Introduction
On May 14, 2025, Governor Greg Abbott signed three significant pieces of legislation as part of a continued effort to make Texas a business-friendly state. Among them was Senate Bill 29 (SB 29), which codifies the business judgment rule, reforms the derivative proceedings process, and streamlines the mechanism to pre-assess corporate director independence.
SB 29’s changes are designed to bolster Texas capital markets, streamline corporate governance, and attract more corporate registrations and relocations to Texas. It applies to corporations, limited liability companies (LLCs), and limited partnerships (LPs) and introduces uniform, codified changes across these entity types that are worth close consideration by business owners, investors, and legal counsel.
Key provisions include those relating to (1) the codification of the business judgment rule; (2) changes to requests for company records; (3) and the standards and rules applied to derivative proceedings.
New Presumptions for Business Judgment
This new law formally codifies the business judgment rule, reinforcing the principle that courts should not second-guess business decisions made in good faith by directors and officers. The applicable managerial officials, like directors, officers, partners, and members, are now presumed to act in good faith if the entity’s governing documents adopt the new law’s changes or if the entity has a class or series of voting shares listed on a national securities exchange.[1]
If the entity has included the proper provisions, individuals with ownership interests in an entity who bring lawsuits on behalf of the entity—derivative proceedings—must now demonstrate fraud, intentional misconduct, ultra vires acts, or knowing violations of law, and must plead these with specificity and particularity, when bringing a derivative proceeding[2]
Restricted Access to Company Records
The new law also clarifies and restricts the scope of a written demand to inspect a company’s books and records. Electronic communications, such as e-mails, text messages, and social media are now excluded from “company records”, unless there is an action directly caused by a particular communication related to those types of records.[3] Another major change is the redefinition of “proper purpose,” which allows a company to deny a demand for company records if it reasonably believes the request relates to a derivative proceeding or comes from a current or potential adverse party.[4] However, these new restrictions do not eliminate a party’s ability to discover this information in civil litigation.[5]
Tighter Standards for Derivative Proceedings
Corporations can now choose to make derivative proceedings more difficult by requiring that shareholders electing to bring derivative proceedings must hold specific ownership percentage—not to exceed 3% of the corporation’s outstanding shares.[6] This gives electing corporation’s another tool to limit derivative proceedings, and deter frivolous litigation while also preserving the ability for significant investors to hold management accountable and protect themselves. But the new law also expands the definition of a “shareholder” “member” and “partner” to include two or more persons acting together, whether formally or informally, in connection with a derivative proceeding.[7]
Waiver of Jury Trial in Derivative Claims
Texas entities now also have the ability to insert a waiver of the right to jury trial as to internal entity claims in its governing documents, providing yet another tool to deter frivolous litigation. Concurrently, a claimant has automatic notice of a waiver of jury trial, if such person votes on governing documents ratifying a waiver or acquires equity interest after the governing documents take effect.
Substantial Benefit Narrowed
The law also tightens the standard for what qualifies as a “substantial benefit,” which is a key concept when courts award attorneys’ fees in derivative proceedings. Under the new law, the mere act of providing new or amended disclosures, no matter how material, does not qualify as a substantial benefit to an entity.[8]
Governing Law & Forum Selection
The law clarifies and codifies key changes for domestic entities in the state of Texas.
Texas now recognizes and has expanded the definition of “national securities exchange” to include any stock exchange that has its principal place of business in the state of Texas and has been approved by the state.[9]
Further expanding their discretion, managerial officials may consider or disregard other state laws when making business decisions without it constituting a breach of fiduciary duties.[10] This provision reduces legal uncertainty and protects them from liability related to jurisdiction ambiguity.
Under the law, the governing documents of a domestic entity may designate one or more courts in the state of Texas as the exclusive forum and venue over derivative claims.[11]
Corporation-Specific Provisions
The new law introduces several changes that apply specifically to corporations.
