As states compete to become the preferred jurisdiction for incorporation, Texas has taken a bold step with significant amendments to its Texas Business Organizations Code. Following Delaware’s recent pro-management reforms—prompted by the “DExit” movement criticizing its courts as unfriendly to business— on May 14, 2025 and May 19, 2025, the State of Texas adopted amendments to its Texas Business Organization Code (via Senate Bill 29 and Senate Bill 1057, respectively) containing provisions favorable to Texas business entities, signaling its intent to attract companies seeking a business-friendly legal environment.
These changes, combined with the launch of the Texas Business Court, are designed to reduce shareholder litigation, expand protections for directors and officers, and limit shareholder rights in key areas.
Senate Bill 29: Key Provisions
1. Codified Business Judgment Rule
Texas now formally codifies the business judgment rule, offering directors and officers a strong presumption of acting in good faith, on an informed basis, and in the corporation’s best interest. This applies to public companies or those that opt in via governing documents. Shareholders must meet a high bar—alleging fraud, misconduct, or legal violations with specificity—to challenge decisions.
2. Pre-Transaction Review of Director Independence
Boards may now form independent subcommittees and seek a court ruling on their independence before approving conflict-of-interest transactions. If granted, this ruling is binding unless compelling contrary evidence emerges, reducing litigation risk and increasing deal certainty.
3. Exclusive Forum Provisions
Entities can now require that all internal entity claims—including derivative suits—be brought exclusively in Texas courts, securing home court advantage.
4. Jury Trial Waivers
Entities may include enforceable waivers of jury trials for internal entity claims in their governing documents, even without individual signatures. This provision may face constitutional challenges under Texas law.
5. Narrowed Inspection Rights
S.B. 29 excludes emails, texts, and social media content from the definition of corporate records unless they directly effectuate corporate action. It also limits inspection rights during ongoing litigation or derivative proceedings.
6. Derivative Suit Standing Requirements
For public companies or those opting into the codified business judgment rule with 500+ shareholders, governing documents may require a minimum ownership threshold (up to 3%) to bring derivative actions—curbing suits by minority shareholders.
7. Ban on Fees in Disclosure-Only Cases
To deter low-value lawsuits aimed at securing attorney’s fees, S.B. 29 prohibits fee awards in cases where the only relief is additional corporate disclosures.
8. Applicability to LLCs and LPs
Key provisions—including the business judgment rule and inspection limits—also apply to Texas LLCs and limited partnerships.
9. Immediate Effectiveness
S.B. 29 became effective immediately upon Governor Abbott’s signature, following supermajority approval in both legislative chambers.
Senate Bill 1057: Limiting Shareholder Activism
Signed into law shortly after S.B. 29, Senate Bill 1057 imposes stricter requirements on shareholder proposals in nationally listed corporations with Texas ties. To submit a proposal, a shareholder or group must:
- Hold $1 million in market value or 3% of voting stock;
- Maintain ownership for at least six months before and during the shareholder meeting; and
- Solicit holders of at least 67% of voting power on the proposal.
These thresholds exceed those under SEC Rule 14a-8 and may face legal challenges over federal preemption. If upheld, the law will likely reduce shareholder proposals and proxy contests by limiting participation to major shareholders. The provisions of S.B. 1057 first become effective on September 1, 2025.
Predictions
These initiatives are not ending. As can be seen from the recent Delaware and Texas legislative initiatives, as well as other corporate law bills pending in states that are seeking incorporation and reincorporation dominance (such as those in the State of Nevada that are awaiting its Governor’s approval), it is clear that we are in the midst of a corporate law amendment season, and it is likely that “seasonal gifts” will continue to include those most favored by corporations, their boards of directors, officers, and controlling shareholders.
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