Overview
The 89th Texas Legislature has enacted significant amendments to the Texas Business Organizations Code (TBOC). These changes, effective in 2025, are designed to modernize entity governance, enhance protections for directors and officers, streamline business transactions, and clarify shareholder rights. Below is a summary of the most impactful changes and their implications for Texas businesses.
Major Amendments
A. Governance, Director and Officer Protections, and Shareholder RightsBusiness Judgment Rule Codified:
The TBOC now expressly presumes that directors, officers, and other managerial officials of corporations, LLCs, and limited partnerships act in compliance with their duties. For corporations, actions are presumed to be taken in good faith, on an informed basis, in the best interests of the corporation, and in accordance with law and governing documents. To overcome this presumption, a claimant must prove a breach involving fraud, intentional misconduct, ultra vires acts, or knowing violations of law. These protections apply to publicly traded entities and those that affirmatively opt in.
Fiduciary Duties – Flexibility for LLCs and LPs:
Governing documents for LLCs and limited partnerships may now expand, restrict, or eliminate fiduciary duties, including duties of loyalty, care, and good faith.
Derivative Actions and Shareholder Proposals:
Publicly traded corporations, or those with 500+ shareholders that opt in, may set a minimum ownership threshold (up to 3% of outstanding shares) for shareholders to bring derivative actions.
SB 1057 allows “nationally listed corporations” to require that shareholder proposals (other than director nominations and procedural matters) be submitted only by shareholders or groups holding at least $1 million in market value or 3% of voting shares, held for at least six months, and who solicit at least 67% of the voting power.
Attorney Fee Awards in Derivative Proceedings:
The amendments limit what constitutes a “substantial benefit” for purposes of awarding attorney fees, excluding additional or amended disclosures to shareholders, limited partners, or members.
Inspection Rights:
The amendments clarify that emails, text messages, and social media communications are excluded from entity records subject to inspection, unless they effectuate an official action. For publicly traded corporations (or those opting in), inspection rights may be denied to holders with ongoing or expected litigation against the corporation, though discovery rights in active litigation are preserved.
Jury Trial Waivers and Forum Selection:
Entities may now include enforceable waivers of the right to a jury trial for internal entity claims in their governing documents. Such waivers are binding if a person votes for, ratifies, or acquires/holds stock after the waiver is adopted. Governing documents may also require that internal entity claims be brought exclusively in Texas courts.
B. Officer Exculpation and Streamlined Transactions (SB 2411)Officer Exculpation:
Entities may now limit or eliminate the liability of officers for monetary damages, except for breaches of loyalty, intentional misconduct, improper personal benefit, or statutory violations. This mirrors existing director exculpation provisions and must be adopted in the certificate of formation.
Streamlined Approval of Mergers and Major Transactions:
Governing authorities may approve plans, agreements, and instruments in “final or substantially final form.” Disclosure letters and schedules delivered in connection with a merger are not part of the plan unless expressly stated. Plans of merger may appoint representatives with exclusive authority to enforce post-transaction rights, and such appointments may be made irrevocable. Plans of conversion may authorize additional actions by the converted entity without further approvals beyond the plan itself.
C. Additional Notable AmendmentsCommittee Independence:
Boards of publicly traded corporations may petition the Texas Business Court for a binding determination on the independence of committees reviewing related party transactions.
Recordkeeping and Execution:
Amendments clarify requirements for recordkeeping, execution of filings, and modernize certificate of formation content.
Business Courts:
Updates reference the new Texas Business Courts for certain proceedings.
D. Effective Dates
– SB 29: Effective May 14, 2025
– SB 1057 and SB 2411: Effective September 1, 2025
Practical Implications
The amendments provide enhanced protections for directors and officers, reduce litigation risk, and offer greater flexibility in governance and business transactions. Shareholder rights are more clearly defined, with new limitations on derivative actions and shareholder proposals, and inspection rights are more narrowly tailored. The ability to include jury trial waivers and exclusive forum provisions in governing documents is expected to reduce forum shopping and litigation uncertainty.
Texas entities, especially publicly traded companies, should review and update their organizational documents, board training materials, and compliance policies to ensure alignment with the new statutory framework.
Conclusion
The 89th Texas Legislature’s amendments to the Texas Business Organizations Code represent a substantial modernization of entity law, aligning Texas with other leading business jurisdictions and reinforcing its reputation as a business-friendly state. Please contact us to discuss how these changes may affect your organization.