The Texas Legislature recently has taken Texas-sized steps intended to make the state a more attractive place for companies to form, reincorporate, or relocate, further advancing Texas's efforts to rival Delaware as a destination for incorporation. In particular, Texas passed three laws—Senate Bill 29 ("SB 29"), Senate Bill 2411 ("SB 2411"), and Senate Bill 1057 ("SB 1057")—that offer protections and benefits for businesses that are comparable to, and in certain respects exceed, those available under Delaware's General Corporation Law ("DGCL")1
The statutes, building on 2023 legislation that established the Texas Business Court, contain reforms that modernize the Texas Business Organizations Code ("TBOC"), introducing a range of substantive changes that affect governance, shareholder rights, corporate and individual liability, and management of internal corporate affairs, the most notable of which are summarized in this White Paper.
SENATE BILL 29
A Statutory Business Judgment Rule and Heightened Pleading Standard
Texas: One of the most notable features of SB 29 is its codification of the business judgment rule, enacting into statutory law a longstanding rebuttable presumption under the common law that "in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company [and its shareholders]."2 Under the new statute, directors and officers of covered companies3 are presumed to have acted in good faith, on an informed basis, in furtherance of the corporation's interests, and in obedience to the law and the corporation's governing documents.4
Consequently, neither the corporation nor its shareholders have a viable cause of action against a director or officer (for an act in his or her capacity as such) unless the plaintiff: (i) rebuts one or more of the presumptions described above and (ii) proves (a) that the director or officer's action (or omission) breached a duty and (b) that the breach involved fraud, intentional misconduct, an ultra vires act, or a knowing violation of the law.5 Notably, the plaintiff must state "with particularity" the circumstances constituting the fraud, intentional misconduct, ultra vires act, or knowing violation of law—a pleading standard analogous to Rule 9(b) of the Federal Rules of Civil Procedure.
Delaware: Like Texas, Delaware's business judgment rule imposes a rebuttable presumption that shields corporate directors and officers from liability in many instances and requires a plaintiff to plead facts to rebut the presumption. However, Delaware's rule differs from Texas's in two ways. First, Delaware's rule is not codified but instead is a feature of its common law, meaning that it is created and molded by the courts. Second, and perhaps more importantly, Delaware's business judgment rule can be rebutted by showing that the director or officer was grossly negligent,6 whereas Texas law requires a showing of greater culpability (and heightened pleading requirements), as now set forth in the TBOC.
Enhanced Protections Against Derivative Shareholder Claims
Ownership Requirements for Derivative Suits
Texas: SB 29 imposes additional requirements that a shareholder must meet before he or she can file a derivative lawsuit—i.e., a suit brought by a shareholder on behalf of the corporation (often against the company's officers and directors). In addition to the rule that the shareholder must have owned shares at the time of the alleged malfeasance or thereafter became a shareholder by operation of law, any company (i) that has shares listed on a national securities exchange or (ii) that "opted in" to this provision and has 500 or more shareholders may now set a threshold of shares that a shareholder must own—not to exceed 3% of the outstanding shares— before being eligible to file a derivative suit.7 Thus, these provisions prevent shareholders with arguably de minimus interests in the company or the alleged malfeasance from usurping the authority of the company's board to pursue a claim on the company's behalf.
Delaware: The DGCL contains no similar ownership threshold; a shareholder need own only a single share at the time of the alleged malfeasance and throughout the litigation.8
Attorneys' Fees for "Disclosure Only" Settlements
Texas: The TBOC now prohibits plaintiffs' counsel in a derivative case from recovering attorneys' fees and other expenses if the only relief granted by the presiding court is an order requiring the company to provide additional or amended disclosures to its shareholders (i.e., a "disclosure only" settlement).9 Under the new provision, such additional disclosures, regardless of materiality, will not constitute a "substantial benefit" to the company such that the plaintiff's counsel can seek an award of attorneys' fees and costs.
