Texas Enacts New Pro-Business Law to Expand Its Appeal as a Hub for Business Incorporations
On May 14, 2025, Gov. Greg Abbott (R-TX) signed Texas Senate Bill 29 (SB29) into law. This legislation introduces notable amendments to the Texas Business Organizations Code (TBOC) and is part of a broader strategy to encourage more businesses to incorporate—or re-incorporate—in Texas.
SB29 seeks to provide clarity and predictability to companies doing business under the TBOC. Among its key provisions are the codification of important corporate doctrines, such as the business judgment rule, and the creation of a mechanism allowing companies to have their directors’ independence determined in advance of a transaction. The law is effective immediately and is expected to influence how public companies incorporated in Texas manage corporate transactions and fiduciary duties.
Complementing this legislative initiative, Texas also launched the new Texas Business Court on September 1, 2024. These specialized courts, staffed by judges with expertise in complex commercial matters, represent a significant step toward building a robust business law infrastructure in the state. While Texas’s business courts are still in the early stages of developing their own body of precedent under the TBOC, they offer an opportunity for litigants to help shape emerging interpretations of Texas corporate law.
This initiative comes at a time when corporate governance trends are evolving across the United States. Notably, recent high-profile decisions from the Delaware Court of Chancery have stirred debate around the role of judicial oversight in corporate transactions. For example, in Tornetta v. Musk, 310 A.3d 430 (Del. Ch. 2024), the court applied heightened entire fairness scrutiny to invalidate a $56 billion compensation package approved for Elon Musk. Similarly, In re Match Group Inc. Derivative Litig., 315 A.3d 446 (Del. 2024), extended entire fairness scrutiny to transactions involving controlling shareholders. In response to criticism of such scrutiny, the Delaware General Assembly recently enacted statutory amendments that offer management-friendly safe harbors for transactions involving interested directors, officers or controlling stockholders—so long as certain cleansing mechanisms are met. These changes aim to provide greater legal certainty to Delaware corporations.
Similarly, SB29 and the creation of the Texas Business Court reflect Texas’s broader initiative to offer a compelling legal environment for businesses—one that attempts to emphasize front-end clarity—while contributing to the national dialogue on corporate governance frameworks and judicial review of corporate transactions.
Highlights of the New Texas Business Law Include:
- Codification of the business judgment rule. SB29 formally codifies the “business judgment rule” in Texas providing corporate directors with a safe harbor from personal liability for business decisions that are (1) made in good faith, (2) on an informed basis, (3) in furtherance of the interests of the corporation, and (4) in obedience to the law and the corporation’s governing documents (i.e., certificate of formation, bylaws or other agreements adopted under the TBOC). It also creates a presumption that governing directors and officers have acted in accordance with those requirements, meaning plaintiffs have the burden to prove their claims for breach of fiduciary duty in any derivative litigation. This presumption applies only to a corporation that has (a) a class or series of voting shares listed on a national securities exchange, or (b) included a statement in its governing documents affirmatively electing to be governed by this provision. The law enacts similar provisions for LLCs and limited partnerships (LPs). While Delaware recognizes the business judgment rule, its version is primarily a creature of common law, not statute, and may be easier to modify through case-by-case development as a result.
- Permitting establishment of a minimum ownership threshold for derivative lawsuits. SB29 permits publicly listed corporations (or those that have opted in and have 500 or more shareholders) to set minimum ownership percentages (not more than 3% of outstanding shares) required for a shareholder to bring a derivative lawsuit. This threshold requirement is not automatic, however, and must be identified in the corporation’s certificate of formation or bylaws at the time the derivative suit is initiated. By contrast, Delaware law does not impose any sort of ownership thresholds in relation to who may initiate a derivative proceeding.
- Implements a novel mechanism for courts to determine director independence early on in disputes. A corporate board’s designation of an independent special committee to handle sensitive or significant transactions (including conflicted transactions) and internal matters—and whether those committee members were actually impartial—is often at issue in derivative litigation. Unlike Delaware, where courts typically assess director independence during litigation as part of the demand futility analysis or in evaluating the fairness of transaction that has already been approved, SB29 allows corporations to ask the court (either the Texas Business Court or the district court in the county of the corporation’s principal place of business) to assess the special committee members’ independence and disinterestedness prior to a proposed transaction and before the issue is raised in any subsequent derivative suit.
