As we’ve blogged about recently, Texas has taken a number of steps to bolster its reputation as a business-friendly state. The latest is a new law aimed at making it harder for shareholder proponents to get a proposal (other than a director nomination) on the ballot at a meeting of shareholders. This bill, which is fairly bare bones, has been approved by the Texas Legislature and awaits the governor’s signature to become law. If signed, it would become effective on September 1, 2025.
Here are five wild things to consider:
- Companies with a Texas headquarters or that are listed on the coming Texas Stock Exchange can take advantage – Companies with stock listed on a national stock exchange and that either have their principal office in Texas or are listed on the Texas Stock Exchange can take advantage of these enhanced thresholds.
- Companies must affirmatively elect by modifying their charters or bylaws and notify shareholders in their proxy beforehand – A company would have to modify one of its governing documents to affirmatively elect to be governed by this new law, as well as disclose in a proxy before it modifies a governing document that it intends to do so.
- Shareholder proponents would have to solicit 67% of the voting power of the shares entitled to vote – The proposal submission thresholds are pretty steep, particularly the requirement to solicit 67% of the voting power of the shares entitled to vote. In addition, a shareholder or group of shareholders would have to own either $1 million worth of stock or 3% of the company’s voting shares, and hold such shares for the six months prior to the annual shareholders meeting.
- Proxies would have to describe the proposal process – Companies would need to include disclosure about the proposal process, including how shareholders can contact other shareholders for purposes of satisfying the ownership requirements.
- How this Texas law stands alongside the SEC’s Rule 14a-8 – Rule 14a-8 only regulates when a proposal must be included in a company’s proxy statement; it doesn’t dictate whether the proposal needs to actually be brought at the meeting, which is a state law issue.
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