Delaware’s First PBC Fiduciary Duty Ruling: What Drakes Landing Means for PBC Boards

Overview

In 2013, Delaware amended its General Corporation Law (the “DGCL”) to create a new form of entity called the “public benefit corporation,” or “PBC.” The amendment responded to increasing demand for corporate structures that allow businesses to prioritize social responsibility alongside profit. PBCs are for-profit corporations permitted under the DGCL to pursue socially responsible and sustainable operations that produce one or more public benefits in addition to generating profit for stockholders. Unlike traditional Delaware corporations, PBCs are required to be managed in a manner that balances (i) the stockholders’ pecuniary interests, (ii) the best interests of those materially affected by the corporation’s conduct, and (iii) the public benefit(s) identified in its certificate of incorporation. PBCs are required to specify in their charter the specific public benefit(s) to be promoted by the corporation. Since 2013, many private companies have either established themselves as PBCs or converted into a PBC.

While most PBCs are privately held, amendments to the PBC statute in 2020 helped foster adoption by public companies. Today, there are perhaps a few dozen public companies that operate as PBCs including Lemonade, Inc. (its “public benefit purpose is to harness novel business models, technologies and private-nonprofit partnerships to deliver insurance products where charitable giving is a core feature, for the benefit of communities and their common causes”)¹ and Warby Parker, Inc. (“the specific public benefits to be promoted by the company are to provide access to products and services that promote vision and eye health and to work towards positively impacting the communities in which the corporation operates”).²

Pursuant to Section 365(a) of the DGCL, the board of a PBC is required to “manage or direct the affairs of the public benefit corporation in a manner that balances the pecuniary interests of the stockholders, the best interests of those materially affected by the corporation’s conduct, and the specific public benefit or public benefits identified in its certificate of incorporation.”

Since 2013, it has been widely debated among legal practitioners whether directors of PBCs have a fiduciary duty under Delaware law to maximize stockholder value in a sale of control, as provided by the long-established Revlon doctrine (as defined below). On July 29, 2026, Vice Chancellor Nathan Cook issued the first judicial opinion to directly confront this question.³ The ruling in Drakes Landing Associates, L.P. v. Tilden Park Capital Management, L.P., C.A. No. 2025-0898-NAC (Del. Ch. July 29, 2026), provides long-awaited clarity on the fiduciary obligations owed by PBC directors when the company undergoes a change of control, a question that has lingered since Delaware authorized the PBC form in 2013.

The short answer is no—at least not as a standard of conduct.⁴ But the longer answer is more nuanced, and the practical implications for corporate counsel and compliance professionals are significant.

Revlon Meets Section 365: The Doctrinal Collision

The case arose from a rescue financing at MPower Financing, PBC, a Delaware public benefit corporation whose mission centers on expanding access to U.S. higher education for international students through lending.⁵ Facing a looming debt-covenant deadline in January 2025, MPower turned to two of its existing lenders, Tilden Park Capital Management and King Street Capital, whose final term sheet proposed $20 million in financing in exchange for the right to convert approximately $109 million of existing debt into equity at $2.25 per share, a steep discount from the company’s prior $15.50 round.⁶ Full conversion would take the lenders’ ownership from roughly 25% to approximately 85%, massively diluting existing stockholders.

MPower’s board formed an independent special committee of three disinterested directors, which retained its own counsel and financial advisor, ran a market check, and ultimately approved the transaction without a stockholder vote, despite requests from holders of more than 50% of MPower’s stock.⁷ Current and former stockholders sued, alleging that the special committee breached its fiduciary duties under Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986) (“Revlon”), by failing to obtain the best price reasonably available and that the lenders aided and abetted the breach.⁸

The Court’s analysis turned on a doctrinal distinction that has long divided Delaware practitioners: is Revlon a standard of conduct (telling directors what to do, i.e., maximize stockholder value) or a standard of review (telling courts how to evaluate director decision-making, i.e., through enhanced scrutiny)?⁹

Vice Chancellor Cook concluded that, read as a standard of conduct, Revlon is flatly incompatible with Section 365(a) of the DGCL.¹⁰ Section 365(a) of the DGCL requires PBC directors to “balance the pecuniary interests of the stockholders, the best interests of those materially affected by the corporation’s conduct, and the specific public benefit” identified in the company’s charter.¹¹ Requiring PBC directors to “focus on one primary objective—to secure the transaction offering the best value reasonably available for the stockholders,” cannot be squared with the multi-constituency balancing obligation that the statute imposes.¹² As the Court put it, even the plaintiffs recognized that MPower’s PBC status would require “some ‘modified’ version of Revlon.”¹³