Voting for Fundamental Business Transactions
One of the most notable shifts to streamline the approval process for matters involving fundamental business actions and transactions is the unified class voting requirement. All classes of shares are entitled to vote as a single class for these approvals, eliminating the requirement for separate class votes unless otherwise stated in the certificate of formation. [12]
Procedural Changes to Amendments to Certificate of Formation
Corporations can now amend the certificate of formation to increase or decrease the total number of authorized shares of a class or series, by the majority vote of shareholders as provided by the governing documents. However, no decrease must be below the number of shares currently issued and outstanding.[13]
When voting, all classes or series of shares with or without voting rights are allowed to vote on matters unless the certificate of formation provides for voting to be by a single class and without separate voting. If the governing documents expressly state so, any class of shares without voting rights will be excluded entirely.[14]
Affiliate Transactions and Independent Committees
Boards of directors are now empowered to adopt resolutions authorizing the formation of independent and disinterested directors to review and approve transactions.[15] If the transaction is with an affiliate such as an officer, controlling shareholder, or subsidiary, a corporation may hold an evidentiary hearing to determine if the appointed committee is independent or disinterested.[16] By default the venue is the Texas Business Court, unless the principal place of business is not within its jurisdiction, then the petition should be filed in a district court in the county of the principal place of business and all shareholders should be notified of the petition.[17]
What SB 29 means for your Business
The new law will have significant business implications whether you take action or keep to the status quo. Your business may also consider taking several actions to align with the new legal framework and potentially benefit from the changes by reviewing and amending your governing documents:
- Consider amending your governing documents to incorporate and expressly opt into the codification of the business judgment rule. This will ensure that your managerial decisions are presumed to be made in good faith and reduce litigation risks against your directors and officers.
- With the new restrictions on accessing company records, you might want to review your current policies on record inspection requests and ensure such requests are being evaluated under the new definitions of “proper purpose” so you can tighten the requests made by adverse parties and the resources expended in producing company records.
- For derivative proceedings, consider whether amending your governing documents and setting specific ownership thresholds (up to 3%) for derivative proceedings would benefit your business by deterring frivolous lawsuits.
- You may want to amend your governing documents to include a waiver of the right to jury trial for internal claims knowing that it is codified. You may choose to adopt a business position and decline to negotiate on the waiver of jury trial for internal claims.
- Consider amending your governing documents and designating Texas courts as the exclusive forum for derivative claims. This could provide more predictable and familiar legal outcomes for such disputes.
- If your business is structured as a corporation, you should review voting procedures for significant transactions and consider forming independent committees for affiliate transactions to enhance governance efficiency and transparency.
- If your corporation has multiple classes of stock and intends to preserve separate class voting rights for fundamental business transactions (such as mergers, conversions, or sales of substantially all assets), your governing documents must expressly provide for such rights. This is especially important because Texas law now applies a unified class voting requirement by default, meaning that, absent specific provisions to the contrary in the certificate of formation or bylaws, all classes of stock will vote together as a single class on these matters.
If your business qualifies as a national securities exchange under Texas law, you may choose to register and opt into the new legal framework. In taking these actions, your business can better align itself with the new regulatory environment in Texas and potentially enhance governance and reduce legal risks.
Alternatively, if you choose not to make any changes in response to the new law, there are several potential implications for your business. For instance, to the extent not waived in your governing documents, you may be exposing yourself to unpredictable outcomes and increased legal uncertainty. The new law addresses and resolves issues that commonly arise in litigation, that if unresolved, may cause increased complexity, consume time, distract from core business operations, and drive-up costs.
Doing nothing to align with the new legal framework could mean missing opportunities and potentially increasing your business’s exposure to legal risks and operational inefficiencies.
Conclusion
SB 29 represents a significant overhaul in Texas business law. By codifying legal doctrines, tightening procedural standards, and increasing governance autonomy and protections, Texas is well positioned to attract businesses seeking clarity, consistency, and control.
[1] Tex. Bus. Orgs.Code §§ 21.419, 101.256, 153.163.
[2] Id.
[3] Tex. Bus. Orgs.Code §§ 21.218, 101.502, 153.552(a).
[4] Tex. Bus. Orgs.Code §§ 21.218, 101.502, 153.552(a).
[5] Id.
[6] Tex. Bus. Orgs. Code § 21.552(a)(3).
[7] Tex. Bus. Orgs.Code §§ 21.551(2),101.451(3),153.401(2)(B).
[8] Tex. Bus. Orgs.Code §§ 101.461(c),153.411(c).
[9] Tex. Bus. Orgs.Code §1.002(55-a).
[10] Tex. Bus. Orgs.Code §1.056.
[11] Tex. Bus. Orgs.Code §2.115(b).
[12] Tex. Bus. Orgs.Code § 21.365(b).
[13] Tex. Bus. Orgs.Code §21.364(d).
[14] Tex. Bus. Orgs.Code §21.364(e).
[15] Tex. Bus. Orgs.Code §21.416(g).
[16] Tex. Bus. Orgs.Code §21.4161.
[17] Id.
