What Litigators Should Know About Texas Corporate Governance Reforms Under SB 29

Key takeaways for litigators include: the codification of the business judgment rule and heightened pleading requirement, enhanced freedom for companies to limit potential liability and control litigation procedures, limits on shareholder rights, and clarification on governing law for corporate governance issues. These reforms — which come on the heels of Texas’ recent establishment of the new statewide, specialized Business Court — may make Texas a more attractive jurisdiction, not only for business incorporation, but also business litigation.

Codification of the Business Judgment Rule and Heightened Pleading

At the heart of SB 29 is the desire to bring greater legal certainty to corporate governance, particularly in how courts assess the actions of directors and officers. To that end, Texas legislators have now codified the long-standing common law³ business judgment rule through the new Section 21.419 of the TBOC. The statute applies to public companies listed on a national securities exchange⁴ and is available by election to other Texas corporations as well.

For the first time, Texas law provides a statutory rebuttable presumption that directors and officers of covered corporations act:

• 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.

Under the new provision, neither a corporation nor its shareholders has a cause of action against a director or officer based on an act or omission in the person’s capacity as a director or officer unless: (1) the claimant rebuts one or more of the presumptions above; and (2) the claimant proves a breach of a duty owed as a director or officer and that the breach involved fraud, intentional misconduct, an ultra vires act, or a knowing violation of law.

Importantly, in alleging fraud, intentional misconduct, an ultra vires act, or a knowing violation of the law, a claimant under this provision must state “with particularity” the circumstances constituting the violation.⁵

This new heightened pleading requirement more closely aligns with Federal Rule of Civil Procedure 9(b), which governs pleading standards for fraud or mistake.⁶ In the federal context, that means that “[a] plaintiff alleging fraud ‘must state with particularity the circumstances constituting fraud,’ which, at a minimum, includes ‘the who, what, when, where, and how of the alleged fraud.’”⁷ With SB 29’s reforms, courts and litigators in Texas are likely to observe an increase in dispositive motions practice under Texas Rule of Civil Procedure 91a based on failure to plead facts to rebut the statutory presumptions for directors and officers with particularity. Federal cases analyzing Rule 9(b) pleading may provide a forecast for that developing body of Texas jurisprudence.

Enhanced Freedom to Limit Liability and Control Litigation Procedures

Ability to Eliminate Some Duties in Limited Partnership Agreements

SB 29 also amends Section 152.002 of the TBOC to add a new subsection (e), which allows limited partnerships to eliminate the duty of loyalty (Section 152.205), duty of care (Section 152.206), and the obligation to act in good faith (Section 152.204(b)), in their partnership agreements. This change⁸ mirrors the contractual freedom available in some other jurisdictions and gives business partners more flexibility in allocating risk and responsibility.

For litigators, this reform will reduce the scope of fiduciary duty claims that might otherwise have been brought against a partner, among those limited partnerships which elect to eliminate these duties. Again, litigators are likely to see more Rule 91a dispositive motion practice around claims alleging breach of these duties.

Ownership Thresholds for Derivative Lawsuits

SB 29 also introduces a new provision that may allow certain corporations to reduce the likelihood of potential derivative actions through imposing ownership thresholds.

Under new TBOC Section 21.552(a)(3), a public corporation or private corporation with at least 500 shareholders that has opted in to the new governance regime may adopt an ownership threshold as a prerequisite for instituting a derivative proceeding. The ownership threshold is to be written in the corporation’s certificate of formation or bylaws, but the threshold cannot exceed 3% of the outstanding shares of the corporation. Some companies have already taken advantage of this new provision by amending their bylaws to impose the 3% ownership threshold, thereby reducing the pool of plaintiffs who could file derivative suits.

Pre-Vetting for Independent and Disinterested Directors

SB 29 also provides companies with a new tool to potentially curb litigation involving challenged transactions under TBOC Section 21.4161. Under this new section, a corporation may form a committee of directors and petition a court to hold an evidentiary hearing to determine whether those directors are independent and disinterested with respect to any transactions involving the corporation or any of its subsidiaries and a controlling shareholder, director, or officer. The court’s determination is “dispositive in the absence of facts, not presented to the court.” Notably, a corporation may use this tool to obtain a determination on the independence and disinterestedness of directors on the committee to review and approve transactions — whether or not those transactions are even contemplated at the time.

Exclusive Forum Selection

Additionally, under new TBOC Section 2.115(b)(2), Texas corporations may now designate certain Texas courts — including the newly created Texas Business Court — as the exclusive forum and venue for any “internal entity claim.”⁹ If included in governing documents, the measure provides more venue certainty and reduces the likelihood of multi-forum litigation. It also encourages use of the specialized Business Court for high-stakes corporate cases, provided the jurisdictional requirements are met.¹⁰

Waiver of Jury Trials

A new Section 2.116 of the TBOC permits domestic entities to include binding jury waiver provisions in their governing documents for internal entity claims. The waiver applies to all equity holders who vote for or ratify the provision, and — critically — for public companies, it also binds any person who continues to hold an equity security after the waiver is adopted.

