September 6, 2025

Significant Changes for Texas Businesses with New Law

News Summary

Governor Greg Abbott has signed Senate Bill 29 into law, aimed at enhancing liability protections for business managers in Texas. The law introduces a new ‘business judgment rule’ which favors corporate directors by assuming they act in good faith. Shareholders now bear the burden of proof in legal actions against these officials. Additionally, LLCs and limited partnerships can adopt this new rule, promoting a more favorable business environment. This legislative shift positions Texas as a competitive alternative to Delaware for corporate charters.

Texas has enacted a significant update to its corporate governance laws with the signing of Senate Bill 29 (SB 29) by Governor Greg Abbott on May 14, 2025. This legislation is designed to enhance liability protections for business managers, thereby aiming to attract corporate entities to the state.

SB 29 amends the Texas Business Organizations Code (TBOC) and primarily focuses on extending protections for public companies while also benefiting private companies through improved managerial safeguards against breach of fiduciary duty claims. A key feature of the new law is the establishment of a statutory business judgment rule, which provides substantial protections for corporate directors and officers, collectively referred to as “Managerial Officials.”

The new law creates a presumption that Managerial Officials have acted in good faith, are well-informed, and are committed to advancing the corporation’s interests in compliance with legal and governing document requirements. As such, shareholders pursuing legal action must now prove that these officials engaged in fraud, intentional misconduct, knew they were violating the law, or acted outside of the corporation’s defined purpose.

Existing common law protections for Managerial Officials remain intact under the new legislation; however, some companies may choose to continue following the previous, less expansive business judgment rule. The new guideline applies to Managerial Officials involved in transactions with the corporation, including activities such as leasing real estate.

Starting September 1, 2025, Texas corporations will have the ability to shield their officers from specific monetary damages, a privilege that was previously extended only to directors. Additionally, limited liability companies (LLCs) and limited partnerships will also have access to a statutory business judgment rule, providing further legal clarity and protections for corporate governance.

The law permits these business entities to fully waive their fiduciary duties, effectively reducing ambiguity for governance-related lawsuits. To bolster its judicial infrastructure, Texas just launched the Texas Business Court on September 1, 2024, which is tasked with managing complex commercial cases and shaping interpretations of corporate law.

This series of legal reforms aligns with Texas’s broader strategy to compete with Delaware as a prime location for corporate charters. By minimizing litigation risks and clarifying internal dispute processes, Texas aims to position itself as a more attractive venue for businesses looking to establish or relocate their operations.

The changes reflect a growing trend in corporate governance reform across the United States, where states such as Delaware have faced increased judicial scrutiny. The new legal framework in Texas is intended to foster a supportive business environment that reassures corporate boards about their decision-making activities, while also allowing managers to operate with increased confidence.

Overall, Texas’s SB 29 represents a concerted effort by the state to create a more inviting climate for businesses by enhancing legal protections for managerial decisions, thereby encouraging greater corporate investment and growth within its borders.

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Author: STAFF HERE GEORGETOWN

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