New Formation and Governance Considerations: Taking Advantage of Texas SB 29

Texas Gov. Greg Abbott signed into law Senate Bill 29 (SB 29) on May 14, 2025. SB 29 amends the Texas Business Organizations Code’s (TBOC) provisions regarding corporate governance, director and officer liability, shareholder rights, and proceedings involving internal actions in an effort to make Texas an increasingly attractive jurisdiction in which to incorporate public and private entities. Considering SB 29, domestic companies in Texas should educate their boards and management teams on SB 29’s impact and review their organizational documents, governance practices, and other policies to determine whether updates are appropriate to opt into these amendments. Foreign entities should also consider the impact of SB 29 on choice of domicile for existing entities as well as future entities.

SB 29’s most notable provisions are discussed below:

1. Codification of the Business Judgment Rule and Other Protections

SB 29 codifies the business judgment rule – a common law presumption that directors and officers make decisions in good faith, with reasonable care, in the best interests of the entity, and in accordance with the entity’s governing documents and applicable law. This codification applies to publicly traded entities by default, as well as private entities that affirmatively elect the business judgement rule election in their formation documents. Further, to have a cause of action, claimants (whether in a direct or derivative capacity) must (i) rebut one of the above presumptions and (ii) prove that (a) the directors or officers acted in a way that involved fraud, intentional misconduct, an ultra vires act, or violation of the law, and (b) such action constituted a breach of duty. The codification of the business judgment rule applies to all claims arising from alleged breaches of the duty of care, duty of loyalty, and other duties owed by directors and officers in connection with transactions involving interested persons.

These new codified protections are in addition to, and not in lieu of, any other existing statutory or common law protections. SB 29 also provides limited liability companies and limited partnerships more flexibility in defining fiduciary duties that members, managers, and officers owe to such entities. Specifically, the governing documents of limited liability companies and limited partnerships may eliminate (not merely restrict) any duties, including fiduciary duties, and related liabilities that a member, manager, and officer owe to such entity.

2. Limiting Derivative Actions

SB 29 permits imposition of minimum ownership requirements for initiating derivative actions. Specifically, publicly traded entities and private entities (i) with 500 or more owners and (ii) that have elected the statutory business judgment rule may impose a minimum ownership threshold of up to 3% of the outstanding equity for owners to initiate derivative actions. In addition, SB 29 limits awarding attorneys’ fees in awarded derivative actions by specifically disqualifying mere disclosure-only settlements as “substantial benefits” for the purpose of such awards, regardless of the materiality of such disclosures.

3. Strengthening the Independence of Transaction Review Committees

Another key feature of SB 29 is its provisions regarding advanced determinations of director independence. SB 29 permits publicly traded corporations and corporations that elected the statutory business judgment rule to petition Texas courts to hold an evidentiary hearing to determine the independence of a special committee of directors tasked with reviewing related party transactions, such as those involving the corporation and a controlling shareholder, director, or officer. Prior to such evidentiary hearing, the corporation must notify each of its shareholders to provide them with the opportunity to participate in the proceeding. Once the court validates the independence of the committee, that decision will be binding absent facts, which were not presented to the court, that prove one or more directors is not independent and disinterested with respect to the applicable transaction.

4. Jury Trial Waivers and Exclusive Venue Provisions

SB 29 permits entities to include provisions in their governing documents that (i) designate a specific Texas court, such as the newly established Texas Business Court, as the exclusive venue for resolving internal disputes and (ii) waive the right to a jury trial for internal claims. Internal claims cover a broad scope of claims, including derivative claims and allegations of breaches of fiduciary duty. Importantly, SB 29’s jury trial waiver may be enforceable even if the entity’s members, owners, officers or governing persons did not individually sign such waiver.

5. Restrictions on Inspection Rights

Shareholders, members, and partners’ rights to inspect company books and records are also curtailed by SB 29’s amendments. Under SB 29, company owners are not entitled to review certain communications, such as emails, text messages, social media posts, and similar electronic communication, unless such communication effectuates an official action of the entity. SB 29 also permits publicly traded entities and entities that elected the statutory business judgment rule to deny inspection demands if the entity is involved, or expects to be involved, in a derivative proceeding or other litigation proceeding involving the entity.

6. Single Class Voting for Certain Business Actions

Texas’ mandatory separate class voting rights for corporations also falls under SB 29’s amendments. Texas corporations may now include language in their governing documents allowing corporations to waive class-by-class share voting in certain circumstances, permitting all classes of its stock vote as a single class. These amendments remedy a long-standing impediment for Texas corporations that desire to have multiple classes of stock by affording corporations with greater flexibility in structuring voting rights.

Next Steps

If you have questions or would like to request additional information on SB 29, please contact a member of Bradley’s Corporate & Securities team.