Texas Senate Bill 29 (SB 29), signed into law by Governor Abbott on May 14, 2025, and effective immediately, introduces substantial changes to the Texas Business Organizations Code that affect how businesses operate in the state. These reforms create new protections for business leaders and provide more flexibility in how companies structure their internal governance.
Here's what entrepreneurs and business owners need to know about this important legislation.
Key Provisions of SB 29 and Their Business Impact
1. The Business Judgment Rule Is Now Codified
What's New: SB 29 takes the "business judgment rule" – a long-standing legal doctrine that courts have applied for decades – and formally incorporates it into Texas law. This rule creates a presumption that directors and officers act in good faith when making business decisions.
This protection automatically applies to companies with shares listed on a national securities exchange. Other corporations can opt into these protections by including specific language in their governing documents electing to be governed by Section 21.419 of the Business Organizations Code.
Business Impact: This higher threshold for liability makes it significantly more difficult for shareholders to sue company leaders for business decisions. Plaintiffs must now prove not only that a decision was unwise, but that it involved fraud, intentional misconduct, or knowing violation of law.
For business owners, this means:
- Greater confidence in making difficult business decisions
- Reduced exposure to lawsuits second-guessing business judgment
- Potential reduction in directors and officers liability insurance costs
- Enhanced ability to attract qualified board members
2. Enhanced Flexibility for LLC Governance
What's New: The law clarifies that limited liability company (LLC) agreements can "expand, restrict, or eliminate" fiduciary duties and related liabilities of members, managers, and officers.
Business Impact: For LLC owners, this provides:
- Greater certainty in customizing governance arrangements
- Ability to modify traditional fiduciary obligations to fit specific business needs
- More flexibility in structuring management responsibilities
- Potential reduction in internal governance disputes
3. Jury Trial Waivers for Internal Disputes
What's New: Texas entities can now include provisions in their governing documents that waive jury trials for internal company disputes. These waivers are enforceable even against shareholders who didn't personally sign the document, including those who acquired shares after the waiver was adopted.
Business Impact: This change offers several advantages:
- More efficient resolution of internal company disputes
- Decisions made by judges with business law expertise rather than juries
- More predictable outcomes in business litigation
- Reduced litigation costs and timeframes
4. Limitations on Records Inspection Rights
What's New: The law limits what constitutes company "records" that shareholders can demand to inspect. Emails, text messages, and social media communications are excluded unless they formally document company action. Public companies and opt-in corporations can also deny records requests from shareholders who are engaged in litigation against the company.
Business Impact: These changes help businesses by:
- Protecting the confidentiality of internal communications
- Reducing the burden of overly broad inspection demands
- Creating clearer standards for what records must be maintained
- Preventing records requests from being used as litigation tactics
5. Higher Thresholds for Derivative Shareholder Lawsuits
What's New: For public companies and corporations with 500+ shareholders that opt in, shareholders must now own at least 3% of outstanding shares to file derivative lawsuits (suits brought on behalf of the company). The law also eliminates attorney fee awards in cases where the only result was additional disclosures.
Business Impact: These reforms offer several protections:
- Reduced vulnerability to litigation from minority shareholders
- Lower litigation costs and management distractions
6. Forum Selection for Internal Disputes
What's New: Companies can specify in their governing documents that internal disputes must be handled exclusively in Texas courts.
Business Impact: This provision helps businesses by:
- Ensuring disputes are resolved in familiar court systems
- Avoiding the expense of multi-state litigation
- Preventing strategic forum shopping by plaintiffs
7. Process For Handling Potential Conflict-Of-Interest Transactions
What's New: The law authorizes companies to form committees of independent directors to review transactions involving controlling shareholders or insiders, similar to Delaware’s “safe harbor” law.
For small and medium businesses where owners often serve as directors and may engage in transactions with the company, this process provides a clear path to validate these arrangements before they occur, reducing the risk of defending against claims of improper self-dealing after the fact.
Business Impact: This framework provides:
- A clear procedural path for handling potential conflicts of interest
- Enhanced legal certainty for related-party transactions
- Reduced litigation risk for necessary business dealings with insiders
- Protection for legitimate business transactions from after-the-fact challenges
How to Take Advantage of SB 29’s New Business-Friendly Protections
Senate Bill 29 represents a significant shift in Texas business law, providing enhanced protections for company leaders and greater flexibility in business governance. While designed with public companies in mind, these changes offer valuable benefits to small and medium-sized businesses across the state.
To take advantage of these new protections, consult with a qualified business attorney who can help you update your company's governing documents and implement strategies tailored to your specific business needs. A small investment in legal guidance now could provide substantial protection for your business in the years ahead.
Call (713) 783-3110 or contact us online to schedule a consultation with an experienced Texas business attorney today to discuss these new business-friendly protections.