Delaware's influence on M&A law
Delaware serves as the legal home for the majority of publicly traded companies in the United States, and its outsized influence on mergers and acquisitions (M&A) law shapes corporate transactions far beyond the state's borders. Through a combination of a specialized judiciary, a flexible and regularly updated statutory framework, and decades of accumulated precedent, Delaware has established itself as the dominant jurisdiction for corporate law in the United States. The decisions rendered by Delaware courts, and the statutes enacted by its legislature, set the practical and legal boundaries within which M&A transactions are negotiated, structured, and litigated across the country and, increasingly, around the world.
Historical development of Delaware corporate law
Delaware's position at the center of American corporate law did not emerge overnight, nor was it inevitable. As legal scholars have noted, what has come to be presented as the current state of corporation and M&A law was not preordained, and but for certain historical developments, the legal landscape might look quite different today.[1] The evolution of Delaware corporate law has been shaped by an ongoing dialogue among courts, the legislature, practitioners, and scholars — a process that has produced a body of law notable for its adaptability and internal consistency.
The Delaware General Corporation Law (DGCL), the statutory backbone of corporate governance in the state, has been amended and refined over many decades to address changing business realities and market conditions. This commitment to keeping the law current is reflected in the state's practice of revisiting the DGCL periodically to incorporate modern business practices, clarify existing provisions, and respond to developments in judicial decisions. The result is a legal framework that balances predictability with flexibility, allowing corporations to structure their affairs with a degree of certainty that is difficult to replicate in other jurisdictions.
Delaware's approach to corporate law has historically reflected a commitment to what observers describe as a balanced methodology — one that acknowledges the interests of shareholders, directors, officers, and other stakeholders without systematically privileging any single constituency.[2] This philosophy has contributed to the state's durability as the leading jurisdiction for incorporation and, by extension, for M&A activity.
The Court of Chancery and its role in M&A disputes
Central to Delaware's influence over M&A law is the Delaware Court of Chancery, a court of equity that serves as the primary venue for corporate law disputes in the state. Unlike most American courts, the Court of Chancery does not use juries; its cases are decided entirely by judges. Corporate law disputes in Delaware are brought initially to this trial-level court, which is composed of just seven judges.[3]
The small size of the court is, counterintuitively, one of its most significant strengths. Because a limited number of judges handle the full volume of Delaware corporate litigation, the court develops deep expertise in corporate law over time. Judges of the Court of Chancery are routinely called upon to resolve some of the most complex and consequential M&A disputes in the country, and the body of opinions they produce forms a detailed and sophisticated common law that guides practitioners and companies in structuring transactions. This judicial expertise is a major reason why parties involved in significant M&A transactions frequently select Delaware law to govern their agreements, even when neither party is incorporated in the state.
Appeals from the Court of Chancery in corporate matters proceed to the Delaware Supreme Court, which issues its own influential opinions that further develop and refine M&A doctrine. Together, these two courts generate a volume of corporate law jurisprudence that dwarfs that of any other American state, creating an unmatched resource for legal analysis and transactional planning.
The Court of Chancery's equity jurisdiction is particularly significant in the M&A context. Equitable doctrines such as fiduciary duty — including the duties of care and loyalty owed by directors and officers to shareholders — are central to the court's analysis of M&A transactions. Delaware courts have developed a sophisticated and nuanced body of fiduciary duty law that governs how boards of directors must conduct themselves when evaluating and approving mergers, sales of control, and other fundamental corporate changes. These standards have become the de facto national benchmark, informing how corporate boards structure their decision-making processes in transactions throughout the United States.
The Delaware General Corporation Law and M&A transactions
The DGCL provides the statutory framework within which M&A transactions involving Delaware corporations are structured and executed. The statute addresses a wide range of matters directly relevant to M&A activity, including the procedures for mergers and consolidations, the rights of shareholders in connection with fundamental corporate changes, and the mechanisms through which dissenting shareholders may seek appraisal of their shares.
