On May 14, 2025, Texas Governor Greg Abbott signed into law Senate Bill No. 29 (SB 29), which is effective immediately and provides for a series of amendments to the Texas Business Organizations Code (TBOC) intended to make Texas a leading jurisdiction for corporate incorporation. “Texas is the reigning and undisputed champion for doing business in the United States of America,” said Governor Abbott. “Senate Bill 29 provides business decision makers the certainty that sound business judgments made in the best interest of shareholders will not be second-guessed by courts.”
Importantly, SB 29 bolsters protections for Texas corporations and directors and officers of Texas corporations and reduces the risk of shareholder litigation. Key provisions include the following:
Codification of the Business Judgment Rule.
Texas common law has historically recognized the business judgment rule, which generally protects corporate officers and directors, who owe fiduciary duties to a corporation, from liability for acts that are within the honest exercise of their business judgment and discretion. New Section 21.419 of the TBOC establishes a statutory presumption that, with respect to matters relating to fiduciary duties, an officer or director acts (1) in good faith, (2) on an informed basis, (3) in furtherance of the interests of the corporation and (4) in obedience to the law and the corporation’s governing documents. Additionally, the TBOC amendments shift the burden of proof to the plaintiff in any fiduciary duty claims, and a plaintiff must rebut one of these presumptions and prove that (1) the director or officer’s act or omission constituted a breach of one or more of the person’s duties as a director or officer and (2) that the breach involved fraud, intentional misconduct, an ultra vires act or a knowing violation of law.
New Section 21.419 applies to Texas corporations that have a class or series of voting shares listed on a national securities exchange and any other Texas corporation with a statement in its governing documents affirmatively electing to be governed by Section 21.419. The amendments to the TBOC define a national securities exchange to mean (1) an exchange registered as a national securities exchange under Section 6 of the Securities Exchange Act of 1934 or (2) a stock exchange that: (i) has its principal office in Texas and (ii) has received approval from the Texas securities commissioner.
Protection against Derivative Litigation.
Additional changes to the TBOC include various measures to lessen shareholder derivative suits:
- Minimum Ownership Thresholds Before a Shareholder Can Pursue a Derivative Lawsuit: New Section 21.552 of the TBOC provides that in order to be able to institute a derivative proceeding against a corporation, a shareholder must meet the ownership threshold specified in a corporation’s governing documents, which may not exceed three percent of the corporation’s outstanding shares. Section 21.552 applies to a corporation with its common shares listed on a national securities exchange or a corporation that has made an affirmative election to be governed by Section 21.419 and has 500 or more shareholders at the time the derivative proceeding is instituted.
- Restrictions on Attorneys’ Fees: Section 21.561 of the TBOC prohibits the recovery of attorneys’ fees for “disclosure only” settlements. Under the statute, a shareholder plaintiff may not recover attorneys’ fees unless the court finds the proceeding has resulted in a substantial benefit to the corporation. New Section 21.561(c) provides that a substantial benefit does not include “additional or amended disclosures made to shareholders, regardless of materiality.”
- Preliminary Judicial Determination of Director Independence: Corporations routinely form committees of independent and disinterested directors to review conflicted transactions. Texas has adopted a novel procedure authorizing corporations to seek a preliminary determination from the court, in advance of a contemplated transaction, regarding the independence and disinterestedness of the directors who will be serving on the committee. Pursuant to new Section 21.4161, a qualifying corporation may petition the court to hold an evidentiary hearing to determine whether the proposed committee members are deemed to be independent and disinterested with respect to the proposed transaction. The court’s determination, after appropriate notice to shareholders, will be dispositive. Section 21.554 similarly permits a corporation, in the event a shareholder derivative proceeding has been instituted, to petition the court for a determination as to whether the directors are independent and disinterested with respect to the allegations made in the demand.
Additional Reforms.
SB 29 also includes additional provisions, which are intended to streamline corporate governance:
- Exclusive Forum Provisions: Texas corporations may specify in their governing documents that any internal entity claim -- which is a claim of any nature, including a derivative claim in the right of an entity, that is based on, arises from or relates to the internal affairs of the entity -- may be brought exclusively in the Texas Business Court, or another particular court specified by the corporation. The Texas Business Court began operations on September 1, 2024, and has jurisdiction over a range of commercial disputes.
- Waiver of Jury Trials: Texas corporations are now permitted to include a waiver of jury trial in their governing documents for internal disputes, regardless of whether the applicable governing document is signed by a corporation’s members, owners, officers or governing persons. Additionally, a person asserting an internal entity claim is considered to have been informed of the waiver of the right to a jury trial contained in the governing documents and to have knowingly waived the right in the action if the person: (1) voted for or affirmatively ratified the governing document containing the waiver, or (2) acquired or held an equity security at a time when the waiver was included in the governing documents.
- Books and Records Requests: The TBOC amendments include clarifying language that the records of the corporation do not include e-mails, text messages or similar electronic communications, or information from social media accounts unless the particular e-mail, communication, or social media information effectuates an action by the corporation.
- Waiver of Class Voting: Under the TBOC, certain major transactions such as a merger or the sale of all or substantially all of a corporation’s assets require approval by each class of shares of a corporation. SB 29 provides that by including language in their governing documents, Texas corporations are now permitted to waive class-by-class share voting in certain circumstances, permitting all classes of its stock vote as a single class.
- Internal Affairs: The TBOC amendments also provide that when exercising powers with respect to a Texas corporation, the managerial officials of a Texas corporation may consider the laws and judicial decisions and practices of other states. However, the failure or refusal of a managerial official to do so does not constitute or imply a breach of the TBOC or any duty under Texas law.
Conclusion.
The TBOC amendments represent significant changes to Texas corporate law and governance and seek to provide additional greater legal certainty for officers and directors of Texas corporations and reduce exposure to shareholder litigation. Furthermore, the reforms reflect efforts to make Texas a more business-friendly jurisdiction and an attractive state for incorporation, including for public companies. Texas corporations should evaluate which of these reforms they qualify for and consider amending their governing documents, as certain of these reforms may require Texas corporations to adopt amendments to their governing documents in order to fully avail themselves of the reforms. The reforms also include several benefits for limited partnerships and limited liability companies that are domiciled in Texas which also may be subject to opt-in requirements.
For further information, please contact a member of the Haynes Boone Capital Markets and Securities Practice Group or Texas Corporate Governance Practice Group.
