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Texas Governor Signs Senate Bill 29 to Enhance Corporate Governance

News Summary

Texas Governor Greg Abbott has signed Senate Bill 29 into law, marking a significant change in corporate governance. The law introduces the Business Judgment Rule, providing corporate directors protection from personal liability in decision-making. It aims to reduce litigation and improve the business environment in Texas. Shareholder rights are also impacted, as the law restricts certain inspection rights and narrows the pool for derivative lawsuits. Additionally, provisions for jury waivers and independent committees enhance board decision-making. This legislation is expected to bolster Texas’s status as a business hub.

Texas Governor Greg Abbott has officially signed Senate Bill 29 (SB 29) into law, a significant legislative move aimed at increasing predictability in corporate governance litigation. This new law codifies the Business Judgment Rule, a legal doctrine designed to protect corporate directors from personal liability, as long as their decisions are made in good faith, with reasonable care, and in the best interests of the company. The bill takes effect immediately upon being signed by the governor.

The primary goal of SB 29 is to enhance legal certainty and reduce the exposure to litigation for corporate leaders in Texas. By implementing these changes, Texas seeks to position itself as a more attractive jurisdiction for business formation and governance. Commendation for this law came from Nasdaq, marking it as a notable milestone for corporate governance in the state.

SB 29 allows corporate directors to make decisions without the constant fear of personal liability, enabling them to focus on effectively managing their businesses. This legislation is expected to solidify Texas’s status as a prominent hub for capital formation and corporate investment.

Among the key features of SB 29 is the stipulation that Texas corporations can limit shareholder rights concerning the inspection of company records. This includes exclusions for requests related to emails, texts, and social media communications that do not pertain directly to corporate actions. Additionally, the law narrows the scope of shareholder derivative suits, requiring that participants own at least 3% of corporate stock, thereby limiting the ability of smaller shareholders to file claims against larger publicly-listed companies.

The law further empowers corporations to form independent committees of directors, tasked with reviewing transactions involving conflicts of interest with major shareholders. It also mandates that courts must determine the independence of these committees. Furthermore, the provisions of SB 29 permit corporations to include jury waiver clauses in their governance documents, which are enforceable against voters and shareholders.

Texas has experienced an uptick in business activity recently, highlighted by the establishment of a new Nasdaq regional headquarters in Dallas. This facility is projected to serve over 200 listed companies within the state and contribute substantially to revenue generation. The promotion of reforms like SB 29 aligns with the push for fair and efficient capital markets and the growth of corporate entities.

Governor Abbott emphasized the importance of continuous innovation for thriving business success, stating that SB 29 is a critical measure to secure Texas’s position as a leading state for business operations. The passage of this bill coincides with ongoing efforts to expand the jurisdiction of the Texas Business Court, which aims to further improve the business-friendly legal environment within the state.

As SB 29 begins its implementation, Texas is poised to attract more corporations seeking a favorable regulatory landscape, potentially changing the dynamics of corporate governance and legal protections for directors.