ANALYSIS: Delaware on Edge Amid Corporate Law Inflection Point

The last two years in Delaware corporate law have been characterized by significant upheaval, and now the state’s high court is in the unenviable position of determining Delaware’s legal future. In 2026, the Delaware Supreme Court will likely issue opinions in two cases (Musk and Rutledge) that could fundamentally alter or undermine over a century’s worth of corporate law precedent.

At the heart of these cases lies a common denominator: backlash to the Court of Chancery and its recent opinions that critics argue unfairly target controlling stockholders. The cases will test whether the state’s high court believes Chancery crossed the proverbial Rubicon in its decisions, perhaps therefore justifying the legislative blowback that followed.

Despite unexpectedly having to contend with forces that transcend corporate law, including the anti-Delaware bullhorn of the world’s wealthiest individual and a trend of larger companies reincorporating outside of Delaware, the Delaware Supreme Court will likely operate as a rational actor. In its desire to maintain an independent judiciary, the court in Rutledge will strike down Senate Bill 21 on the grounds that it unconstitutionally subsumes Chancery’s equitable jurisdiction.

Relatedly, in the case that arguably kickstarted the current climate in Delaware, the high court will affirm Chancery’s holding that Musk controls Tesla, but will ultimately soften the remedy from complete rescission to a less extreme equitable remedy.

Tornetta v. Musk and ‘Control’

If the ongoing turmoil in Delaware can be traced to a singular event, it was the invalidation of Elon Musk’s $56 billion compensation package from Tesla. In early 2024, Chancellor Kathaleen McCormick ruled that Musk, despite owning a minority share of 22% in Tesla, was a controlling stockholder of the company and thus the negotiation of the bonus package was subject to the plaintiff-friendly entire fairness standard, rather than the de facto business judgment treatment.

As it stands under Delaware law, a controlling stockholder is defined as an entity that owns more than 50% voting shares; or, a minority shareholder can be a controller if they exert “actual control” over the corporation’s business and affairs. The crux of this appeal is that question of control; namely, whether Musk is a controlling stockholder despite his relatively low 22% share, and what standard of review applies to the negotiation of his compensation package.

In a case like Musk, the appellate court will review mixed questions of law and fact (such as whether “transaction-specific” control is sufficient to warrant controller status). In other words, did Musk’s actions, combined with his nearly one-quarter voting stake in Tesla, constitute control for purposes of applying entire fairness rather than the board-deferential business judgment standard?

SB 21 and Rutledge Question Scope of Chancery’s Power

In March, responding to Chancery decisions like Musk that some saw as hostile to controlling stockholders, the Delaware legislature enacted Senate Bill 21, which among other changes provided a so-called “safe harbor” for corporate transactions involving controllers. Rutledge v. Clearway Energy Group challenges that bill, and the outcome of the case will inform the future of Delaware corporate law.

The first question certified to the Delaware Supreme Court was whether SB 21 violated the Delaware constitutional provision delegating jurisdiction to determine equitable issues to the Chancery. Among other things, the amendments actually define what constitutes a controlling stockholder.

The determination of control, like that in Musk, has historically been a common law analysis conducted by the judiciary. But fears among Delaware lawmakers that such Chancery opinions would drive large corporations away from doing business in the state caused the legislature to delineate a baseline level of control of no less than 33.33%—thus purporting to take that determination away from the Delaware judiciary.

The perks this bill provides to controllers are demonstrable. Even though SB 21 isn’t retroactive, if the bill was applied to the Musk case for example, Musk would not be considered a controller. Since Musk owned only 22% of Tesla stock at the time of the lawsuit, under SB 21 a tribunal would not be permitted to engage in further fact finding with respect to Musk’s control of Tesla.

What Will the Delaware Supreme Court Do?

Considering the higher level of deference owed to the trial court’s factual findings, the Delaware Supreme Court will affirm the finding that Musk’s actions constituted control of Tesla and thus warranted entire fairness treatment. However, in an effort to strike a balance, the court will impose a remedy less harsh than McCormick’s complete rescission of the package, perhaps quantum meruit. Apart from the merits, it’s certainly also possible that the court will first stay this case pending the outcome of Rutledge, as both cases involve elements and definitions of control.

Rutledge is where the rational actor prediction will be tested. Since the issues presented deal directly with the scope of Chancery’s equitable jurisdiction, the court will see SB 21 as a salvo against the concept of an independent Delaware judiciary. The Delaware Supreme Court will strike down the safe harbor provisions of SB 21 pertaining to controlling stockholders in order to preserve its jurisdiction.

What Does This Mean for Practitioners?

If the Delaware Supreme Court upholds SB 21 as well as Chancery’s determination with respect to Musk’s control, the state’s corporate law will more or less remain at the status quo. The legislative response of SB 21 might have shaken Chancery enough that it will approach its analysis of controlled transactions more narrowly going forward, but there has been nothing in their decisions leading to these appeals that would indicate such a pivot. The Delaware Supreme Court’s first priority will be returning the state’s judicial system to equilibrium.

Access additional analyses from our Bloomberg Law 2026 series here, covering trends in Litigation, Corporations & Transactions, Executive Orders & Authority, and Artificial Intelligence.

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