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Texas Enacts New Corporate Governance Law

News Summary

Governor Greg Abbott has signed Senate Bill 29 into law in Texas, introducing the Business Judgment Rule to enhance corporate governance. This legislation will protect corporate directors from personal liability, enabling them to make decisions confidently. The law aims to improve the business climate by reducing frivolous lawsuits and encouraging investment. With stricter requirements for legal claims and limitations on shareholder litigation, Texas is poised to become a more attractive destination for businesses. As companies like Nasdaq establish regional operations in Texas, this law reinforces the state’s commitment to creating a vibrant corporate ecosystem.

Texas has enacted significant legislation aimed at enhancing corporate governance and fostering business growth. On May 14, 2025, Governor Greg Abbott signed Senate Bill 29 (SB 29) into law, marking a pivotal moment in the state’s legal framework for corporations. The legislation introduces measures intended to provide greater legal predictability for corporate decisions, ultimately positioning Texas as a competitive jurisdiction for business incorporation.

SB 29 codifies the Business Judgment Rule, a principle designed to protect corporate directors from personal liability regarding decisions made in good faith and with due care. This legal protection is expected to encourage informed decision-making within corporate boards without the constant fear of litigation. According to Nasdaq, which expressed support for the bill following its passage through the Texas Legislature on May 7, 2025, this enhancement of corporate governance represents a significant milestone for Texas.

The bill imposes new requirements for public companies and corporations that opt to adopt the Business Judgment Rule. It states that plaintiffs must demonstrate claims of breaches of fiduciary duty with specific details, increasing the burden of proof in litigation. Additionally, SB 29 seeks to limit shareholder litigation by establishing a minimum ownership threshold of 3% of corporate stock necessary to bring derivative lawsuits against public companies. This provision is anticipated to reduce frivolous lawsuits that can distract from company operations.

Further provisions within SB 29 allow corporations to restrict shareholder requests for access to corporate books and records during ongoing litigation, thereby protecting sensitive business information. The law also enables companies to define exclusive venues for legal claims and to waive jury trials for internal disputes through their governance documents. These measures are believed to streamline the litigation process for corporations operating in Texas.

Nasdaq, which recently fortified its presence in Texas by opening a new regional headquarters in Dallas, expressed that the changes brought about by SB 29 align with its mission to support robust, efficient, and equitable capital markets. Currently, Nasdaq backs over 200 listed companies within the state and generates more than $750 million in revenue, indicating the economic impact of the firm in the region. Nasdaq has established partnerships with around 800 clients in Texas, contributing to a broader client base of 2,000 in the Southeastern United States.

The enactment of SB 29 is not simply a legal adjustment but part of a larger initiative to bolster Texas as a prime location for corporate formation, aiming to rival the established corporate governance framework of Delaware. The anticipated outcomes of this legislation could include an environment where corporations can confidently engage in capital investments without the burden of excessive legal liabilities. This confidence is crucial for fostering innovation and attracting new businesses to the state, ensuring Texas’s continued growth as a key player in the national economy.

In summary, with the signing of Senate Bill 29 into law, Texas is poised to enhance its corporate governance, reduce shareholder litigation, and attract new business opportunities. These measures reflect an ongoing commitment by Texas to create a favorable regulatory environment that supports companies in making strategic decisions without fear of undue legal retribution.