Texas continues to position itself as one of the most business-friendly jurisdictions in the country. With the recent passage and signing of Senate Bill 29 (SB 29), the Texas Business Organizations Code (TBOC) has undergone sweeping reforms aimed at providing greater predictability and legal protection for Texas-based entities — and their officers, directors, and equity holders.
While much attention has been given to the law’s impact on public companies and Texas’s growing ambitions to rival Delaware as a venue for incorporations, privately held Texas businesses—especially LLCs and closely held corporations—should not overlook the potential strategic benefits of updating their internal governance documents in response to this legislation.
Here are the key developments every Texas business owner, board member, and executive team should understand:
Codification of the Business Judgment Rule
SB 29 codifies the long-standing business judgment rule, now found in Section 21.419 (for corporations) and Section 101.256 (for LLCs). For covered entities, this means:
- Officers, directors, and governing persons are presumed to act in good faith, on an informed basis, in the best interests of the entity, and in compliance with law and governing documents;
- Claims for breach of fiduciary duty now require the plaintiff to rebut those presumptions and show not just a breach, but that the conduct involved fraud, intentional misconduct, an ultra vires act, or knowing violation of law, stated with specificity;
- These protections are available not just to public companies, but to private companies that affirmatively opt in via their governing documents.
Implication: Private companies can now choose to adopt a statutory safe harbor of business judgment, significantly reducing the threat of opportunistic fiduciary litigation.
Waiver of Jury Trial in Internal Disputes
A new Section 2.116 allows domestic entities to include a jury trial waiver for internal entity claims (e.g., disputes between owners, managers, or derivative actions) in their governing documents. This waiver:
- Is enforceable even if not signed by the plaintiff;
- Binds those who voted for or ratified the document;
- Binds shareholders or members who acquired or continued to hold their interest after the waiver was adopted.
Implication: If litigation arises among stakeholders, enforcing a bench trial could limit discovery gamesmanship, reduce litigation costs, and improve case predictability.
Exclusive Forum and Venue Provisions
Entities may now designate Texas courts as the exclusive forum for internal governance disputes, through their certificate of formation or internal governance agreements.
Implication: These clauses help companies avoid costly multi-jurisdictional litigation and reinforce Texas’s role as the chosen forum.
Clarified Record Access Rights
For LLCs and private corporations, SB 29 clarifies that statutory books and records access does not include emails, texts, or social media unless those communications directly effectuate corporate actions, or unless otherwise provided in the governing documents.
Implication: Companies can now limit the scope of owner document requests and avoid burdensome e-discovery obligations—especially valuable for founder-led or family-run businesses.
Expanded Flexibility to Modify Fiduciary Duties
Under revised Sections 101.401 (LLCs) and 152.002 (Limited Partnerships), fiduciary duties—including duty of loyalty, care, and good faith—may now be expanded, restricted, or eliminated in governing documents.
Implication: Privately held entities can tailor their duty framework to reflect commercial realities, protect passive investors, or reinforce the autonomy of managing members or general partners.
Why This Matters Now
These statutory changes are already in effect. For private companies, the opportunity lies in proactively revising internal documents—LLC agreements, shareholder agreements, bylaws, and certificates of formation—to opt into enhanced protections, avoid unnecessary exposure, and align with the new legal landscape.
Failure to do so could leave your business governed by legacy provisions or default rules that do not reflect the current state of Texas law.
Next Steps for Texas Business Leaders
If you are a business owner, CEO, or board chair of a privately held Texas entity, we recommend reviewing your company’s:
- Governing documents (e.g., company agreements, bylaws, shareholder agreements);
- Dispute resolution provisions;
- Fiduciary duty clauses;
- Books and records inspection policies.
If you’d like help updating your documents—or understanding how these changes apply to your business—contact us today.