- Restricts the scope of permissible books and records requests. SB29 extends the state’s restrictions on the ability of shareholders to access corporate books and records. In addition to the prior limitation of such access to shareholders who (a) have held shares for a minimum of six months, or (b) hold at least 5% of a corporation’s issued and outstanding shares, SB29 goes further by exempting e-mail communications, text messages or similar electronic communications, and information from social media accounts from shareholder books and records requests, meaning that with limited exception where these communications effectuate an action by the corporation, shareholder inspections rights are likely to be limited to more formal documents and communications when subject to discovery. This provision is even more stringent than a newly amended Delaware law, Senate Bill 21, which permits discovery of e-mail, text messages and similar informal communications when the formal materials are otherwise unavailable and the shareholder can demonstrate a compelling need for the information. In addition, SB29 also permits public corporations (and those corporations who elect to be governed by the codified business judgment rule) to limit books and records requests during an active or pending derivative proceeding against the corporation by the requesting shareholder or a proceeding where the corporation (or one or more of its affiliates) and the shareholder are expected to be named as adversarial parties.
- Permits companies to establish exclusive venue in Texas. The new law allows corporations to specify in their governing documents whether the Texas Business Court and/or other Texas court will serve as the exclusive venue for resolving any disputes, resulting in mandatory application of Texas’s favorable business code provisions. This is similar but not identical to Delaware law, which allows Delaware corporations to include favorable forum selection clauses in their charters and bylaws.
- Authorizes companies’ elimination of the right to a jury trial. SB29 extends to Texas corporations (as well as LLCs and LPs) the ability to include a waiver of the right to a jury trial in their governing documents. Under the statute, such waivers are deemed “informed” and enforceable against (1) shareholders who affirmatively vote in favor of the waiver, and (2) shareholders who retain their equity after adoption of the waiver provision
This reform attempts to align Texas more closely with proceedings in the Delaware Court of Chancery, where jury trials are unavailable absent a referral of factual issues to the Superior Court. See 10 Del. C. § 369. However, Texas presents a constitutional wrinkle: the Texas Constitution expressly guarantees the right to a jury trial in civil cases, declaring it “shall remain inviolate.” Tex. Const. art. I, § 15; art. V, § 10.
While the Texas Supreme Court has upheld contractual waivers of the jury right when made knowingly and voluntarily, see In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 133 (Tex. 2004), it has not addressed whether a waiver implemented through shareholder voting satisfies that standard. In short, SB29 potentially tees up a state constitutional question: whether a shareholder’s affirmative vote—or continued ownership following adoption—constitutes a knowing and voluntary waiver of a fundamental right under Texas law. - Restricts recovery of attorney’s fees in disclosure-only settlements. SB29 prohibits the recovery of attorney’s fees when resolution of the dispute results solely in a corporation’s simply providing additional or amended disclosures to shareholders. This provision, which aims to deter non-substantive derivative lawsuits, means that a plaintiff’s attorney cannot recover fees even if successful in obtaining supplemental or amended disclosures. This change is in line with the shift in Delaware common law, where courts have increasingly viewed disclosure-based settlements with skepticism given their minimal benefit to corporate shareholders, a change that started with In re Trulia, Inc. Stockholder Litigation, C.A. No. 10020-CB (Del. Ch. Jan. 22, 2016).
Bottom Line
Texas’s new law is an effort to create a more predictable and business-friendly environment in Texas by attempting to limit the costs associated with the defense of frivolous derivative suits and by protecting the good faith business decisions of company directors and officers.
Given the relatively limited body of case law on which the new Texas Business Court currently has to rely on, it will be interesting to see how the first series of decisions applying the new provisions will set the playing field for Texas business going forward.
Our experienced team of Akin business litigators and transactional attorneys will be monitoring these developments closely. Please do not hesitate to reach out with any questions.
