Changes in Corporate Governance Under SB 29: What In-House Counsel Should Know

On May 14, 2025, Texas Governor Greg Abbott signed Texas Senate Bill 29 (SB 29) into law.¹ The bill, which became effective immediately, overhauls the Texas Business Organizations Code (TBOC) to provide greater certainty in corporate governance, making Texas a more attractive jurisdiction for business formation and relocation. This article summarizes key provisions that may impact the decisions of in-house counsel, including:

• The codification of the business judgment rule
• Jury trial waivers and forum and venue selection clauses in corporate governance documents
• Limitations on inspection demands and derivative lawsuits

Codification of the Business Judgment Rule

SB 29 protects business decisions by codifying the common law “business judgment rule.” Under existing Texas law, “corporate officers and directors, who owe fiduciary duties to the corporation,” are “generally protect[ed] . . . from [personal] liability for acts that are within the honest exercise of their business judgment and discretion.”²

Under the new Section 21.419, directors and officers are “presumed to act (1) in good faith; (2) on an informed basis; (3) in furtherance of the interests of the corporation; and (4) and in obedience to the law and the corporation’s governing documents.”³ A company or its shareholders will not be able to maintain an action against directors and officers unless they rebut those presumptions and establish fraud, intentional misconduct, an ultra vires act, or a knowing violation of the law. Litigants must also meet a heightened pleading standard by stating their claims “with particularity.”

Section 21.419 applies by default to publicly traded corporations. Other entities may affirmatively opt in and should consider whether it is prudent to do so.

These changes enshrine the view that business decisions should be made by officers in the best interests of the shareholders and should not be second-guessed by courts. The bill’s stated goal is to encourage leaders to take judicious risks and make innovative business decisions without the looming threat of baseless litigation.⁴ When litigation is filed, the heightened pleading standards will likely lead to more dispositive motion practice.

Jury Trial Waivers and Forum and Venue Selection Clauses

SB 29 also permits Texas entities to include, in their governing documents, two additional provisions that will increase predictability: (1) jury trial waivers and (2) an exclusive forum and venue selection clause.⁵

Entities can include a jury waiver for all “internal entity claims” (i.e. all claims involving the internal affairs of an entity, including derivative ones). Under the new Section 2.116, the waiver applies regardless of whether the person(s) asserting a claim signed the governing documents containing the waiver. Companies should evaluate whether to include jury trial waivers in their governing documents considering that bench trials are often more efficient and predictable.

Entities can also select specific court(s)—including the recently established Texas Business Court⁶— as the “exclusive forum and venue” for internal entity claims. While the Texas Business Court is in its infancy, the ability to select with certainty that (or any other) court offers increased predictability.

Limitations on Inspection Demands

SB 29 narrows the scope of permissible books and records demands. It amends Section 21.218 to restrict shareholders from gaining access to emails, text messages, and other similar electronic communications, as well as information from social media accounts unless the communication “effectuates an action by the corporation.”⁷ The bill also allows entities to limit the inspection rights, but not discovery rights, of shareholders involved in litigation or derivative proceedings against the entity.

Overall, the changes aim to better calibrate the balance between transparency, efficiency, and confidentiality. Businesses can expect to more easily fend off taxing inspection demands that are either inefficient or harassing.

Like the codified business judgment rule, these changes only apply by default to publicly traded corporations. Other entities should consider whether to affirmatively include these provisions in their governance documents.

Limitations on Derivative Lawsuits

SB 29 also includes several limitations aimed at protecting corporations from derivative lawsuits. It allows entities to limit derivative lawsuits to shareholders who meet a minimum ownership threshold (up to 3% of outstanding shares).⁸ And it discourages litigation by precluding recovery of attorneys’ fees in disclosure-only derivative lawsuits, i.e., ones that only result in “additional or amended disclosures made to the shareholders,” even if material.⁹

Texas Law Reigns Supreme

SB 29 also clarifies that Texas law—not Delaware (or any other state’s) law—reigns supreme. The new Section 1.056 provides that corporate leaders are not bound by the laws, practices, and judicial decisions of other states.¹⁰ While directors and officers may look to Delaware law for guidance, they will not be held liable for failing to consider and meet those standards. Following the creation of the Texas Business Court, this is yet another step on Texas’s path to developing its own corporate jurisprudence divorced from Delaware’s towering influence.

Conclusion

SB 29 confirms Texas’s commitment to providing a welcoming environment for businesses to incorporate and operate. The reforms uniformly attempt to reduce litigation risk, increase operational efficiency, and encourage strategic development. While it remains to be seen whether entities will select Texas over Delaware en masse, existing Texas entities can depend on the increased certainty provided by SB 29. In light of this shift, corporate legal departments should revisit their governance documents to consider the affirmative elections allowed by SB 29.

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