Texas Business Law Briefing: Key Updates for Texas Corporations

Texas is in the spotlight after several companies chose to move their legal home from Delaware to Texas. In 2025, Texas overhauled the Texas Business Organizations Code (the TBOC) to make the state more attractive for incorporations, strengthening defenses against frivolous lawsuits and clarifying the standards courts apply to directors’ and officers’ decisions.

For a full comparison of Delaware versus Texas corporate law, download our PDF summary.

Codification of the Business Judgment Rule

Texas has formally adopted the business judgment rule for public companies and private companies that choose to opt in. This rule protects corporate directors and officers from liability for acts that are within the honest exercise of their business judgment and discretion.

Unlike Delaware, Texas does not apply heightened legal standards — such as enhanced scrutiny or entire fairness — to review directors’ decisions in situations such as company sales or defensive actions.

Setting Procedures for Related Party Transactions

Texas law allows boards of public companies — and private companies that opt in — to appoint a committee of independent and disinterested directors to review and approve transactions involving a controlling shareholder, director, or officer. These companies can also ask a court in advance to confirm that the committee members are truly independent and disinterested, helping reduce the risk of litigation over these types of transactions.

Decreasing the Risk of Opportunistic and Frivolous Shareholder Litigation

Texas law places significant restrictions on shareholder lawsuits brought on behalf of a corporation (derivative litigation). Shareholders must first make a formal demand to the company’s board to address the issue. If a committee of independent and disinterested directors decides not to pursue the claim, courts will generally defer to that decision unless there is evidence of director bias, lack of good faith, or unreasonable procedures.

Public companies in Texas may also require shareholders to own up to three percent of the company’s shares before they can initiate or continue a derivative lawsuit. In most cases, court approval is not needed to settle or discontinue these actions.

Building the Texas Business Courts

Texas has established specialized Texas Business Courts to handle cases involving the internal affairs and governance of Texas companies. These courts began operating in September 2024 and have already issued over 30 decisions on topics such as jurisdiction and fiduciary duties.

Texas allows jury trials in corporate cases, including those in the Texas Business Courts. A company’s governing documents may waive a shareholder’s right to a jury trial for internal corporate disputes.

Texas law also allows companies to specify in their governing documents that internal corporate disputes must be resolved exclusively in a designated Texas court, such as the Texas Business Court.

Limiting Shareholder Proposals

Public companies based in Texas or listed on a Texas stock exchange may limit shareholder proposals to those shareholders who meet strict criteria. Shareholders must own at least $1 million in market value or up to three percent of the company’s voting shares, must have held those shares for at least six months before the meeting, and must solicit support from shareholders representing at least 67 percent of the voting power.

Implementing Proxy Advisor Disclosure Requirements

Texas now requires proxy advisors, such as ISS and Glass Lewis, to make detailed disclosures when recommending votes for Texas companies. If their advice is based on non-financial factors, such as ESG issues, they must clearly explain why and note if they put shareholder returns or risk behind other goals. This law covers companies incorporated or headquartered in Texas.

• Note: This law has been temporarily stayed pending resolution of litigation.

Allowing More Flexible Capital Structures

Before the 2025 amendments, Texas law required separate votes by each class or series of shares for many corporate actions, including business combinations. This limited flexibility for companies with multiple share classes. The 2025 amendments give Texas corporations more freedom to design voting rights for different classes or series of shares, including allowing voting as a single group and removing the requirement for separate class votes on major corporate actions.