Texas has long been home to multibillion-dollar industries like oil and gas, construction, and chemical manufacturing. With a pair of new bills signed into law in May 2025, the state hopes to become even more attractive for business owners who want to create or redomicile their companies. Below, the Texas business lawyers from Fee, Smith & Sharp LLP discuss what you need to know about this change to the Texas Business Organizations Code and how it could impact your ventures.
How SB 29 (2025) Affects Companies Doing Business in Texas
Governor Greg Abbott signed Senate Bill 29 into law on May 14, 2025, which went into effect immediately. Its actions include the following:
- Codifying the Business Judgement Rule of the Texas Business Organizations Code (TBOC)
- Increasing the requirements for pleading
- Providing more clarity on which laws apply to corporate governance
- Granting businesses more freedom regarding litigation procedures and reducing liability risks
Those looking to create business entities or re-domesticate ones from offshore locations should find Texas more welcoming with this law. In a statement from the Governor’s Office, Abbott declared, “Senate Bill 29 provides business decision makers the certainty that sound business judgments made in the best interest of shareholders will not be second-guessed by courts. Business decisions are to be made by the elected officers and shareholders, not by unelected judges.”
A Stronger Business Judgment Rule Means a Stronger Defense Against Liability
The Business Judgement Rule stems from common law doctrine to protect directors from personal liability in lawsuits when they act in good faith for the company’s best interests. By making the rule into law with SB 29, business owners have a greater foundation for investments, growth, and management decisions with less fear that a court may ignore what was previously a precedent. The amended rule applies to all publicly listed corporations in Texas and other corporations, such as LLCs, that choose to use it.
By adding this rule to a new TBOC section, shareholders and corporations cannot file legal action against any officer or director without presenting evidence that the person acted in bad faith, against the company’s best interests, or in a fraudulent manner. By increasing the pleading requirements, SB 29 erects greater hurdles against frivolous lawsuits.
Plaintiff’s petitions must include descriptions “with peculiarity” regarding the alleged behavior and how it varied from the assumption of good faith actions. They must give details about the individuals involved, their actions, locations of the alleged fraud or violation, motivation, and the processes. By requiring the “who, what, when, where, why, and how,” the TBOC more closely aligns with the Federal Rule of Civil Procedure 9(b).
SB 29 Also Gives Companies Better Control Over Litigation and Liability
Limited partnerships in Texas have previously operated with certain limitations that may expose members to liability in certain circumstances. By adding new subsections to TBOC 152.002, SB 29 removes the obligation for these partnership agreements to include duty of care, loyalty, and good faith clauses.
Partners can distribute responsibility and risk more freely, according to the corporation’s needs. Business lawyers can also minimize the impact of fiduciary duty that might otherwise limit their ability to successfully defend their clients.
Senate Bill 1057
On May 19, 2025, Governor Abbott also signed into law Senate Bill 1057, which becomes effective on September 1, 2025. This law tightens shareholder proposal capabilities by allowing corporations to institute minimum ownership levels in its governing documents. By doing so, they can opt in to a current statute that requires the company to:
- Have security equities registered under Section 12(B) of the Securities Exchange Act of 1934
- Have a principal office located within Texas or be listed on a Texas-based stock exchange
- Be listed on a national securities exchange
Companies with a minimum of 500 shareholders that elect to operate under the new rule can also create ownership thresholds to reduce the risk of derivative actions or proposals to the entirety of shareholders. The new threshold is no greater than 3% of the outstanding shares or shares worth $1 million or more, held for a continuous period of at least 6 months prior to the shareholder meeting date. Those hoping to submit proposals must also solicit shareholders owning at least 67% of total voting power.
SB 29 Will Aid the Newly Established Business Court
In September 2024, Texas formed the Business Court, designed as a venue for complex business disputes and actions. SB 29 will more clearly define the laws surrounding this litigation, bolstering resulting rulings and precedents. With a venue focused on corporate interests, companies will be able to address lawsuits more formally and with greater speed.
Governor Abbott also signed House Bill 89 in May 2025, adjusting the requirements for bringing a case to the Business Court. These include:
- Any business litigation cases filed prior to September 2024 can be transferred to the new venue
- The qualified transactions amount in controversy is now only $5 million (down from $10 million)
- The Court has jurisdiction over intellectual property and trade secret litigation
SB 29 further enhances the Court’s ability to process cases by limiting the material a shareholder can bring as part of a books and records demand. Leaning toward helping corporations, this action establishes that a shareholder can only present a books and records demand in the context of an active or pending lawsuit or derivative action. The law also limits what constitutes part of the demand, eliminating social media posts, texts, and emails unless the shareholder can specifically show how the communication demonstrates bad faith action by the corporation.
Additional TBOC Amendments From SB 29
Other provisions arising from the passing of SB 29 include:
- Entities incorporated in Texas have the right to waive a jury trial for derivative actions and internal entity claims, as described in Section 2.115 of the TBOC.
- The definition of a “substantial benefit” for a corporation no longer necessarily includes amended shareholder disclosures in cases where the plaintiff seeks recovery of their attorney fees.
- Texas companies can stipulate exclusive forums for hearing internal entity claims in their governing documents.
- The bill removes requirements for separate class and series voting, impacting those holding various stock classes.
To learn more about SB 29, B 1057, or any other laws impacting your company, contact Fee, Smith & Sharp LLP for a consultation today. We are available through our online form or by phone to address your business litigation needs, prepare or amend corporate documents, and advise on contract matters.