Delaware's corporate law continues to evolve through key amendments to the DGCL, with significant updates taking effect periodically to reflect modern business practices and address emerging issues.[4] For example, amendments effective August 1, 2024 reflected ongoing efforts to modernize the DGCL and provide greater clarity for corporations and their advisors in navigating complex transactional situations. These legislative updates illustrate the state's responsiveness to the needs of the corporate community and its willingness to adapt its legal framework as circumstances evolve.
The DGCL's provisions governing mergers are especially consequential for M&A practice. The statute sets out the steps that corporations must follow to effect a statutory merger, including board approval, shareholder voting requirements, and the filing of a certificate of merger with the Delaware Secretary of State. These procedures provide a clear roadmap for deal execution, and the extensive case law interpreting them gives practitioners confidence about how courts will analyze a given transaction structure.
The appraisal remedy available under Delaware law is another important element of the state's M&A framework. Shareholders who dissent from certain mergers have the right to petition the Court of Chancery for a judicial determination of the fair value of their shares. Delaware courts have developed a substantial body of appraisal jurisprudence that defines how fair value is to be calculated, what evidence is considered, and when market price evidence may be given weight. This body of law directly affects how acquirers and targets price transactions and structure deal terms.
Fiduciary duties and the standards of judicial review
Delaware's M&A law is perhaps most distinctively shaped by its doctrine of fiduciary duties and the associated standards of judicial review that courts apply when evaluating director conduct in the context of corporate transactions. Over decades of litigation, Delaware courts have developed a layered system of review standards — including the business judgment rule, enhanced scrutiny, and the entire fairness standard — each applicable in different transactional contexts.
The business judgment rule is the default standard of review in Delaware corporate law. Under this deferential standard, courts presume that directors acted on an informed basis, in good faith, and in the honest belief that their actions were in the best interests of the corporation. In the M&A context, however, Delaware courts have sometimes applied more demanding standards where conflicts of interest or defensive measures are present.
Enhanced scrutiny, developed through landmark Court of Chancery and Delaware Supreme Court decisions, requires boards to demonstrate that they acted reasonably in responding to a threat to corporate policy or in the context of a sale of control. This standard has profoundly influenced how M&A transactions are conducted, compelling boards and their advisors to undertake thorough sale processes, obtain independent fairness opinions, and carefully document their deliberations.
The entire fairness standard — the most demanding of the three — applies when a controlling shareholder or interested director stands on both sides of a transaction. Under this standard, defendants must demonstrate that the transaction was the product of fair dealing and resulted in a fair price. Delaware's careful articulation and application of these review standards across decades of M&A litigation has produced a predictable framework that guides deal structuring throughout the United States.
Delaware's continuing influence and adaptability
One measure of Delaware's sustained influence over M&A law is that corporations continue to choose it as their state of incorporation and legal domicile decade after decade, despite periodic criticism and competitive pressure from other states seeking to attract corporate charters. The reasons for this continuity are multiple and reinforcing: the depth of the case law, the expertise of the judiciary, the responsiveness of the legislature, and the availability of a large and sophisticated bar of corporate practitioners who understand the nuances of Delaware law.
Delaware has also demonstrated a capacity for self-examination and reform. The state's legal community — including its courts, legislature, bar, and academic commentators — engages in ongoing dialogue about how the law should develop and whether existing doctrines remain appropriate in light of changing business and governance realities.[5] This culture of critical reflection, combined with a commitment to maintaining a balanced and coherent legal framework, has allowed Delaware to update its law in response to new challenges while preserving the core attributes that have made it attractive to corporations and their advisors.
The DGCL's recent amendments reflect this ongoing process of adaptation, demonstrating that Delaware's approach to corporate and M&A law is not static but rather evolves in response to the needs of the modern business environment.[6] Whether through judicial innovation in the Court of Chancery, legislative amendment of the DGCL, or contributions from Delaware's scholarly and practitioner communities, the state's M&A legal framework continues to develop in ways that shape transactions far beyond its geographic boundaries.
See also
- Delaware General Corporation Law
- Delaware Court of Chancery
- Corporate law in the United States
- Mergers and acquisitions