A bill introduced in the 89th Texas Legislature represents a pro-management shift in Texas corporate law that could reduce the volume and scope of shareholder litigation.
‘Give Companies Certainty’
“By codifying the business judgment rule, that’s maybe the most important part of the bill because if corporations looking to leave Delaware, as many are, are looking at where to go, we want Texas to be attractive to them,” said Texas State Senator Bryan Hughes, R-Mineola, the bill’s author.
“The business judgment rule is already the common law of Texas, but by codifying in this bill, we’re going to give companies certainty,” Hughes said.
The bill seeks to establish Texas as the preferred state for companies to incorporate, as a better alternative to Delaware, Hughes said.
The law would also concentrate corporate litigation in Texas courts, create procedural and substantive barriers to shareholder claims, and strengthen protections for corporate directors and officers. This could potentially limit shareholders’ rights in certain situations.
According to Foley & Lardner, the bill proposes reforms to shield businesses from lawsuits that lack merit and are intended to distract from the company’s operations.
It could also make Texas a more attractive incorporation jurisdiction for businesses seeking protection from shareholder litigation.
“By strengthening the legal protections for business leaders, ensuring the expeditious resolution of corporate disputes, and offering more control over corporate litigation, the bill, if passed, would make Texas an increasingly attractive option for companies looking to relocate or incorporate,” according to Foley & Lardner.
Hughes said Texas has made several moves to make it an attractive place to do business for publicly traded companies, including establishing the Texas Stock Exchange, a new stock exchange that plans to launch in 2026 in Dallas, and the Texas Business Courts, specialized courts for business disputes.
“We want Texas to be the destination for business, which means growth and jobs,” Hughes said.
Hughes said the bill has been sent to the Senate State Affairs Committee and should receive a hearing in the next few weeks.
He said, “We’ll have an amendment in committee to make it clear that this will apply to publicly traded companies traded on the Stock Exchange or private label corporations with 500 or more shares.”