Delaware Court Addresses Fiduciary Duties of PBC Directors in Change-Of-Control Transactions

On July 29, 2026, the Delaware Court of Chancery issued a landmark decision addressing, for the first time, the fiduciary duties of directors of a Delaware public benefit corporation (PBC). Delaware PBCs are hybrid for-profit corporations under subchapter XV of the Delaware General Corporation Law that are "intended to produce one or more public benefits" and "operate in a responsible and sustainable manner."[1] The case, Drakes Landing Associates, L.P. v. Tilden Park Capital Management, L.P.,[2] arose in the context of a change-of-control transaction for a Delaware PBC. Vice Chancellor Nathan Cook held that the traditional Revlon duty requiring directors to maximize immediate stockholder value in a sale-of-control transaction does not apply to Delaware PBCs.

Background: The Revlon Decision

For four decades, Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. has served as one of the defining cases of Delaware corporate law governing change-of-control transactions.

Under Revlon and its progeny, when evaluating the sale of a company or any transaction resulting in a change of control, the fiduciary duty of the board of a Delaware corporation is "maximization of the company's value at sale for the stockholders' benefit."[3] Although directors retain discretion regarding the sale process itself, they generally may not sacrifice stockholder value in favor of other stakeholder interests.

The application of Revlon to Delaware PBCs had remained an open question since Delaware enacted its PBC statute in 2013. Section 365(a) of the Delaware General Corporation Law requires PBC directors to balance "the pecuniary interests of the stockholders, the best interest of those materially affected by the corporation's conduct, and the specific public benefit or public benefits identified in its certificate of incorporation."[4] Indeed, Delaware created the public benefit corporation as an alternative for-profit corporate form for companies seeking to pursue specified public benefits alongside financial returns to stockholders.

The Court's Decision in Drakes Landing

Drakes Landing involved a financing transaction in which two lenders to a PBC (MPower Financing PBC) would provide $20 million in urgently needed financing in exchange for the company converting its debt into equity for the lenders. This transaction increased the lenders' stock holdings from approximately 25% to nearly 85%. The conversion price was also significantly discounted when compared to the PBC's most recent financing round (which occurred nearly four years earlier). The Plaintiffs' chief complaint with the transaction was the significant dilution of their existing stockholder equity, from 74.5% to 15%.

The primary issue before the Court was whether and how Revlon applies in light of MPower's status as a PBC. The Court concluded that interpreting Revlon as imposing a standard of conduct requiring directors to maximize stockholder value was inappropriate in the PBC context:

To say that directors of a public benefit corporation "must perform [their] fiduciary duties in the service of [the] specific objective" of "maximizing the sale price of the enterprise," or that they "must focus on" that "primary objective[,]" would be inconsistent with the public benefit corporation statute's requirement that directors consider and balance other interests against stockholder pecuniary interests.[5]

Construing Revlon as imposing a standard of conduct would thus effectively require directors to disregard the very public benefit considerations that Delaware law expressly instructs them to consider. The Court left open the possibility, however, that Revlon's requirements for a Court to apply "enhanced scrutiny" to a change-of-control transaction involving a public benefit corporation would be the appropriate standard of review for such a transaction, and referred to this as "PBC" enhanced scrutiny rather than Revlon enhanced scrutiny.[6] The Court ultimately found that it need not reach this question because the plaintiffs failed to plead facts sufficient to rebut the safe harbor for PBC directors in Section 365(b), which provides:

…with respect to a decision implicating the balance requirement in subsection (a) of this section, [a director] will be deemed to satisfy such director's fiduciary duties to stockholders and the corporation if such director's decision is both informed and disinterested and not such that no person of ordinary, sound judgment would approve.[7]

Key Takeaways for Delaware PBCs

The decision provides important guidance for boards and management of Delaware PBCs by confirming that directors are not obligated to prioritize the highest available purchase price over the corporation's stated public benefit purpose. Instead, even in the context of a change-of-control transaction, boards must balance stockholder financial interests, the corporation's stated public benefit purpose, and the interests of those materially affected by the corporation's conduct.

While the opinion reinforces the flexibility afforded to PBC boards, it also underscores several key points:

• A PBC's mission (or the stated public benefit purpose) remains legally relevant, even in the context of a change-of-control transaction. Boards may consider preservation or advancement of the corporation's public benefit mission when evaluating competing transactions.
• PBC boards should pay particular attention to director independence and disinterestedness when making decisions that implicate the balancing requirement of 365(a), which is essential to the ability to rely on the Section 365(b) safe harbor.
• With respect to ensuring that a director's decision is "informed" as required under Section 365(b), it is important to carefully document the board's deliberative process when evaluating strategic transactions. Board materials and minutes should reflect careful consideration of each statutory factor in the balancing test.

Looking Ahead

Drakes Landing is likely to become a foundational Delaware precedent governing fiduciary duties of public benefit corporations. Although questions remain regarding the applicable standard of judicial review, the Court provided important clarity that directors of a Delaware PBC are not required to abandon the corporation's public benefit mission in pursuit of the highest available sale price.

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Stacey Sprenkel, Knute Gregg, and Jean Tom are partners in DWT's San Francisco office. Stacey serves as head of the firm's sustainability and responsible business practice and head of the compliance, ethics, risk, and governance practice. Knute serves as head of the firm's ECVC practice and advises emerging growth companies (including public benefit corporations) on formation, corporate governance, venture financing, M&A, securities, and strategic corporate matters across a range of industries. Jean serves as chair of the firm's tax-exempt organizations practice. For any questions, please reach out to the authors or another member of our sustainability and responsible business; compliance, ethics, risk, and governance; tax-exempt organizations; or corporate and business transactions teams. To stay informed, sign up for our alerts.