DOVER — The controversial bill that would amend the state’s corporate code was released from the House Judiciary Committee on Wednesday, despite the urging of at least 20 plaintiffs’ attorneys and legal experts to reconsider or at least slow down the process.
For the past month, Delaware lawmakers have been considering Senate Bill 21, which would introduce several changes to the state’s corporate code, impacting the millions of companies that have incorporated here. The amendments include defining majority shareholders, limiting the scope and time window for “books and records” requests and lowering the scrutiny to examine deals made with powerful shareholders.
Many legislators and business officials have focused on how SB 21 would secure the $2 billion corporate franchise tax. About 289,000 entities incorporated in the state last year, including 58,000 corporations, according to the Delaware Department of State.
In her opening comments, Rep. Krista Griffith (D-Fairfax), the chair of the House Judiciary Committee and a sponsor of the bill, framed the legislation as one that would protect the corporate franchise tax and Delaware’s economy. She referenced hearing the stories of those who rely on state services for disabled family members or to find housing, as well as police officers and educators, during weeks of hearings through the Joint Finance Committee.
“Our state relies heavily on this income. We are proud to be the home of these corporations and we’re proud to have the best business court in the country,” Griffith said. “It’s very important that we maintain that.”
There are about 3,000 companies at the top of the franchise tax, which report a gross revenue of at least $250 million. The Department of State said those companies alone paid $670 million in franchise taxes as well as related fees.
But opponents of the bill have maintained that SB 21 would water down retail stockholders and pensioners’ rights and the recourse they have to challenge boards of directors for not acting in their best interests. The debate over SB 21 has drawn the eyes of attorneys and legal experts from all over the country, as well as a marketing campaign that sent out postcards deriding SB 21 as “the billionaire’s bill.”
Mark Richardson, a partner of Labaton Keller Sucharow LLP, who represents public employee pension funds, was one of the many plaintiff attorneys who spoke out against the bill, voicing his concerns over how this would impact the working man who may not understand corporate law enough to know what’s being debated.
“This bill does not help working people. It only helps billionaires and corporate insiders avoid accountability to working people, and this is happening because corporate powers realized they can come to the legislature and ask them to overturn cases they don’t agree with,” Richardson said. “When the corporate powers get a hold of the machinery, it’s always the working people who lose. It’s always their concerns that are cast aside and forgotten.”
On Wednesday morning, another report from CNBC showed that many state legislators, as well as Gov. Matt Meyer and former chancellors that now represent elite law firms, had an emergency meeting to craft legislation. Many of the experts called by Griffith disputed that, maintaining the draft legislation came on behalf of legislators, as well as a 2022 paper authored by Widener University professor Lawrence Hammermesh.
Rep. Sophie Phillips (D-Newark) introduced an amendment Tuesday that would allow companies to “opt-in” to its provisions through a shareholder vote – much like how public companies can vote to reincorporate elsewhere.
Eric Talley, a professor from Columbia Law School, testified Wednesday that the opt-in allowance provides companies the ability to tailor their governance documents to do so. That follows precedent in Delaware laws, such as the ability for incorporations to opt-in decisions such as dual-class stock structure, the ability to appeal bylaws, corporate opportunity waivers and supermajority provisions for voting stockholders.
“It’s not just a one-off coincidence. This, in some ways, has been an advertised benefit of Delaware law,” Talley said. “Delaware law has this flexibility to say if you don’t like how these cases are going down, there is an ability to opt out of it. This wouldn’t entail grabbing everyone alone with it, including the people who have been silent.”
However, the amendment was considered unfriendly . Rep. Bryan Shupe (R-Milford) argued that if the “opt-in” was included, it would further encourage companies to consider other states.
“I know that, for being a small business owner, you better believe that the big businesses are doing the same. I respect what you have done as a law professor, but we are thinking of the businesses,” Shupe told Talley. “The businesses that are going to make that research are at that breaking point.”
SB 21 was voted out of committee 10-2, with Phillips and Rep. Sean Lynn (D-East Dover) dissenting. As of press time on Wednesday, SB 21 had not been scheduled for debate on the House Floor.
Editor’s note: a previous story incorrectly reported that the amendment was voted on during committee. It will be voted on by the full House. We regret the error.