Limits on Shareholder Inspection Rights

Additionally, SB 29 amends Section 21.218 of the TBOC to restrict the scope of books and records requests for corporations on a national securities exchange or those who elect to be governed by the provision (and accordingly adopt the business judgment rule codification set forth there). For those entities, shareholders may no longer demand access to text messages, emails, other similar electronic communications, or information from social media accounts, unless the communication “effectuates an action by the corporation.” Furthermore, a new Section 21.218(b-2) allows corporations to limit inspection rights during the pendency of certain derivative proceedings or civil lawsuits. Notably for litigators, while these provisions may reduce the discovery burden on companies and guard against fishing expeditions, it is also likely that litigants will dispute whether certain contested communications “effectuate” corporate action.

Clarification on Governing Law: Texas, Not Delaware

One of SB 29’s more quietly significant provisions is the new Section 1.056 of the TBOC, which affirms that Texas corporate law is independent of other jurisdictions’ doctrines. The statute provides:

“The managerial officials of a domestic entity… may consider the laws and judicial decisions of other states… [but] the failure or refusal… to conform to the laws, judicial decisions, or practices of another state does not constitute or imply a breach…”

This language makes clear that, while corporate leaders in Texas may look to Delaware law for guidance, they are under no obligation to do so. In effect, this insulates Texas directors and officers from arguments that their actions should be judged against Delaware norms or the norms of other jurisdictions, and it reinforces the state’s commitment to developing its own stand-alone body of corporate law, which will likely be shaped in no small part by jurisprudence developed out of the Texas Business Court.

Looking Ahead

Whether these reforms, along with the establishment of the Texas Business Court, will materially shift incorporation patterns away from Delaware remains to be seen. But for businesses and litigators already operating in Texas — or considering relocation — the message is clear: Texas has a new corporate playbook now.

¹Office of the Texas Governor, Governor Abbott Signs Pro-Growth Business Legislation Into Law (May 14, 2025), https://gov.texas.gov/news/post/governor-abbott-signs-pro-growth-business-legislation-into-law (in addition to signing Senate Bill 29, Governor Abbott also signed Senate Bill 1058, which creates a franchise tax exemption for stock exchanges operating in Texas for certain tax liabilities, and House Joint Resolution 4, which imposes a ban on a stock exchange transaction tax and an occupations tax).

²Texas Lt. Governor Dan Patrick explained that state leadership “want[s] companies to incorporate in Texas instead of Delaware.” See Office of the Lieutenant Governor of Texas, Lt. Gov. Dan Patrick: Statement on the Bipartisan Passage of Senate Bill 29 – Texas: Open for Business (Apr. 3, 2025), https://www.ltgov.texas.gov/2025/04/03/lt-gov-dan-patrick-statement-on-the-bipartisan-passage-of-senate-bill-29-texas-open-for-business (“To do so, Texas must update our corporate laws to remain the crown jewel of America’s economy. SB 29 is a priority of the Senate and mine because these important changes will cement our dominant position in the global economy.”).

³Under common law, the business judgment rule “generally protect[ed] corporate officers and directors, who owe fiduciary duties to the corporation, from liability for acts that are within the honest exercise of their business judgment and discretion.” Sneed v. Webre, 465 S.W.3d 169, 173 (Tex. 2015); Texas Outfitters Ltd., LLC v. Nicholson, 572 S.W.3d 647, 654 n.9 (Tex. 2019).

⁴Notably, the definition of “National securities exchange” is expanded under SB 29 to include, not only an exchange registered as a national securities exchange under Section 6, Securities Exchange Act of 1934 (15 U.S.C. § 78f), but also a Texas-based “stock exchange that: (i) has its principal office in this state; and (ii) has received approval by the securities commissioner under Subchapter C, Chapter 4005, Government Code.”

⁵Similarly, in rebutting presumptions for general partners and officers of certain limited partnerships under new TBOC Section 153.163, and for governing persons of certain limited liability companies under new TBOC Section 101.256, a claimant must meet a similar heightened pleading standard.

⁶See Fed. R. Civ. P. 9(b) (“In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.”).

⁷Daughtry v. Silver Fern Chem., Inc., No. 24-40400, 2025 WL 1364806, at *2 (5th Cir. May 12, 2025) (citing United States ex rel. Steury v. Cardinal Health, Inc., 735 F.3d 202, 204 (5th Cir. 2013)).

⁸Previously, the statute provided that, among other things, a partnership agreement could not eliminate the statutory duties of loyalty and care or the obligation of good faith. See Nguyen v. Hoang, 507 S.W.3d 360, 376 (Tex. App.—Houston [1st Dist.] 2016).

⁹“Internal entity claim” is defined to include “a claim of any nature, including a derivative claim in the right of an entity, that is based on, arises from, or relates to the internal affairs of the entity, as defined in Section 1.105” of the TBOC. See TBOC, Section 2.115.

¹⁰Notably, designating the Texas Business Court in governing documents does not automatically satisfy the jurisdictional requirements to litigate there; a party must still satisfy the jurisdictional requirements set forth in Section 25A.004 of the Texas Government Code.