On July 19, 2025, Governor Greg Abbott signed Senate Bill 29 (SB 29) into law, a comprehensive reform of the Texas Business Organizations Code (TBOC). SB 29 aims to strengthen corporate governance, streamline shareholder litigation processes, and enhance Texas’s competitiveness as a hub for business incorporations. The new law is designed to make Texas a more attractive option for companies, potentially rivaling Delaware in corporate law.
Key Provisions of SB 29
Codification of the Business Judgment Rule:
SB 29 codifies the business judgment rule into Texas law, which now provides directors with a presumption that they acted in good faith and with reasonable care when making corporate decisions. This legal safeguard aims to prevent frivolous derivative lawsuits, ensuring that directors are not unduly hindered by excessive litigation risks. Legal experts view this as a step toward creating a business-friendly legal environment where decision-makers can operate without the constant fear of legal challenges.
Stricter Pleading Standards for Derivative Actions:
The new law also sets higher pleading standards for derivative lawsuits, ensuring that only well-founded claims are brought before the courts. By requiring shareholders to provide substantial evidence and meet specific thresholds before pursuing derivative actions, SB 29 reduces the possibility of meritless litigation that could waste company resources.
Expanded Jurisdiction for the Texas Business Court:
Another important reform in SB 29 is the expanded jurisdiction of the Texas Business Court. The law broadens the court’s authority to handle a wider range of corporate disputes, including issues related to intellectual property, trade secrets, and mergers and acquisitions. This is seen as a step toward streamlining complex commercial litigation in Texas, making the state more attractive for businesses seeking efficient legal resolutions.
Stronger Governance Flexibility:
SB 29 allows corporations to adopt governance provisions that waive jury trials and establish arbitration as the primary method of resolving disputes. This change is intended to provide businesses with a more predictable and efficient legal framework, reducing the time and cost associated with lengthy court cases.
Impact on Texas and Delaware
Delaware has long been the go-to state for corporate incorporations due to its well-established and business-friendly corporate laws. However, with SB 29, Texas is positioning itself as a competitive alternative. By incorporating features similar to Delaware’s corporate code, Texas aims to attract more corporations and startups seeking favorable legal environments.
Although SB 29 is a significant step, Delaware’s established court system and legal expertise still provide it with an edge. However, the reforms in Texas position the state to challenge Delaware’s dominance, particularly in industries looking for cost-effective solutions to corporate governance and legal disputes.
Texas as a Corporate Hub
Texas’s reforms not only provide legal flexibility but also reflect the state’s business-friendly tax policies and pro-growth economy. The absence of a state income tax, coupled with these new corporate law reforms, makes Texas increasingly attractive to businesses looking to incorporate.
The shift to a more flexible corporate governance model could particularly benefit tech companies, manufacturers, and multinational corporations looking to scale their operations without facing burdensome legal hurdles. The state’s growing tech ecosystem and entrepreneurial spirit add to the appeal, positioning Texas as a rising business hub.
What’s Next for Texas Corporate Law?
As the legal landscape evolves, Texas will likely continue to refine its corporate laws to remain competitive. The state’s move to adopt SB 29 signals its intent to compete head-to-head with Delaware in attracting corporate incorporations and offering efficient legal remedies. Moving forward, businesses in Texas will need to keep track of these legal changes, ensuring that they are in compliance with the updated rules while leveraging the new flexibility offered by the reforms.