Delaware: While the DGCL does not contain a similar provision, beginning with the Chancery Court's opinion in In re Trulia, Inc. Stockholder Litigation, 10 Delaware courts have increasingly scrutinized (and set standards concerning) attorneys' fee awards in "disclosure only" settlements.11
Determining Independence and Disinterestedness of Directors in Controlling Shareholder Transactions
Texas: The TBOC now authorizes the board of directors of a covered corporation12 to adopt resolutions that "authorize the formation of a committee of independent and disinterested directors to review and approve transactions . . . involving the corporation . . . and a controlling shareholder, director, or officer," regardless of whether the transaction is contemplated at the time of the committee's formation.13 The corporation may petition the Texas Business Court14 to determine (on an expedited basis) whether the directors appointed to the committee are independent and disinterested with respect to any transaction involving the corporation and a controller shareholder, director, or officer.15 Based on those expedited proceedings (which include a required evidentiary hearing), the Texas Business Court determines the interestedness and independence of the committee members, and that determination is "dispositive in the absence of facts[] not presented to the court" that proves that a committee member lacks independence or disinterestedness.16
Delaware: Delaware law historically has presumed that a company's directors are independent and disinterested; however, recent amendments to the DGCL (as described in our Alert, "Delaware Restores Balance and Provides Greater Certainty for Fiduciaries and Stockholders Alike") include a "heightened" presumption that a director of a public company is disinterested with respect to an act or transaction to which he or she is not a party if the board has determined that the director satisfies the criteria of the national exchange on which the company is listed for director independence from the company (or a controlling shareholder). That "heightened" presumption can be rebutted only by "substantial and particularized facts" that the director has a material interest in the act or transaction, or a material relationship with a person with a material interest in the act or transaction.17
Limitations on Shareholder Books-and-Records Demands
immediately preceding" the demand or hold at least 5% of the corporation's outstanding shares,18 the TBOC now excludes "e-mails, text messages or similar electronic communications, or information from social media accounts" from the definition of "records of the corporation" that would be responsive to a demand "unless the particular e-mail, communication, or social media information effectuates an action by the corporation."19
In addition, for certain corporations,20 the shareholder cannot establish a required "proper purpose" for the demand if the corporation "reasonably determines" that the demand is in connection with: (i) an active, pending, or expected derivative proceeding instituted by the demanding shareholder; or (ii) an active, pending, or expected civil lawsuit to which the corporation and the demand shareholder are "expected to be adversarial named parties."21
Delaware: In contrast to SB 29, historically Delaware courts have encouraged shareholders with a requisite "proper purpose" to use books-and-records requests to obtain evidence before filing derivative lawsuits.22 And Delaware has long held that a shareholder's burden in establishing a "proper purpose" for a request is a comparatively low threshold.23 Given the rapid growth in shareholder demands pursuant to DGCL § 220, however, earlier this year Delaware amended the DGCL to define "books and records" more narrowly, now excluding communications such as e-mails, text messages, and social media information.24 Consequently, shareholders seeking records other than those enumerated in the statute must meet heightened requirements, including showing a compelling need and that the additional records are necessary to the shareholder's "proper purpose."25
Exclusive Forum and Waiver of Jury Trials
Texas: Subject to applicable federal and state jurisdictional requirements, the TBOC now permits a corporation to include in its "governing documents" a requirement that any "internal entity claim," which likely includes claims alleging breaches of fiduciary duties, must be brought in a Texas court that will serve as "the exclusive forum and venue" for any such claims.26 Previously, the TBOC had permitted a corporation's governing documents to provide that any Texas forum—as opposed to a specific court—could hear "internal entity" claims. While SB 29 does not require that the Texas Business Court serve as the exclusive forum, the Texas Legislature likely had the Business Court in mind given its creation in 2023 as a forum for corporate governance and shareholder-related litigation in Texas (among other business cases).
In addition, a corporation may now include in its "governing documents" a provision that waives "the right to a jury trial concerning any internal entity claim."27 And, that provision is binding not only on persons who voted for (or ratified) the waiver provision but also on persons who acquired or continued holding shares after the waiver was incorporated.28 It is possible (if not probable) that this provision was included to address a primary difference (and arguable disadvantage) between the Business Court and the Court of Chancery—namely, that the Chancery Court does not hold jury trials whereas the Texas Business Court does.
