News Summary
Governor Greg Abbott has signed a transformative law known as S.B. 29, which revamps the Texas Business Organizations Code. This new legislation strengthens protections for corporate directors, clarifies fiduciary duties, and narrows shareholder rights regarding access to corporate records. It also provides flexibility in voting rights and establishes independent committees to oversee significant transactions. These updates aim to enhance Texas’s reputation as a favorable state for incorporation and improve corporate governance, in competition with business-friendly states like Delaware.
AUSTIN, Texas — On May 14, 2025, Texas Governor Greg Abbott signed into law Senate Bill 29 (S.B. 29), a significant overhaul of the Texas Business Organizations Code (TBOC) aimed at reinforcing corporate governance and attracting more public and private companies to incorporate in Texas. The law introduces crucial reforms that bolster defenses against meritless lawsuits and fine-tune corporate governance standards, making the Lone Star State a more desirable location for company incorporation.
S.B. 29 is crafted to protect Texas corporations from nuisance litigation, clearly validating the choice of Texas courts as the exclusive venue for internal corporate disputes. This measure provides companies with greater certainty regarding the obligations and standards of care that directors and officers owe to their corporations. Under the new law, public and private corporations in Texas must update their certificates of incorporation or bylaws to adopt some of the provisions outlined in the legislative changes.
A particular highlight of S.B. 29 is the codification of the business judgment rule, which presumes that corporate directors act with knowledge, in good faith, and in the best interests of the corporation. This codification means that Texas courts are less likely to apply heightened scrutiny standards commonly seen in Delaware courts, such as enhanced scrutiny or entire fairness, when reviewing board decisions.
As part of the reforms, the burden of proof on claims alleging breaches of fiduciary duty has shifted to plaintiffs. These plaintiffs must now provide evidence that specifically rebuts the business judgment rule and demonstrates wrongdoing, such as fraud or intentional misconduct. Consequently, the new law is designed to discourage frivolous lawsuits aimed at corporate directors.
Furthermore, S.B. 29 restricts the rights of shareholders concerning access to corporate books and records, particularly limiting access to emails, text messages, and social media communications unless they pertain directly to corporate actions. It has redefined what qualifies as a “proper purpose” for inspecting records, excluding derivative lawsuits from this classification.
The legislation also paves the way for public Texas corporations to form committees of independent directors responsible for reviewing transactions involving controlling shareholders, directors, or officers. This committee has the authority to seek court approval for its members’ independence, enhancing checks on potentially conflicted transactions.
In conjunction with these measures, the law asserts that additional disclosures from derivative lawsuits do not constitute a “substantial benefit” to corporations, thereby influencing the recovery of attorney fees in such cases. Moreover, S.B. 29 increases the flexibility for corporations in structuring voting rights for share classes, eliminating the requirement of separate class voting on essential corporate actions.
The sweeping changes represented by S.B. 29 are part of Texas’s broader initiative to position itself competitively against Delaware, a state renowned for its corporate-friendly environment. The introduction of specialized Texas Business Courts aligns with this objective, aiming to enhance corporate governance and streamline legal processes within the state.
Business leaders and industry experts, including those from Nasdaq, have hailed S.B. 29 as a pivotal move for corporate governance in Texas. It is expected to enhance the state’s economic growth potential and improve the investment climate, making Texas an attractive destination for new corporate formations.
The immediate applicability of the law encourages companies to evaluate their structure and operations in light of the new regulations, presenting opportunities for strategic restructuring. As S.B. 29 takes effect, its impact on the corporate landscape in Texas will be closely examined by legal and business communities alike.
Deeper Dive: News & Info About This Topic
- Financial Regulatory News
- Vinson & Elkins LLP
- Dykema
- Nasdaq
- Wikipedia: Texas Business Organizations Code
