Corporate Law Overhaul: Texas Makes Significant Moves to Become Even More Business-Friendly

Takeaways

• • Derivative Lawsuits Limited: Public companies formed in Texas may now adopt provisions requiring equity holders to meet a minimum ownership threshold—up to 3% of outstanding equity—to file derivative claims. This change aims to curb litigation from equity holders with small stakes and aligns Texas with other business-friendly jurisdictions.
  • Codification of the Business Judgment Rule: SB 29 codifies the Texas Supreme Court’s longstanding principle that shields certain governing bodies (such as directors and officers of corporations, or members, managers, and officers of LLCs) from liability for good faith decisions made in the best interests of the company.
  • Litigation Management Tools: Certain Texas entities may now:
    • Select exclusive venues within the state for internal company disputes.
    • Waive jury trials for internal entity claims through governing documents—potentially streamlining and de-risking dispute resolution.
  • Competitive Shift from Delaware: Governor Abbott cited Elon Musk’s legal battle in Delaware over his Tesla compensation as a catalyst for the reforms. Musk moved the legal headquarters of several of his companies—including Tesla and SpaceX—to Texas in 2024.

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On May 14, 2025, Governor Greg Abbott signed Senate Bill 29 (SB 29) into law, marking a major shift in Texas business governance by limiting the ability of minority equity holders in public companies to bring derivative lawsuits, codifying the business judgment rule, and granting Texas entities new tools to manage internal litigation.

Complementary Legislation Signed:

• Senate Bill 1058 exempts Texas-based stock exchanges from certain franchise tax obligations starting Jan. 1, 2026.
• House Joint Resolution 4 proposes a constitutional amendment barring taxation of stock exchange transactions and safeguarding retirement accounts—set for voter approval in the November 2025 ballot.

Implications for Businesses:
Texas is positioning itself as a direct competitor to Delaware for entity charters. These reforms may appeal to companies seeking reduced litigation risk, streamlined internal dispute processes, and a judiciary less inclined to override business decisions.

What Should Companies Do Now?

• Evaluate whether chartering in Texas may offer strategic advantages.
• Review and potentially amend governing documents to incorporate new litigation management tools.
• Monitor upcoming constitutional amendments that may further reduce the tax burden on financial activities in Texas.

For guidance on how SB 29 and related reforms may impact your business or to explore strategic restructuring in Texas, please contact your local Dykema relationship attorney.