Before Your Term Sheet: A Delaware Conflict-Transaction Checklist

No conflict means the safe harbor is not your first move

You are about to sign a pre-seed term sheet, and someone has mentioned the Delaware safe harbor.

When you have not done a conflict transaction, your first steps stay the same: clean incorporation, a clear cap table, and a term sheet that matches what you actually agreed.

Delaware's Senate Bill 21, enacted in March 2025, revised Section 144 to add statutory approval routes for transactions involving a controlling stockholder or control group, a person or group with enough power to control the company.

When one statutory safe-harbor condition is met, amended Section 144 bars equitable relief and damages in fiduciary-duty claims, the kind brought for breach of duty to the company, including those against directors, officers, and controlling stockholders.

In Rutledge v. Clearway Energy Group LLC, the Delaware Supreme Court upheld the challenged amendments as constitutional on February 27, 2026.

The court also held that using the safe harbor for conduct before the law took effect did not run afoul of due process.

That ruling gives founders a more stable rule if a conflict exists, and it gives investors' counsel a sharper list of questions to ask before signing.

Pull the documents before you answer the first item

Before you answer the first item, gather the documents that would show a conflict. Pull the incorporation papers, the cap table, the board minutes, and any side letters that changed the deal.

Look for payments, loans, leases, assignments, or service agreements where a founder, board member, or investor also has a personal interest.

The other side is a company you control or a group that controls the company? Stop and treat it as a possible conflict.

Start with the people who can sign for the company and the people who can sign for the other side. Flag the same person on both sides, a founder's family business as the counterparty, or an investor's portfolio company as the counterparty.

Then check the money. Who pays whom? Who receives equity? Who receives a fee? Who receives a license? A conflict is easier to spot when the cash flow is written down.

Do not try to solve the legal question alone. Build a short fact pattern your counsel can review, with the flagged contracts and the cap table in one place.

The checklist is short because the risk is narrow

A first-time founder may have no conflict transaction before the first outside money.

Use this five-step pre-seed conflict-transaction checklist when you do have a conflict. Each item is a yes/no question you can answer in a minute.

• Identify any deal that benefits a controlling stockholder or control group.
• If none, record no conflict transaction in your diligence file.
• If yes, get the statutory approval needed before signing; for a going-private transaction, a deal that takes a company out of public ownership, both safe-harbor conditions must be met.
• Document who recused, who approved, and what was approved.
• Ask investors' counsel to confirm the Section 144 safe-harbor language and the Section 220 inspection-rights language, the clause that controls document requests, and to point to the clause in the term sheet.

Item one is the gate: it separates ordinary founder paperwork from a transaction that can trigger controlling-stockholder scrutiny.

Item two keeps diligence faster and the file honest when investors ask later.

The approval step puts the consent before the signature, not after the dispute.

Recusal and approval only help if someone can show who stayed out and who said yes.

The investor-side check is where Section 220 belongs: the amendments also changed it, so counsel should confirm the language rather than assume it.

When item one is yes, the term sheet should say the deal is subject to the required approvals. That keeps the signature from outrunning the consent.

When item one is no, the note should say what you checked: contracts, board minutes, side letters, and the cap table. That makes the answer reproducible.

The approval and inspection items are where the protection lives

The Delaware Court of Chancery still has authority to hear equitable claims. The safe harbor does not cover everything.

The approval record is what makes the protection usable.

The next move is small. Send the checklist to your counsel. Ask for a one-line answer on each item. Do not sign until the conflict question is closed. Counsel flags a missing approval? Fix the term sheet before you sign.