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New Section 21.373 of the Texas Business Organizations Code ("TBOC") went into effect on September 1, 2025, providing certain publicly traded corporations with a powerful new tool to limit the ability to submit shareholder proposals to those meeting specific ownership thresholds. In enacting this law, Texas aims to benefit not only the corporations themselves but also their broader shareholder base by streamlining governance and sharpening management's focus on long-term value creation. The law seeks to focus shareholder meetings on proposals from investors with a meaningful, sustained financial interest in the company.
For companies considering relocation or exchange listing in Texas, the message is clear: Texas is committed to providing a legal framework that supports growth, efficiency, and management flexibility.
The law applies to "nationally listed corporations," defined as corporations with equity securities registered under Section 12(b) of the Exchange Act and either headquartered in Texas or listed on a Texas-based stock exchange. Importantly, TBOC Section 21.373 establishes an opt-in regime. Corporations that wish to take advantage of the law must amend their certificate of formation or bylaws and disclose the change through their proxy statements.
Once corporations opt in—by amending their bylaws and making the required disclosures—they may impose the following requirements on shareholder proposals (excluding director nominations and certain procedural items for the meeting):
- Ownership stake: At least $1 million in voting shares or 3% of the company's voting stock.
- Holding period: Continuous ownership of those shares for at least six months leading up to the shareholder meeting.
- Solicitation requirement: Solicitation of shares representing at least 67% of the voting power entitled to vote on the proposal.
TBOC Section 21.373 provides tangible benefits for companies focused on long-term performance and operational efficiency:
- Streamlined Governance: By setting higher thresholds, companies can focus annual meetings on proposals backed by investors with significant, sustained financial interests. This may help filter out "trojan horse" proposals by activists who buy shares in a corporation to pursue a political agenda or other initiatives that may otherwise consume resources without reflecting the priorities of the broader shareholder base.
- Fewer Single-Issue Proposals: Texas corporations adopting these provisions may be less likely to receive short-term or single-issue proposals, allowing directors and executives to devote more timeto strategic planning, capital allocation, and operational priorities.
- Investor Alignment: The new standards encourage engagement with shareholders who are most invested—literally and figuratively—in the company's growth and stability.
The adoption of TBOC Section 21.373 is not the only recent legislative move aimed at attracting corporations. Texas has also launched specialized business courts designed to handle complex commercial disputes. In addition, the 2025 Texas legislative session also passed SB 29 and SB 2411 to effect a number of additional important updates to the TBOC we have discussed previously, most notably to codify the Business Judgment Rule, permit waiver of jury trial for internal affair claims, allow for exclusive forum provisions in a corporation's governing documents, narrow books and record request rights, and provide judicial procedures to pre-approve the independence of a special committee.
Together, these legislative actions and the creation of business courts underscore Texas's intent to compete directly with Delaware as a business-friendly jurisdiction for incorporation. Combined with the state's other advantages—no corporate income tax, a central geographic location, and a booming business ecosystem—Texas is an increasingly attractive jurisdiction for corporations evaluating their incorporation options.
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