On May 14, 2025, Texas Governor Greg Abbott signed Senate Bill 29 (S.B. 29) into law, aiming to attract more entities to form in and relocate to Texas. The bill amends the Texas Business Organizations Code to enhance legal protections and provide greater predictability in entity formation and governance.
Codification of the Business Judgement Rule
One of the law's most significant reforms is the codification of the business judgment rule—a legal principle that immunizes corporate directors from personal liability for good faith decisions made with care in the best interest of their corporations. This codification allows directors and corporate decision-makers to confidently make decisions and focus on running their businesses rather than worry about personal liability.
The bill creates a new section of the Business Organizations Code which presumes that a director or office acted:
- in good faith
- on an informed basis;
- in furtherance of the interest of the corporation; and
- in obedience to the law and the corporation's governing documents.
Under this new framework, the plaintiff now bears the burden of proving any claims against a corporation's directors. This reform increases certainty for business leaders making and executing business decisions while still allowing valid claims to move forward.
To succeed on a claim, shareholders must now rebut this presumption and prove that the director's or officer's breach of duty was fraudulent or intentional. This presumption automatically applies to limited liability companies and limited partnerships that are on a national stock exchange.
Additionally, the new Texas law enhances protections for officers and directors of limited partnerships. A new provision in the Business Organizations Code allows a limited partnership agreement to eliminate any or all of the duty of loyalty, the duty of care, and the obligation of good faith, provided that the agreement expressly does so.
Limitations on Shareholders
The new law also aims to curb abusive shareholder litigation by prohibiting shareholders who own less than three percent of the corporation's stock from bringing a derivative proceeding against a publicly traded company or other corporation. This threshold requirement applies to all future suits.
The new law also restricts shareholder access to books and records by precluding shareholders from submitting requests for various records unless the communications brought about some official corporate action. Moreover, a new section of the Business Organizations Code now permits public corporations to limit such requests during adversarial litigation or derivative action.
Venue and Jury Waiver Provisions
This law gives corporations greater control over legal proceedings. It allows corporations to establish an exclusive venue—such as the Texas Business Court or another Texas court—in their governing documents. Additionally, corporations can now waive jury trials in governing documents for internal disputes.
Conclusion
The new law significantly reforms Texas corporation law, reducing litigation risks to companies, especially public ones, incorporated in the state. The law strengthens protections for corporate leaders, streamlines the resolution of corporate disputes, and grants more control over corporate litigation through jury waivers and venue selection. These reforms reinforce Texas's position as an attractive state for incorporation.
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