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.
Texas has taken a significant step in enhancing its business environment with the recent enactment of Senate Bill 29, signed into law by Governor Greg Abbott on May 14, 2025. This new legislation aims to revamp the Texas Business Organizations Code (TBOC), positioning the state as a more attractive option for both public and private companies looking to incorporate.
Senate Bill 29 (S.B. 29) introduces several key reforms that will strengthen defenses for Texas corporations against frivolous lawsuits, minimizing litigation risks for directors and officers. One of its crucial features is the codification of the business judgment rule. This provision assumes that corporate directors make informed decisions in good faith, believing their actions are in the corporation’s best interests. As a result, Texas courts are less likely to apply heightened scrutiny to board actions—a practice common in Delaware courts.
In addition to bolstering director protections, the law clarifies that plaintiffs bear the burden of proof in fiduciary duty breach claims. To succeed, plaintiffs must disprove the business judgment rule and demonstrate specific wrongdoings, such as fraud or intentional misconduct. This change puts a heavier onus on shareholders who might seek to challenge corporate governance decisions.
S.B. 29 also modifies shareholder rights concerning the inspection of corporate records. Specifically, it narrows the rights of shareholders to access emails, texts, and social media communications, allowing such access only if the materials relate directly to corporate actions. Furthermore, the bill revises the definition of a “proper purpose,” disallowing derivative lawsuits from qualifying for record inspections.
The legislation introduces flexibility in structuring voting rights for various share classes by eliminating the need for separate class voting on essential corporate decisions. This feature can facilitate more streamlined governance for corporations operating in Texas.
Another important provision of S.B. 29 allows public Texas corporations to establish committees of independent directors tasked with reviewing transactions involving controlling shareholders, directors, or officers. These committees can seek court approval concerning their members’ independence, further reinforcing corporate governance measures.
The law also specifies that additional disclosures required due to derivative lawsuits do not constitute a “substantial benefit” to corporations, which could impact attorney fee recoveries from these lawsuits. These alterations are designed to reduce the number of nuisance suits filed against Texas corporations and enhance overall business stability.
Moreover, the reforms align with the recent establishment of specialized Texas Business Courts, a move that confirms Texas’s commitment to improving the legal infrastructure for businesses. Together, these enhancements position Texas as a stronger competitor against Delaware, historically known for its favorable corporate laws.
The impact of S.B. 29 has already elicited positive feedback from business leaders, including representatives from Nasdaq. They view the legislation as a milestone in advancing corporate governance within the state, predicting that it will bolster Texas’s economic growth potential and investment climate.
For companies looking to take advantage of the reforms, the law is immediately effective, urging them to evaluate restructuring opportunities under the new regulations. Public and private corporations incorporated in Texas are now required to amend their certificates of incorporation or bylaws to opt-in to some of the provisions set forth by S.B. 29, further emphasizing the law’s influence on corporate practices within the state.
In summary, Texas is actively transforming its corporate governance landscape with the introduction of Senate Bill 29. The law not only strengthens protections for directors but also aims to reduce litigation risk, streamline corporate governance, and enhance the state’s attractiveness as a location for incorporation. This legislative measure marks a significant shift in Texas’s approach to business law and governance, fostering a more dynamic environment for corporations operating in the Lone Star State.
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- Financial Regulatory News
- Vinson & Elkins LLP
- Dykema
- Nasdaq
- Wikipedia: Texas Business Organizations Code
