July 19, 2025

Texas Takes Bold Steps to Woo Businesses with New Legislation

News Summary

Governor Greg Abbott has signed Senate Bill 29 into law, aimed at transforming Texas into a top destination for businesses. The legislation modernizes the Texas Business Organizations Code, introducing enhanced liability protections, shifting the burden of proof in derivative actions, and minimizing frivolous lawsuits. With new thresholds for shareholder claims and provisions to reduce venue shopping, Texas is positioning itself as a business-friendly environment, encouraging corporations to establish or relocate their operations in the Lone Star State.

AUSTIN, Texas — On May 14, 2025, Texas Governor Greg Abbott signed Senate Bill 29 (SB 29) into law, aimed at modernizing the Texas Business Organizations Code (TBOC) to attract corporations to incorporate or redomicile in Texas. The new law, which took effect immediately upon signing, introduces significant changes to the governance and liability frameworks for corporations, limited partnerships, and limited liability companies operating in the state.

SB 29 includes several key provisions that enhance liability protections and streamline corporate governance. One of its most notable features is the introduction of the business judgment rule, which presumes that corporate directors act in good faith and in the best interests of the corporation. This rule applies specifically to corporations with voting shares listed on a national securities exchange or those that have elected to adopt this rule in their governing documents.

The law modifies the burden of proof for derivative actions, requiring claimants to demonstrate a breach of fiduciary duty that involves fraud, intentional misconduct, or knowing legal violations. This shift aims to reduce the incidence of litigation against corporate management by making it more challenging for equity holders to sue following unfavorable business decisions.

Other provisions in SB 29 allow limited liability companies (LLCs) the flexibility to eliminate any duties—including fiduciary obligations—in their company agreements. Limited partnerships can similarly remove duties of loyalty, care, and good faith in their partnership agreements. Enhancements aim to mitigate litigation risks and reduce the number of “strike lawsuits” filed by activist shareholders who do not hold significant stakes in a corporation.

The legislation establishes a minimum ownership threshold of up to 3% for shareholders to initiate derivative claims against publicly traded organizations, reinforcing the requirement that activists present a credible financial interest in the companies they challenge.

Additionally, SB 29 allows Texas businesses to designate specific state courts as the exclusive forum for internal entity claims, thereby limiting the practice of “venue shopping” by claimants. Companies can also include waivers for the right to a jury trial in their governing documents when it comes to internal entity claims.

The new law includes measures to protect corporate communications, exempting emails, text messages, and social media from equity holders’ requests for corporate records unless these communications are directly related to corporate actions. Corporations are permitted to deny requests for books and records linked to active or pending derivative proceedings.

SB 29 also offers Texas corporations greater leeway in voting processes: they can waive certain voting requirements in specified circumstances, enabling all classes of stock to vote as a single entity on corporate matters. Another feature of the law allows corporations to seek pre-petition determinations from the Texas Business Court regarding the independence of directors involved in transactions with potential conflicts of interest. The court’s find that directors are independent is deemed definitive unless new information arises.

Furthermore, corporations cannot recover attorneys’ fees based solely on additional or amended disclosures made to stockholders during derivative actions. While SB 29 provides numerous advantages, it explicitly states that fiduciary duties for corporate directors and officers cannot be eliminated.

Overall, SB 29 emphasizes Texas’s commitment to being a competitive jurisdiction for business formation while striving to balance the interests of shareholders with those of corporate management. The bill received overwhelming support, passing with a supermajority vote in both chambers of the Texas Legislature prior to its enactment.

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Author: STAFF HERE GEORGETOWN

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