Texas Bolsters Corporate Governance with Senate Bill 29

On May 14, 2025 Texas Governor Greg Abbott signed Senate Bill 29 (S.B. 29) into law. S.B. 29, which took effect immediately, is a bold step to align Texas law with key Delaware corporate governance principles.

S.B. 29 proposes significant amendments to the Texas Business Organizations Code (TBOC) focusing on corporate governance. S.B. 29 follows the creation of the Texas Business Court in 2023, a specialized forum to resolve complex business disputes, including shareholder actions.

Elimination of Fiduciary Duties for LLCs and Partnerships

S.B. 29 introduces flexibility for LLCs and limited partnerships, allowing their governing agreements to modify or eliminate fiduciary duties – duties of loyalty, care, and good faith – as is the case in Delaware. However, the bill preserves existing restrictions for corporations, prohibiting the elimination of liability for breaches of the duty of loyalty or good faith by corporate directors and officers, whether publicly traded or private.

Codifying the Business Judgment Rule

A cornerstone of S.B. 29 is the statutory codification of the business judgment rule, a doctrine rooted in Delaware case law and recognized in Texas courts. This rule presumes that corporate directors and officers act in good faith, with due care, and in the company’s best interests when making decisions. Its purpose is to prevent courts from substituting their judgment for that of business professionals, recognizing that business decisions often involve uncertainty and risk. S.B. 29 codifies this rebuttable presumption in the TBOC, applying it to publicly traded corporations, LLCs, and limited partnerships formed in Texas, as well as other entities that opt in via their governing documents. To overcome this presumption, plaintiffs must prove a breach of fiduciary duty involving intentional misconduct, fraud, a knowing violation of law, or ultra vires acts.

Conflicted Transactions

To address conflicted transactions – those involving controlling shareholders, directors, or officers- S.B. 29 creates procedures to ensure fairness while protecting corporate decision-makers. Boards may appoint committees of independent, disinterested directors to review and approve such transactions, allowing them to be evaluated under the business judgment rule rather than the more rigorous “entire fairness” standard. Additionally, companies can seek a pre-transaction court ruling to confirm a transaction’s propriety or a director’s independence, streamlining dispute resolution. This approach is very similar to Delaware’s “safe harbor” provision.

Strengthening Protections Against Shareholder Actions

S.B. 29 equips Texas entities with tools to manage shareholder disputes effectively:

• Exclusive Texas Jurisdiction: Governing documents may designate Texas courts, such as the Texas Business Court, as the sole venue for internal affairs claims, ensuring consistent and expert adjudication.
• Jury Trial Waivers: Entities can waive jury trials for internal disputes, provided shareholders knowingly consent (e.g., by voting for, ratifying, or acquiring shares under governing documents with such provisions).
• Restricted Record Inspections: The bill excludes shareholder access to electronic communications (e.g., emails, text messages) unless they directly relate to corporate actions. For publicly traded entities, inspections tied to active or anticipated adversarial litigation are barred, though discovery rights in ongoing lawsuits remain intact.

Business Implications

By codifying Delaware-inspired doctrines, the bill aims at positioning Texas as an attractive jurisdiction for incorporation, particularly for public companies. However, the bill’s shareholder restrictions and jury waivers may spark debate about balancing director protections with investor rights, a dynamic we will continue to monitor.

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with Rimon, P.C. or its affiliates.

Nicolas Lafont focuses his practice on cross-border mergers and acquisitions, joint-venture transactions, corporate reorganizations and general corporate and commercial representation. He has led transactions in a wide range of sectors, including energy, pharmaceuticals, medical devices, semiconductor equipment, software, technology, the automotive industry, chemicals and manufacturing. Read more here.