Houston, Tex. (August 14, 2025) - In early March 2025, the Texas Legislature introduced Senate Bill 2117 and House Bill 5007 relating to the establishment of the Texas Committee on Foreign Investment ("TCFI") to review certain transactions involving certain foreign entities. The Texas Senate passed S.B. 2117 on March 28, 2025 with sweeping support, while H.B. 5007 was left pending in committee when the Texas Legislature ended its session on June 2, 2025. If H.B. 5007 passes, Texas will become the first state to screen foreign transactions, similar to federal-level CFIUS review.
The Committee on Foreign Investment in the United States ("CFIUS") is composed of heads of federal agencies and reviews certain transactions involving foreign investment in the U.S. to determine the effect of such transactions on national security. Similar to CFIUS, TCFI would consist of officers and heads of various state agencies. Under H.B. 5007, "foreign transactions" comprise mergers, acquisitions, leases, sales, or other transfers involving foreign entities that directly or indirectly control an interest in a business, real property, or other asset located in Texas. H.B. 5007 does not include a list of designated countries that the bill aims to target. The committee substitute for S.B. 2117, however, narrowed the definition of "foreign entities" to "scrutinized foreign entities," which include business entities organized in countries that are not signatories to trade agreements with the U.S.
The provisions establishing CFIUS provide the president and CFIUS with the authority to review transactions that could result in control of a U.S. business by a foreign person. Foreign transactions that are subject to TCFI review, on the other hand, would include transactions that (1) exceed a minimum dollar value or minimum ownership percentage set by the governor; and (2) affect a sensitive sector of the state, which includes (a) critical infrastructure, (b) agricultural land, (c) sensitive personal data of residents, or (d) a strategic industry or asset identified by the governor. The bill defines "critical infrastructure" broadly to include a number of systems, including energy, financial services, food and agriculture, government, and information technology. Though CFIUS has expanded its jurisdiction in recent years by elaborating on the list of factors that it considers when reviewing transactions for national security risks, H.B. 5007's definition of covered transactions is arguably more expansive.
While the CFIUS process is largely voluntary, if a transaction qualifies for TCFI review, parties to such transaction would be required to notify the Texas attorney general at least 90 days prior to the closing of the transaction. The attorney general would then complete an initial review within 30 days of receiving the notice and, if further investigation is warranted, a secondary investigation at least 45 days after the initial review. If deemed necessary by the attorney general, the parties to a covered transaction could be required to comply with certain requirements included in a "mitigation agreement" designed to alleviate security concerns, including data protection protocols, security clearance requirements, restrictions on access by foreign entities to assets included in the transaction, and compliance reporting. A party would violate the new Texas law if the attorney general determined that a covered transaction requires a mitigation agreement and the parties either enter into a transaction without executing a mitigation agreement or violate the mitigation agreement's terms. H.B. 5007 imposes civil penalties for violations of up to $50,000 per violation.
Key Takeaways
Though it is unclear when, or if, H.B. 5007 will pass, the passage of S.B. 2117 indicates strong support from the Texas Legislature for TCFI. Companies that are considering transacting in Texas with any foreign-owned entity, real property, or asset should be cognizant of the restrictions and requirements that future legislation could impose on such transaction, and factor the notification period and cost of compliance into the timeline and budget for the transaction. While the committee substitute for S.B. 2117 included a carveout to its application for transactions submitted to CFIUS, H.B. 5007 includes no such safeguard and it is unclear from the text of H.B. 5007 how TCFI would coordinate its reporting obligations with those of CFIUS. Companies that may be subject to both laws should thus be prepared to navigate both the federal and state regimes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
