On May 14, 2025, the Governor of Texas signed SB 29 into law, bringing significant amendments to the Texas Business Organizations Code (TBOC). These changes affect governance, governing authority liability, shareholder rights, and internal management of corporations, limited liability companies, limited partnerships, and other entities organized under the TBOC. The amendments became effective immediately upon signing.
One of the central features is the codification of the business judgment rule. This rule presumes that directors, officers, and other managerial officials acted in compliance with their duties. It applies to publicly traded entities or those that opt-in. For corporations, directors’ and officers’ actions are presumed to be taken in good faith and in accordance with legal and governing documents. Claimants must rebut these presumptions to prove a breach involving fraud or intentional misconduct.
The amendments also address fiduciary duties for limited liability companies and limited partnerships. Governing documents may now expand or restrict these duties.
For derivative actions in publicly traded corporations or those with over 500 shareholders opting into statutory presumptions, a minimum ownership threshold can be set for initiating such proceedings.
Attorney fee awards in derivative proceedings are now limited by what constitutes a substantial benefit to an entity. Additionally, boards of publicly traded corporations can petition courts to determine committee independence for reviewing related party transactions.
Entities can include waivers of jury trials for internal claims in their governing documents. They may also choose an exclusive Texas forum for such claims.
Inspection rights have been clarified. Emails and social media communications are excluded from records unless they effectuate corporate action. Inspection demands by holders involved in litigation may be denied unless part of discovery in active lawsuits.
These changes aim to enhance protections for directors and officers while imposing new limitations on shareholders regarding inspection and derivative actions. Texas corporations should review their organizational documents and compliance practices accordingly.
Gibson Dunn lawyers Gerry Spedale, Jason Ferrari, and Hillary Holmes prepared this update on the legislative changes.
