In a significant move to bolster its appeal as a business-friendly state, Texas Governor Greg Abbott signed Senate Bill 29 (SB 29) into law on May 14, 2025. This legislation introduces substantial changes to the Texas Business Organizations Code, aiming to limit shareholder litigation and provide greater protections for corporate directors and officers.
Key Provisions of SB 29
1. Increased Threshold for Derivative Lawsuits
SB 29 stipulates that shareholders must own at least 3% of a company’s outstanding shares to initiate derivative lawsuits. This measure is designed to prevent what proponents describe as “abusive shareholder litigation” by ensuring that only those with a significant stake in the company can bring such suits. Critics, however, argue that this change effectively silences minority shareholders and reduces corporate accountability.
2. Enhanced Protections for Directors and Officers
The new law codifies the business judgment rule, providing that directors and officers are presumed to act in good faith and in the best interests of the company. To challenge this presumption, plaintiffs must now prove fraud, intentional misconduct, or a knowing violation of the law. This provision aims to shield corporate leaders from frivolous lawsuits but raises concerns about potential unchecked executive power.
3. Limitations on Shareholder Access to Records
SB 29 restricts shareholders’ rights to inspect certain corporate records, including emails, text messages, and social media communications, unless these documents effectuate a corporate action. Additionally, shareholders engaged in litigation against the company may be denied access to records during the pendency of the lawsuit. These changes are intended to protect sensitive information but may hinder transparency and shareholder oversight.
4. Exclusive Forum and Jury Trial Waivers
The legislation allows companies to designate Texas courts as the exclusive venue for internal corporate disputes and to include provisions in their governing documents that waive the right to a jury trial for such matters. While this could streamline dispute resolution, it also raises questions about shareholders’ access to impartial adjudication.
Implications for Texas’s Business Landscape
Governor Abbott and supporters of SB 29 argue that these reforms will attract more businesses to Texas by providing a more predictable and favorable legal environment. The law’s passage coincides with high-profile corporate relocations to Texas, including Elon Musk‘s decision to move Tesla and SpaceX operations from Delaware to Texas following a Delaware court’s invalidation of Musk’s $56 billion compensation package. In response to the Delaware ruling, Tesla amended its bylaws to align with SB 29, requiring a 3% ownership threshold for shareholders to file derivative lawsuits.
Criticisms and Concerns
Opponents of SB 29 contend that the law undermines minority shareholder rights and could lead to increased corporate misconduct. By raising the barrier to legal action and limiting access to corporate records, the legislation may reduce the checks and balances that shareholders provide. Furthermore, the appointment of business court judges by the governor every two years has sparked concerns about potential political influence over the judiciary.
Texas’s enactment of SB 29 marks a pivotal shift in corporate governance, positioning the state as a more accommodating jurisdiction for businesses. While the law aims to reduce frivolous litigation and attract corporate investment, it also raises significant questions about shareholder rights and corporate accountability. As Texas continues to reshape its legal landscape, the long-term effects of these reforms on the state’s economy and corporate culture will be closely watched.