However, the Court left open whether a modified form of enhanced scrutiny might still apply as a standard of review in PBC change-of-control transactions.¹⁴ The rationale is that the heightened stakes and competing incentives that attend any sale of control¹⁵ persist regardless of a corporation’s PBC status. Under that framework, a court would assess whether the board’s weighing of the three Section 365(a) interests was so skewed as to fall “outside the range of reasonableness.”¹⁶

Ultimately, the Court did not need to resolve the enhanced scrutiny question. Instead, it dismissed the complaint on a ground that carries enormous practical significance: the statutory safe harbor in DGCL Section 365(b).¹⁷

The safe harbor established by Section 365(b) states that, for any decision implicating the Section 365(a) balancing requirement, a director “will be deemed to satisfy such director’s fiduciary duties to stockholders and the corporation” if the decision is both informed and disinterested and “not such that no person of ordinary, sound judgment would approve.” The Court dismissed the case, as the Revlon standard of conduct doctrine does not apply to PBCs and the plaintiffs failed to plead facts sufficient to rebut the statutory safe harbor in Section 365(b) of the DGCL.

Practical Takeaways

Drakes Landing is a Court of Chancery decision on a Rule 12(b)(6) motion, not a Delaware Supreme Court pronouncement, and it leaves several significant questions open—including whether enhanced scrutiny formally applies to PBCs. A complaint presenting more favorable factual allegations could present a more challenging set of circumstances for defendants. That said, the decision provides the clearest guidance to date on the fiduciary framework governing PBC transactions. The following steps merit prompt attention:

Document the balancing exercise. The most actionable lesson from Drakes Landing is that PBC boards should build a clear contemporaneous record through detailed minutes, committee resolutions, and advisor presentations, demonstrating how they weighed each of the three Section 365(a) factors: stockholder pecuniary interests, the interests of materially affected constituencies, and the chartered public benefit.

Maintain robust special committee processes. Independence, disinterestedness, retention of separate counsel and financial advisors, and a genuine market check remain essential defensive tools.

Leverage Section 365(b) early. Counsel for PBC directors should consider invoking Section 365(b) as a dispositive defense at the motion-to-dismiss stage, before the cost and burden of discovery. Because Section 365(b) deems the fiduciary duty satisfied, rather than simply exculpating a particular defendant, it negates the underlying breach on which any aiding-and-abetting theory depends, potentially disposing of all claims in a single motion.

Do not over-read the ruling. The Court repeatedly emphasized what the plaintiffs failed to plead, and several of its most protective observations are express dicta. PBC status provides meaningful flexibility, but it does not insulate directors from liability in all circumstances related to fiduciary duties.

PBC adoptions have accelerated in recent years, spanning venture-backed startups, late-stage private issuers, and publicly listed corporations. Drakes Landing confirms that this corporate structure carries genuine fiduciary consequences—directors are freed from Revlon’s exclusive price-maximization mandate, but they take on a broader, statute-defined obligation to balance competing interests.¹⁸ For corporate counsel and compliance professionals, the message is clear: the flexibility is real, but so is the need for deliberate, well-documented governance.

Please contact any member of our Securities and Corporate Finance practice for help navigating the implications of the Drakes Landing decision for your company.

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¹ Lemonade, Inc., Amended and Restated Certificate of Incorporation, art. III(C) (Exhibit 2.3 to Form S-4 filed with the SEC on Dec. 14, 2021).

² Warby Parker, Inc., Twelfth Amended and Restated Certificate of Incorporation, art. III, § 3 (Exhibit 4.2 to Form S-8 filed with the SEC on Sept. 22, 2021).

³ Drakes Landing Associates, L.P. v. Tilden Park Capital Management, L.P., C.A. No. 2025-0898-NAC (Del. Ch. July 29, 2026) (“Drakes Landing”).

⁴ Drakes Landing at 10-16.

⁵ Id. at 2-3.

⁶ Id. at 4-5.

⁷ Id. at 5-8.

⁸ Id. at 9-10.

⁹ Id. at 10-14.

¹⁰ Drakes Landing at 15.

¹¹ Id. at 11-12.

¹² Id. at 14-15.

¹³ Id. at 16.

¹⁴ Id.

¹⁵ Id. at 12-13.

¹⁶ Drakes Landing at 16.

¹⁷ Id. at 17.

¹⁸ Id. at 11-12, 15-16.