News Summary
Texas has enacted significant reforms to its business regulations with the passage of Senate Bill 29 (SB 29), aimed at making the state more attractive for business incorporation. The new laws establish a more protective legal framework for directors and officers, streamline legal processes, and create a predictable environment for businesses to thrive. With increased powers for boards and limitations on frivolous lawsuits, Texas is positioning itself as a competitive alternative to Delaware for companies looking to incorporate.
Texas—On May 14, 2025, Texas Governor Greg Abbott signed into law Senate Bill 29 (SB 29), implementing significant changes to the Texas Business Organizations Code (TBOC). These reforms are designed to enhance Texas’s attractiveness as a state for business incorporation, particularly in light of new competition from Delaware, which has recently benefited from pro-management reforms following the “DExit” movement.
SB 29 seeks to foster a more predictable and business-friendly legal atmosphere for companies operating in Texas. Key elements of this new legislation include the codification of the business judgment rule, which provides a strong legal presumption that directors and officers act in good faith and with the company’s best interests in mind. Furthermore, shareholders contesting corporate decisions will need to allege specific instances of fraud, misconduct, or legal violations, marking a significant tightening of legal standards.
The new law also allows corporate boards to form independent subcommittees that can seek court rulings on their independence concerning conflict-of-interest transactions. These court decisions will be binding, unless compelling contrary evidence is presented. Additionally, under SB 29, all internal claims—including derivative lawsuits—must be filed exclusively in Texas courts, reinforcing the state’s position as a premier site for business litigation.
Another important provision permits governing documents to include enforceable waivers of jury trials for internal entity claims without individual signatures, simplifying the legal landscape for corporations. The legislation further distinguishes between corporate records and personal communications by excluding emails, texts, and social media from corporate documentation unless they are directly related to corporate activities. It also reduces shareholders’ rights to inspect documents during ongoing litigation or derivative proceedings, alleviating some legal burdens for companies.
Additional Provisions and Implications
For public companies or those with more than 500 shareholders that choose to adopt the business judgment rule, SB 29 allows these entities to establish a minimum ownership threshold, up to 3%, for initiating derivative actions. This provision is aimed at curtailing the prevalence of lawsuits launched by minority shareholders. Additionally, the law prohibits fee awards in cases where the only relief sought pertains to supplementary corporate disclosures, effectively discouraging low-value lawsuits that may impose significant costs on businesses.
These measures are not exclusive to traditional corporations; they apply to Texas limited liability companies (LLCs) and limited partnerships as well. The law went into effect immediately upon the governor’s signing, having achieved a supermajority in both legislative chambers.
Texas’s Legal Landscape
The enactment of SB 29 follows the recent introduction of SB 1057, which imposes stricter requirements on shareholder proposals within nationally listed corporations that have ties to Texas; this new legislation may face legal challenges. Additionally, in a move to further bolster the state’s position in complex commercial disputes, Texas launched the Texas Business Court on September 1, 2024, enhancing its jurisdictional capabilities.
The intention behind these legislative changes is clear: to decrease the costs associated with defending against frivolous derivative lawsuits while safeguarding the good faith decisions made by corporate officers and directors. These reforms mirror a broader trend among states striving to create favorable legal frameworks that attract and retain businesses.
In conclusion, the legislative reforms represented by SB 29 are a significant step for Texas in strengthening its business environment. By creating a more favorable legal climate for corporations, Texas aims to compete effectively with other states like Delaware, enhancing its reputation as a sought-after jurisdiction for corporate incorporation.
Deeper Dive: News & Info About This Topic
- Akin Gump: Texas Enacts New Pro-Business Law
- Wikipedia: Texas Business Organizations Code
- Dykema: Corporate Law Overhaul in Texas
- Google Search: Texas business law reforms
- National Law Review: Texas Adopts Significant Corporate Law Reforms
- Encyclopedia Britannica: Business
- Vinson & Elkins: Texas Corporate Governance Reforms
- Semafor: Texas Business Law Overhaul
