrite
  4. The Nevada arbitrage has not gone away
  5. What private ordering now actually permits
  6. The loose end
  7. Sources

n February 2024, Vice Chancellor Laster struck down a stockholder agreement that handed the founder of Moelis & Company a bench of veto rights over board decisions. By August, the Delaware General Assembly had rewritten the statute to allow almost exactly the arrangement the court had rejected. A year later, a second bill reshaped the controller transaction framework. The question for anyone forming or recapitalizing a Delaware corporation in mid-2025 is no longer whether the state will police private ordering. It is how much private ordering the state now actively blesses.

What Moelis actually held

West Palm Beach Firefighters' Pension Fund v. Moelis & Company, C.A. No. 2023-1104-JTL (Del. Ch. Feb. 23, 2024), concerned a stockholder agreement between Moelis & Company and its founder, entered at the time of the 2014 IPO. The agreement gave the founder pre-approval rights over eighteen categories of board action, the right to name a majority of the board, and influence over committee composition. None of these rights appeared in the certificate of incorporation.

Laster applied the analysis from Abercrombie v. Davies, 123 A.2d 893 (Del. Ch. 1956). The test asks whether a contract purports to constrain board discretion in a way that the DGCL says must be contained in the charter. Section 141(a) vests "the business and affairs of every corporation" in the board "except as may be otherwise provided in this chapter or in its certificate of incorporation." Laster read that language literally. A stockholder agreement is neither the chapter nor the certificate. Most of the pre-approval and board-composition provisions therefore failed.

The holding was not that contractual governance is per se impermissible. It was that contractual governance imposing a significant limit on the statutory authority of the board has to live in the charter, ratified by a stockholder vote. For any company that had quietly negotiated founder or sponsor vetoes into a stockholder agreement, the opinion was an earthquake.

How fast the legislature moved

Senate Bill 313 of the 152nd General Assembly was introduced weeks after Moelis came down, signed by Governor Carney on June 14, 2024, with substantive provisions effective August 1, 2024. The bill added a new subsection 18 to 8 Del. C. § 122, the general-powers section.

The new § 122(18) says a corporation may "make contracts with one or more current or prospective stockholders" under which the corporation agrees to "restrict or prohibit" itself from taking specified actions, to "require the approval or consent" of specified stockholders before acting, or to "covenant" about the composition of its board or committees. It further provides that such a contract "shall not be invalid solely because" it addresses matters that could alternatively be placed in the charter.

In other words, the things the Moelis court told you to put in the charter can also go in a contract, and the contract is not void for that reason alone. The Corporation Law Council's synopsis called it a clarification. Few practitioners read it that way.

The bill is not a blanket license. Fiduciary duties still police the board's decision to enter the contract. Non-party stockholders retain their equitable remedies if the arrangement is entrenched in self-dealing. The charter route remains superior when a company wants third-party enforceability, voting mechanics keyed to share ownership, or durability beyond a contract's termination. What changed is the default answer to "side agreement or charter." After SB 313, either can work.

SB 21 and the controller-transaction rewrite

Nine months later, the legislature returned with a second instrument. Senate Bill 21 of the 153rd General Assembly was signed by Governor Meyer on March 25, 2025, and took immediate effect. Where SB 313 addressed private-ordering mechanics, SB 21 reached directly into the doctrine that governs controller deals.

The statute codifies a safe harbor that borrows the structure of Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014), the case that installed the twin conditions (special committee plus majority-of-the- minority vote) for restoring business judgment review in squeeze-outs. SB 21 extends a cleansing framework to a wider set of controller transactions and narrows what qualifies someone as a controller in the first place. It also recalibrates the pleading-stage test for director independence, making it harder to survive a motion to dismiss on thin social-tie allegations.

The implications for Palkon v. Maffei, C.A. No. 2023-0449-JTL, are immediate. That case, pending in Chancery when SB 21 passed, tested the entire-fairness framework against a Nevada reincorporation by TripAdvisor and Liberty TripAdvisor. Post-SB 21, a controller moving the company out of Delaware has a more predictable path through the cleansing analysis than the version of the doctrine the Palkon court was working with.

The Nevada arbitrage has not gone away

Nevada amended NRS 78.138(7) to codify that directors and officers are not liable for breaches of fiduciary duty unless the breach involves intentional misconduct, fraud, or a knowing violation of law, and that this standard applies to all circumstances including conflict transactions. There is no entire-fairness doctrine in Nevada, no Weinberger review, no MFW prerequisites. For a controller who anticipates going-private or related-party deals, the Nevada liability ceiling is lower by an order of magnitude.

The reincorporations that followed TripAdvisor in 2024 are not a rejection of Delaware on forum-quality grounds. They are a rational response to the doctrinal volatility between 2020 and 2024, which saw In re Match Group Derivative Litigation, 315 A.3d 446 (Del. 2024) (applying MFW to all controller transactions), then Moelis, then SB 313, then SB 21 in rapid succession. SB 21 was designed in part to stop the bleeding. Whether it does depends on how Chancery interprets the new safe harbor in the first wave of cases that test it.

What private ordering now actually permits

For a company incorporating today, the practical answer set has widened. A founder can negotiate meaningful pre-approval rights over board decisions in a stockholder agreement, enforceable as a matter of contract, without the additional step of charter amendment. A sponsor with a minority stake can secure board-composition covenants in the same instrument. A controller can structure a take-private transaction through the SB 21 safe harbor with materially more certainty about the standard of review.

What the statute does not do is neutralize fiduciary duty. A board that enters a § 122(18) contract still has to justify the decision under the usual standards. The contract itself is enforceable, but the process of entering it is still reviewable. The sophisticated reading of SB 313 is that it has moved a category of disputes from validity questions (statutory interpretation, go to the merits) to process questions (entire fairness, go to the board's conduct). That is a friendlier regime for planning and a harder regime for plaintiffs.

For a company with existing stockholder agreements that tracked the Moelis fact pattern, the right move is to have counsel review whether the arrangement benefits from re-papering under § 122(18) or whether charter amendment remains preferable. Both routes are now open.

The loose end

The one question the amendments do not answer is how courts will treat a § 122(18) contract combined with a board decision clearly contrary to non-party stockholders' interests. The statute says the contract is not invalid merely because it addresses charter-worthy matters. It does not say the board's act of entering it is immune from review. A plaintiff will draw a line between validity and fiduciary process, and Chancery will have to place it. Until then, put the hard stuff in the charter if you can, and make sure the record on the side agreements would read well if it ever had to.

Sources

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