On May 14, 2025, Texas Governor Greg Abbott signed Senate Bill 29 (SB 29), which had been passed by the Legislature on May 7. The Bill, effective immediately, amends various provisions of the Business Organizations Code to make Texas a more attractive and predictable jurisdiction for entity formation and governance. That includes statutory reforms to enhance legal certainty for covered entities, reduce litigation exposure for corporate leaders, and ensure application of Texas law to internal governance disputes.
The Bill's most notable and significant reforms to the Texas Business Organizations Code (TBOC) are addressed below.
1. Codification of the Business Judgment Rule
SB 29 codifies the Business Judgment Rule — a common law doctrine that immunizes corporate directors from personal liability for decisions made in good faith, with reasonable care, and in the best interests of the corporation. The codification of this long-standing legal doctrine is intended to allow corporate decision makers to confidently deploy capital and focus on managing their businesses rather than worry about personal liability risks.
In effectuating the Business Judgment Rule, SB 29 implements the following statutory reforms, which apply to public companies listed on a national exchange and any other corporation that affirmatively elects to be bound.1
- The Bill creates a new Section 21.419 of the Business Organizations Code, which imposes a rebuttable presumption that corporate officers and directors act "(1) 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."
- To rebut the above presumption, a party bringing a claim against managerial persons of a corporation must prove that (1) the actions or omissions of the officer or director constituted a breach of duty to the corporation, and (2) the alleged breach involves "fraud, intentional misconduct, an ultra vires act, or a knowing violation of law."
- Akin to Rule 9(b) of the Federal Rules of Civil Procedure, a claimant alleging "fraud, intentional misconduct, an ultra vires act, or knowing violation of law" must state with particularity the circumstances constituting fraud (which is a material change to Texas pleading standards).
- The protections afforded under Section 21.419 above shall apply to all claims arising from alleged breaches of the duty of care, duty of loyalty, and any duties pertaining to corporate transactions with interested persons.
Notably, many future lawsuits — namely those involving public companies or $5 million in controversy — in which the now-codified Business Judgment Rule applies, can and should be litigated in the new Texas Business Court. See Tex. Gov't Code § 25A.004(b), (d).
2. Enhanced Liability Protections for Officers and Directors of Limited Partnerships
A new Section 152.002(e) of the Business Organizations Code provides a unique protection for limited partnerships. As amended, the statute now provides that "a limited partnership may eliminate any or all of the duty of loyalty under [TBOC] Section 152.205, the duty of care under Section 152.206, and the obligation of good faith under Section 152.204(b), to the extent the partnership agreement expressly provides so."
3. Enhanced Protections Against Derivative Shareholder Claims
The Bill imposes restrictive new provisions to limit abusive shareholder litigation. Most significantly, the law prohibits shareholders (or groups of shareholders) who beneficially own less than 3 percent of the corporate stock from bringing a derivative proceeding against publicly-listed companies or any other corporations (with 500 or more shareholders) that have opted into TBOC § 21.419. This new shareholder threshold requirement applies to all future derivative suits.
The new law also prevents plaintiffs' counsel from recovering attorney's fees in a derivative proceeding if the lawsuit's sole outcome is that the corporation provides "additional or amended disclosures . . . to shareholders, regardless of materiality."
To further bolster officer and director protections from claims arising from allegedly improper interested-party transactions, SB 29 further authorizes public companies and other opt-in corporations to form committees of independent and disinterested directors to review conflict transactions involving insiders. Corporations may petition the Texas Business Court, or district courts in some cases, for an adjudication of the independent and disinterested affiliation of any committee members. Any determination by the court of that issue shall be dispositive on the facts presented. If the corporation has already been sued, the court in which the lawsuit is pending must conduct an evidentiary hearing within 45 days (unless extended for good cause) as to whether the appointed officers and directors are indeed independent and disinterested.
4. Limitations on Shareholder Books and Records Requests
SB 29 provides a new limitation on shareholder books and records requests. Specifically, the statute precludes shareholders from submitting requests for emails, social media information, text messages or other similar electronic communications, unless the communication effectuates some corporate action.
The Legislature separately adds a new Section 21.218(b-2) to the Business Organizations Code that permits public corporations, and other opt-in corporations, to limit books and records requests during the pendency of an adversarial litigation or derivative proceeding against the company.
5. Mandatory Venue Provisions
The new law permits corporations to mandate in their governing documents that one or more courts in the state serve as the "exclusive forum and venue" for internal governance claims. This provides a strategic and potential economic benefit to corporations facing litigation in the state.
6. Waiver of Jury Trial Rights
A new Section 2.116 is added to the Business Organizations Code to allow domestic entities to include a jury waiver provision in their governance documents. The jury waiver will be enforceable against any person that votes for or ratifies the change. The jury waiver will also be enforceable against equity shareholders of a public company that continue to maintain their shares. Courts will otherwise continue to recognize existing forms of enforceable jury waivers against persons bringing an internal entity claim.
Conclusion
The bill's legislative author, Senator Bryan Hughes, has declared SB 29 as "groundbreaking legislation” that "will draw even more companies to Texas" by "ensuring that Texas businesses can confidently deploy capital . . . and adopting other common-sense provisions to let boards and shareholders focus on managing their business and not their legal risks." Additional legislation is currently pending before the State Legislature, to expand the jurisdiction and scope of the Texas Business Court, that, if passed, will further complement Texas's increasingly business-friendly laws and encourage companies to make Texas their home for business.
1 In addition to corporations, SB 29 adopts similar protections for limited liability companies and limited partnerships, as codified under new Sections 101.256 and 153.163 of the Business Organizations Code.
