News Summary
Texas Governor Greg Abbott has signed Senate Bill 29 into law, amending the Texas Business Organizations Code to enhance legal protections and reduce litigation risks for businesses. Key features include the introduction of the Business Judgment Rule, limitations on shareholder litigation, and the establishment of the Texas Business Court to address larger corporate disputes. The legislation aims to position Texas as a favorable hub for business operations, providing clearer governance structures and increased legal certainty. These reforms are expected to attract corporations seeking a business-friendly environment.
Texas – On May 14, 2025, Governor Greg Abbott signed Senate Bill 29 (SB 29) into law, marking a significant overhaul of corporate governance and business laws in the state. The Texas Legislature passed the bill on May 7, 2025, in a bid to attract more corporate entities and enhance the state’s business-friendly environment.
SB 29 introduces a series of amendments to the Texas Business Organizations Code (TBOC), targeting various aspects of corporate management and litigation practices. The legislation’s primary goals include enhancing legal certainty and reducing litigation risks for corporate leaders, particularly in internal governance disputes.
One of the most notable features of SB 29 is the codification of the Business Judgment Rule, which shields corporate directors from personal liability when they act in good faith for the best interests of the corporation. This rule will apply not only to public companies listed on national exchanges but also to any corporations that voluntarily choose to adhere to it.
The bill also introduces new litigation protocols for public companies. Any lawsuits exceeding $5 million will now be handled by the newly established Texas Business Court. This court aims to streamline the resolution of business disputes in the state, thereby enhancing the appeal of Texas as a jurisdiction for corporate formation.
Further provisions within SB 29 allow limited partnerships to opt-out of certain fiduciary duties, including loyalty, care, and obligations of good faith, thereby offering more flexibility in partnership agreements. Additionally, the legislation limits shareholder litigation by prohibiting individuals who own less than 3% of a company’s stock from initiating derivative proceedings against public companies.
Another crucial aspect of SB 29 is its restrictions on attorney’s fees in derivative cases that only yield additional disclosures to shareholders. This change is designed to deter frivolous lawsuits, focusing on more substantive corporate governance issues.
Corporations are now able to form committees of independent directors to review transactions involving insiders. These transactions can be brought before the Texas Business Court for adjudication. This provision is expected to foster responsible decision-making within corporations while ensuring appropriate oversight of insider dealings.
To further streamline corporate governance, SB 29 limits requests for corporate books and records. Entities may now exclude requests for communications such as emails and social media, except when directly related to corporate actions. Moreover, corporations can designate specific courts in Texas as exclusive venues for internal governance claims, which can also provide clarity and predictability for corporate disputes.
The bill allows for the inclusion of jury waiver provisions in corporate governing documents, which would be enforceable against individuals who consent to these changes. This is another step intended to simplify the resolution of internal disputes while providing companies with legal protections against unpredictably costly jury trials.
The author of the bill, Senator Bryan Hughes, emphasizes that SB 29 represents groundbreaking legislation aimed at enhancing Texas’s competitive edge in corporate law. The changes are intended to mirror aspects of Delaware’s well-established corporate framework, which is long recognized for its favorable business climate.
Additional legislation is on the horizon, which will further extend the jurisdiction of the Texas Business Court, complementing the reforms outlined in SB 29. These anticipated changes will provide similar protections for limited liability companies and limited partnerships, enhancing the overall legal framework for various business entities in Texas.
As SB 29 takes effect, its implications for corporate governance and litigation risk will be closely observed, particularly by public corporations incorporated within the state. Lawmakers assert that the reforms will streamline the resolution of business disputes and encourage companies to strengthen their presence within Texas, enriching the state’s corporate landscape.
Deeper Dive: News & Info About This Topic
- Foley: Newly Filed Legislation Positions Texas as Leading State for Incorporations
- Norton Rose Fulbright: Senate Bill 29 on Track to Further Texas Push as Business Hub
- National Law Review: Texas Governor Signs New Business-Friendly Governance Law
- Business Insider: Texas Bills Are Big Wins for Business and Activist Investors
- Wikipedia: Texas Business Organizations Code
