News Summary
Texas Governor Greg Abbott has signed a significant new law, Senate Bill 29, which enhances corporate governance and entrepreneurial opportunities in the state. The legislation introduces the Business Judgment Rule, protecting corporate directors from personal liability while making good faith decisions. This move aims to solidify Texas as a business-friendly environment, with new measures to reduce litigation risks and manage internal governance disputes. The adjustments are designed to maintain privacy for companies and streamline shareholder interactions, marking a notable shift in Texas’ corporate landscape.
Texas—On May 14, 2025, Texas Governor Greg Abbott signed Senate Bill 29 (SB 29) into law, marking a significant shift in the legal landscape governing corporate entities in the state. The bill, which was passed by the Texas Legislature on May 7, 2025, is effective immediately and implements various amendments to the Texas Business Organizations Code (TBOC).
The primary aim of SB 29 is to enhance Texas’s appeal as a favorable jurisdiction for business formation and governance. The legislation introduced several reforms designed to reduce litigation risks for corporate leaders, while bolstering the legal certainty that companies seek in their operational decisions.
One of the noteworthy changes brought about by SB 29 is the codification of the Business Judgment Rule. This rule provides protection for corporate directors, shielding them from personal liability for decisions made in good faith, with reasonable care, and in the best interests of the corporation. The codification allows corporate decision-makers to concentrate on effectively managing their businesses without the looming fear of personal legal repercussions.
The Business Judgment Rule is not only applicable to publicly traded companies on national exchanges but also extends to any corporations that opt to adopt this rule. Additionally, the new law allows for lawsuits involving public companies or cases with over $5 million in controversy to be litigated in the newly established Texas Business Court, contributing to a more business-friendly environment.
SB 29 imposes limitations on shareholder litigation, specifically barring shareholders or groups owning less than 3% of a company’s stock from initiating derivative proceedings against public companies or those with more than 500 shareholders. This is aimed at curbing what has been viewed as abusive shareholder litigation. Furthermore, the law prohibits plaintiffs’ counsel from recovering attorney’s fees in derivative actions if the result only leads to additional or amended disclosures to shareholders, regardless of the material significance.
The bill also introduces provisions that permit public corporations to form independent committees to review transactions involving insiders that may pose conflicts of interest. Corporations can seek a court’s determination regarding the independence of these committee members. Additionally, the law places restrictions on shareholder requests for corporate books and records, particularly limiting access to emails and similar communications unless they are directly tied to corporate actions.
Corporations are granted the ability to restrict access to books and records requests during ongoing litigation or derivative proceedings. Furthermore, SB 29 allows companies to designate Texas-controlled courts as the sole venue for internal governance claims. Domestic entities are allowed to incorporate jury waiver provisions into their governing documents, which would be enforceable against parties who vote for or ratify those changes.
Senate Bill 29 has been characterized as “groundbreaking legislation” by its author, Senator Bryan Hughes. The reforms are anticipated to instill greater confidence in businesses, thereby encouraging corporations to establish their headquarters and operations within Texas.
Supporting efforts to bolster the state’s business climate, additional legislative measures to broaden the jurisdiction and scope of the Texas Business Court are currently being considered in the State Legislature. This signals ongoing support and commitment to developing Texas as a leading business hub.
The introduction of SB 29 promises to be a turning point in corporate governance in Texas, presenting a framework that prioritizes legal security and mitigates risks for corporate leaders, while aiming to attract more companies to the state’s favorable business environment.
Deeper Dive: News & Info About This Topic
- Nasdaq: Supports Texas Senate Bill 29
- Foley: Passage of Senate Bill 29
- KVUE: Texas Governor Abbott Signs Bills
- National Law Review: Texas Governor Signs New Business-Friendly Law
- GuruFocus: Nasdaq Applauds Signing of Senate Bill 29
