Newly Filed Legislation Positions Texas as a Leading State for Incorporations

On February 27, 2025, Senate Bill No. 29 was filed in the Texas Legislature to introduce a series of corporate reforms that aim to make Texas the preferred jurisdiction for legal domestication. This bill proposes a series of amendments to the Texas Business Organizations Code that would increase the certainty for how corporate decision-making is reviewed by the courts.

A companion, House Bill 15, has also been filed.

Key Provisions of S.B. 29

1. Fundamental Reforms

The two most significant amendments effected by S.B. 29 are the codification of the so-called “business judgment rule” and the permission for Texas corporations to adopt an ownership threshold that must be met for derivative claims.

• Codifying the Business Judgment Rule: The business judgment rule is a common law concept in effect in most states providing that directors are not held personally liable for decisions made in good faith and with reasonable care, provided the decisions were made in the best interests of the company. S.B. 29 codifies the business judgment rule and reforms it so that a plaintiff bears the burden to prove any claim for breach of fiduciary duty.  This limits the ability of artful pleading to undo the protections of the common law rule and offers shareholders and their elected directors greater certainty in making and executing business decisions. [Bill Section 10; proposed new Business Organizations Code Section 21.419]
• Protecting Business Decisions from Opportunistic Legal Claims: The bill proposes reforms to shield businesses from meritless, distracting lawsuits. Key provisions include:
  • Requiring a minimum ownership percentage before a shareholder can pursue a derivative lawsuit. [Bill Section 11; proposed amendment to Business Organizations Code Section 21.551(2)]
  • Prohibiting the recovery of attorney’s fees in cases where a derivative lawsuit results in a “disclosure-only” settlement (which often resolves without substantive changes). [Bill Section 14; proposed amendment to Business Organizations Code Section 21.561]
  • Allowing companies to seek an upfront determination from a judge regarding the independence of directors serving on special committees before those directors are called into question as part of a derivative claim. [Bill Sections 7 and 8; proposed amendment to Business Organizations Code Section 21.416 (reviewing transactions), and new Section 21.4161 (special litigation committees)

2. Additional Provisions

In addition to the provisions described above, S.B. 29 contains the following:

a) Exclusive Venue for Internal Disputes: Companies will be able to specify in their governing documents that the Texas Business Court or another particular court in Texas will serve as the exclusive venue for resolving internal disputes.  [Bill Section 3; proposed amendment to Business Organizations Code Section 2.115(b)].

b) Waiver of Jury Trials for Internal Disputes: Corporations will be able to join LLCs and LPs in including a waiver of jury trial in their governing documents for internal disputes. [Bill Section 4; proposed new Business Organizations Code Section 2.116].

c) Clarification of Texas Business Law: S.B. 29 provides that the Texas Business Organizations Code is not subject to the interpretation of laws or judicial decisions from other states. [Bill Section 2; proposed new Business Organizations Code Section 1.056].

d) Keeping Filing Date for Corrected Filing: S.B. 29 provides that a company can correct a filing rejected by the Secretary of State and still keep the initial date of filing. [Bill Section 5; proposed amendment Business Organizations Code Section 4.051]

e) Restricting books and records requests. The bill provides that emails and similar communications are not generally corporate books and records and that books and records requests cannot be used to replace discovery in certain actions. [Bill Section 6; proposed amendment to Business Organizations Code Section 21.218]

What Does This Mean for Public Companies?

S.B. 29 contains significant changes to Texas law that could materially affect the governance of and litigation risk to companies, especially public companies, incorporated in Texas. By strengthening the legal protections for business leaders, ensuring the expeditious resolution of corporate disputes, and offering more control over corporate litigation, the bill, if passed, would make Texas an increasingly attractive option for companies looking to relocate or incorporate.

About Foley’s Corporate and Government Solutions Teams

With experienced corporate lawyers in each of its Texas offices, Foley & Lardner stands ready to assist any company who wants to learn more about incorporating in Texas and the impacts of S.B. 29 should it be enacted. If you have any questions about these issues, contact the authors or your Foley & Lardner attorney.