The Texas legislature concluded its 89th Regular Session on June 2, 2025. During the session, the energy industry paid significant attention to legislative actions impacting the power industry in the areas of grid management, reliability, power generation and resource development. The state is seeing a soaring demand for power in the state, in part due to the substantial growth in the development of large load projects. But the legislature was also hard at work on other changes to Texas laws that likely were not on the radar of the energy industry. These changes to the corporate laws in Texas sought to make Texas (as opposed to stakes like Delaware or Nevada) the new destination-of-choice for new entity formation and to attract existing companies to reincorporate in Texas.
Texas has always prided itself on being a business-friendly state, but in this session it sought to capitalize on controversial judicial decisions in Delaware which resulted in several high-profile companies reincorporating in other states. These decisions put additional scrutiny on the decisions of boards and management. Texas is now making changes to its existing laws to better compete with Delaware and Nevada as the best place for domestication.
Companies should take note of these changes. Texas could be a much more viable option for governing bodies to consider when selecting their state of formation for new project companies or affiliated entities within their corporate structure. They could even be considered in the broader context of whether re-domestication of existing entities is in their best interest. Boards and decision makers of energy companies must wrestle with a myriad of complex issues in their decision making process including a complex and continuously evolving regulatory framework at each the state, federal and local level, supply chain management issues, conflicting interests of multiple stakeholders involved in various projects, including those from investors and lenders due to the capital intensive nature of their projects. Any changes that could ease some of the pressure imposed on decision makers in their process and either deter potential litigation or place that litigation into a more sophisticated tribunal may seriously need to be evaluated.
Changes to Texas Business Organizations Code
Texas Senate Bill 29 (SB 29) made significant changes to laws affecting governance, liability of governing bodies, rights of shareholders, and the management of the internal affairs of the various types of entities to be formed. While most of the changes primarily impact Texas corporations, similar changes were made to these laws related to limited liability companies and limited partnerships.
Codification of the Business Judgment Rule
SB 29 added a new Section 21.419 to the Texas Business Organizations Code (the “TBOC”). It provides that officers and directors of a Texas publicly traded corporation or a corporation whose governing documents so provide will be entitled to a presumption that they 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. This is essentially the codification of the so-called “business judgement rule” for corporations. These changes also provide that a claimant seeking to prove a breach of duty of an officer or directors must prove fraud, intentional misconduct, an ultra vires act or a knowing violation of law in order to succeed on a claim that an officer or director was liable to the corporation or its shareholders. Unlike Delaware, gross negligence will not be enough to find a breach of the duty of care. These new protections will extend to officers as well as directors.
For limited liability companies and limited partnerships, SB 29 makes amendments to clarify that their governing documents may expand, restrict, or eliminate fiduciary duties and related liabilities, including the duty of loyalty, care, and good faith.
Waiver of Jury Trial
SB 29 provides that Texas entities may now include in their governing documents a waiver of jury trial with respect to matters related to claims involving the internal affairs of the entity.
Exclusive Forum
SB 29 further provides that Texas entities may now specify in their governing documents an exclusive court forum and venue for claims relating to internal entity claims. “Internal entity” claims are claims, including a derivative claim, that is based on, arises from, or relates to the internal affairs of the entity. While many governing documents may have included clauses requiring disputes to be brought in Texas courts, this new change would permit governing documents could provide that the new Texas Business Courts are the exclusive forum for such a claim.
Books and Records and Inspection Rights
For books and records demands, changes were made to clarify that inspection rights of owners will not apply to emails, text messages and similar electronic communications and social media account information unless such items effectuate an action by the entity. This could reduce the burden on companies seeking to respond to such claim and will protect certain electronic exchanges from needing to be disclosed. In addition, for publicly traded corporations, shareholder inspection right will now be limited if the shareholder has pending litigation or a derivative proceeding against the corporation so that records requests cannot be used in lieu of discovery requests.
Attorney Fees Awards in “Disclosure Only” Settlements
SB 29 added a new section that limit the award of attorneys’ fees in derivative lawsuits that only result in a “disclosure only” settlement.
Limitation on derivative actions
An additional change made by SB 29 authorizes a publicly traded Texas corporation or a private corporation with more than 500 shareholders that so elects in its Certificate of Formation or Bylaws, to establish a minimum ownership threshold for bringing derivative claims, the threshold to be included in its governing documents so long as the limit does not exceed 3% of a company’s outstanding shares.
Elimination of Class Voting
Another change made by SB 29 was to permit a Texas corporation to waive in its certificate of formation any requirement for separate voting by class or series, including votes on changing the number of authorized shares and approving fundamental actions and fundamental business transactions.
Independence Committees Reviewing Conflict of Interest Transactions and Advance Determinations
Additional changes made with SB 29 gives better options to the boards of public corporations and those that have so elected when evaluating and approving certain transactions involving a conflict of interest. The board may now form a committee of independent and disinterested directors to review and approve such transaction involving the corporation and its subsidiaries and a controlling shareholder, director or officer and then petition the Texas Business Court (and other courts with proper jurisdiction if a Texas Business Court is unavailable) to make an advanced determination on the independence of the committee of directors formed to review and approve transaction. The decision of the court will be binding regarding the independence of the directors on the committee.
Exculpation of Corporate Officers
Another piece of legislation, Senate Bill 2411, is also worth noting. It includes, among other changes to the corporate laws, a provision which permits Texas corporations to include provisions in their certificates of formation that exculpate officers from monetary liability for breaches of duty of care to the same extent as the governing persons can be exculpated. Previously, such provision was only permitted for governing bodies but not officers of the corporation.
Improvements made to Texas Business Court System
The Texas Business Court, created through legislation in 2023, is a statewide, specialized trial court created to resolve certain complex business disputes. The Court is composed of eleven geographical divisions, five of which are now operational. In the most recent session, HB 40 made some additional improvements to the new court system. The legislation authorized Business Courts in the six remaining geographic divisions and authorized the appointment of additional judges to two of the divisions – 1st Division (Dallas) and 11th Division (Houston). The changes made also expanded the jurisdiction of the courts and authorized the courts to oversee civil actions that would be within their jurisdiction even though they may have commenced prior to September 1, 2024.
As noted above, these changes to the corporate laws often provide that the Business Court is better situated to hear certain actions involving the governance and structure of business entities formed withing the State. These changes further seek to make Texas more attractive for entity formation.
Contact
To discuss this legislation and Texas corporate laws, please contact Brenda Barrett or your Husch Blackwell attorney.