On May 7, 2025, the Texas Legislature passed Senate Bill No. 29, which introduces a series of corporate reforms that aim to make Texas the preferred jurisdiction for legal domestication. Because S.B. 29 received a 2/3rd majority vote in both chambers of the Legislature, it is set to take immediate effect once signed by Governor Greg Abbott.
Key Provisions of S.B. 29
1. Fundamental Reforms
The three most significant reforms effected by S.B. 29 are codification of the “business judgment rule,” allowing Texas corporations to adopt an ownership threshold that must be met for derivative claims, and allowing Texas corporations to set venue, and waive jury trials, for internal entity claims.
A. 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, including breaches of the duty of loyalty, and must plead with particularity that any breaches involved intentional misconduct, fraud, knowing violation of law or an ultra vires act. 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 while permitting meritorious claims to proceed. [Bill Sections 10 and 11; amending Business Organizations Code Section 21.418 and adding Business Organizations Code Section 21.419].
The codified business judgment rule protections apply automatically to corporations, limited liability companies, and limited liability partnerships, so long as they are listed on a national stock exchange [Bill Section 11, adding Business Organizations Code Section 21.419; Bill Section 17, adding Business Organizations Code Section 101.256(a), and Bill Section 24, adding Business Organizations Code Section 153.163]. Certain corporations, limited liability companies and partnerships not listed on a national stock exchange may choose to voluntarily adopt business judgment rule protections. [Id. and Bill Section 22, adding Business Organizations Code Section 152.006]
B. Protecting Business Decisions from Opportunistic Legal Claims: S.B. 29 includes reforms to shield businesses from meritless, distracting derivative actions. Key provisions include:
- Allowing public corporations to adopt a minimum ownership percentage, not to exceed three percent of their outstanding common stock, before a shareholder can pursue a derivative lawsuit. [Bill Section 13; amending Business Organizations Code Section 21.552(a)]
- 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 15, amending Business Organizations Code Section 21.561; Bill Section 19, amending Business Organizations Code Section 101.46; and Bill Section 25, amending Business Organizations Code Section 153.411]
- Allowing certain 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 Section 8, amending Business Organizations Code Section 21.416 (reviewing transactions); Bill Section 9, adding Section 21.4161 (special litigation committees); and Bill Section 14, amending Business Organizations Code Section 21.544 (reviewing derivative petitions)]
C. Establishing Venue and Waiving Jury Trials: Further, S.B. 29 ensures that all business entities can establish exclusive venue for internal entity claims in any court in Texas, as well as waiving jury trials through bylaw provisions.
- 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; amending Business Organizations Code Section 2.115(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, including in their bylaws, for internal disputes. [Bill Section 4; adding Business Organizations Code Section 2.116]. The bill includes safe-harbors that a business entity can point to in order to show that such provisions constitute a knowing, informed waiver of the right to a jury trial, such as continuing to hold the equity of a public company after its adoption of a waiver or acquiring a security that is subject such a waiver.
2. Additional Provisions
In addition to the provisions described above, S.B. 29 contains the following:
a) 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 5, amending Business Organizations Code Section 21.218; Bill Section 20, amending Business Organizations Code Section 101.502 (LLCs); and Bill Section 25, amending Business Organizations Code Section 153.552(a)(limited partnerships)]
b) Permitting waiver of class-by-class voting in all cases. The bill clarifies that a corporation can waive, in its certificate of formation, the current requirement of class-by-class share voting in certain circumstances. [Bill Sections 6 and 7; amending Business Organizations Code Section 21.364 and Business Organization Code 21.365] This means that a corporation can elect to have all classes of its stock vote as a single class.
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, offering more control over corporate litigation, and allowing corporations to waive jury trials for internal entity claims, the reforms contained in S.B. 29 will make Texas an increasingly attractive state for incorporation.
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. If you have any questions about these issues, contact the authors or your Foley & Lardner attorney.