Delaware: Delaware permits businesses to dictate the forum in which internal claims must be brought (i.e., a "forum selection" clause),29 and many companies have added provisions to their bylaws that require that "internal" claims be brought in the Chancery Court. As a practical matter, the selection of the Chancery Court as the exclusive forum also operates as a jury trial waiver because, as mentioned, the Chancery Court does not hold jury trials.
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Footnotes
1. SB29 became effective immediately after Governor Abbott signed the bill on May 14, 2025, and SB2411 and SB1057 will become effective on September 1, 2025.
2. Moody v. Nat'l W. Life Ins. Co., 634 S.W.3d 256, 274 (Tex. App.—Houston [1st Dist. 2021], no pet.); see also Sneed v. Webre, 465 S.W.3d 169, 178 (Tex. 2015).
3. This provision applies "only to a corporation that has (1) a class or series of voting shares listed on a national securities exchange; or (2) included in its governing documents a statement affirmatively electing to be governed by this section." 2025 Tex. Sess. Law Serv. Ch. 21 (SB29) § 11 (codified at Tex. Bus. Orgs. Code § 21.419(a)).
4. Id. (codified at Tex. Bus. Orgs. Code § 21.419(c)).
5. Id. (codified at Tex. Bus. Orgs. Code § 21.419(d)).
6. See In re Citigroup Inc. S'holder Derivative Litig., 964 A.2d 106, 124 (Del. Ch. 2009).
7. SB29 § 13 (codified at Tex. Bus. Orgs. Code § 21.552(a)).
8. 8 Del. C. § 327; Quadrant Structured Prods. Co., Ltd. v. Vertin, 115 A.3d 535, 552 (Del. Ch. 2015) ("To satisfy the continuous ownership requirement, the plaintiff need not own a particular quantum of shares, or even a material ownership stake. One share is enough.").
9. SB29 § 15 (codified at Tex. Bus. Orgs. Code § 21.561(c)).
10. In re Trulia, Inc. Stockholder Litig., 129 A.3d 884 (Del. Ch. 2016).
11. See, e.g., Anderson v. Magellan Health, Inc., 298 A.3d 734 (Del. Ch. 2023).
12. This provision applies to a corporation that has shares listed on a national securities exchange or that has opted in to be governed by this provision. See SB 29 § 8 (codified at Tex. Bus. Orgs. Code § 21.416(g)).
13. Id.
14. If the corporation's principal place of business is located in a county that is not within an operating division of the Texas Business Court, then the petition may be filed in a district court in the county in which the corporation has its principal place of business. Id. § 9 (codified at Tex. Bus. Orgs. Code § 21.4161(b)).
15. Id. (codified at Tex. Bus. Orgs. Code § 21.4161(a)). The corporation must give notice to its shareholders of the petition. Id. (codified at Tex. Bus. Orgs. Code § 21.4161(d)–(e)).
16. Id. (codified at Tex. Bus. Orgs. Code § 21.4161(g)–(h))
17. 8 Del. C. § 144(d)(2).
18. Tex. Bus. Orgs. Code § 21.218(b)
19. SB29 § 5 (codified at Tex. Bus. Orgs. Code § 21.218(b))
20. This provision applies to a corporation whose shares are listed on a national securities exchange or that affirmatively opted in to the provision. Id. (codified at Tex. Bus. Orgs. Code § 21.218(b-2)).
21. Id.
22. See, e.g., Seinfeld v. Verizon Commc'ns, Inc., 909 A.2d 117, 120 (Del. 2006) ("Today, however, stockholders who have concerns about corporate governance are increasingly making a broad array of section 220 demands. The rise in books and records litigation is directly attributable to this Court's encouragement of stockholders, who can show a proper purpose, to use the 'tools at hand' to obtain the necessary information before filing a derivative action." (footnotes omitted)).
23. Id. at 123 ("Although the threshold for a stockholder in a section 220 proceeding is not insubstantial, the 'credible basis' standard sets the lowest possible burden of proof." (footnote omitted)).
24. 8 Del. C. § 220.
25. Id. § 220(g).
26. SB 29 § 3 (codified at Tex. Bus. Orgs. Code § 2.115(b)).
27. Id. § 4 (codified at Tex. Bus. Orgs. Code § 2.116(b)).
28. Id. (codified at Tex. Bus. Orgs. Code § 2.116(d)).
29. 8 Del. C. § 115.
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