Senate Bill 29 on track to further Texas’ push as business hub

The Texas Business Court was established as a specialty court to handle complex business disputes on June 9, 2023, through the passage of H.B. 19. The current legislative session seeks to continue this pro-business focus and ratchet up Texas’ competition with Delaware to become the corporate law capital of America. Texas State Senators Bryan Hughes, Brent Hagenbuch, Kelly Hancock and Charles Schwertner introduced S.B. 29 on February 27, 2025, which seeks to codify key Delaware corporate law doctrines to provide a signal to executives that “Texas is ready for sophisticated business disputes.”¹

Specifically, the bill proposes to amend Texas’ Business Organizations Code in four key ways: (1) codifying key components of the business judgment rule, (2) allowing modification and elimination of fiduciary duties in LLCs and partnerships, (3) enacting standards and procedures for legal entities to deal with conflicted transactions and (4) establishing statutory thresholds applicable to shareholder actions and books and records requests. 

Since its introduction in late February, S.B. 29 has already cleared Texas’ Senate, passing with a 29-2 vote on April 3, 2025. Now, S.B. 29 is set for consideration by the Texas House of Representatives and, potentially, enactment into law this year.

S.B. 29 would codify key aspects of the business judgment rule in Texas

S.B. 29 would amend many provisions in the Texas Business Organizations Code, but codification of the business judgment rule, which originally developed through the judicial rulings of the Delaware Chancery Court and Delaware Supreme Court, is a key component of S.B. 29. Under the business judgment rule, courts presume that the directors and officers of a corporation act on “an informed basis, in good faith, and [with] the honest belief that the action taken was in the best interests of the company” when making business decisions. Martin v. Hutchison, No. 06-24-00018-CV, 2025 WL 876812, at *13 (Tex. App. Mar. 21, 2025) (internal quotation marks omitted).

S.B. 29 would codify Texas’ business judgment rule in statute, establishing rebuttable presumptions in favor of directors or officers of any Texas-formed publicly-traded corporation, limited liability company or limited partnership, as well as entities that affirmatively elect to be governed by that section of the Texas Business Organizations Code. In addition to other common law and statutory presumptions, S.B. 29 would establish a presumption that directors and officers act in good faith, on an informed basis, in furtherance of the interests of the entity, and in accordance with the law and the entity’s governing documents.

S.B. 29 would allow modification and elimination of fiduciary duties for LLCs and partnerships

S.B. 29 also proposes statutory authorization for limited liability companies and publicly traded limited partnerships to modify and entirely eliminate fiduciary duties. With respect to limited liability companies, S.B. 29 authorizes company agreements to completely eliminate any duty and related liability owed by members, managers and officers to the company and other members and managers—even fiduciary duties. Similarly, limited partnerships could affirmatively eliminate any or all of the duties of loyalty and care and the obligation of good faith.

However, S.B. 29 does not modify existing law regarding fiduciary duties for corporate directors and officers of all Texas-formed corporations, regardless of whether or not they are publicly untraded. Under the Business Organizations Code, Texas corporations are prohibited from eliminating or limiting liability for breaches of the duty of loyalty and good faith.

S.B. 29 would create rules and procedures to provide safe harbors for potentially conflicted transactions

S.B. 29 also proposes to create rules relating to conflicted transactions and independent directors—which would allow transactions to be judged under the more-lenient business judgment rule instead of the stringent entire fairness standard. 

In advance of a particular transaction, S.B. 29 would authorize a board of directors to form a committee of disinterested and independent directors to review and approve transactions involving the corporation and a controlling shareholder, director or officer regardless of whether there is a contemplated conflicted transaction.

S.B. 29 also provides an avenue for a corporation to obtain a pre-closing determination from a court about whether a given transaction is conflicted, and whether the corporation’s directors are “disinterested.” S.B. 29 envisions that—after notice is given and legal counsel is designated to act for the corporation—the court will promptly hold an evidentiary hearing to determine whether a transaction is conflicted or directors are independent.

S.B. 29’s proposed approach to interested transactions is in many ways analogous to Delaware’s General Corporate Law (DGCL) § 144, which is often referred to as Delaware’s “safe harbor” provision. Under DGCL § 144, an interested transaction may not be voided if it is approved by a majority of disinterested directors or disinterested shareholders. If the transaction was approved by disinterested shareholders or directors, the court reviews the transaction under the business judgment rule. In re Match Grp., Inc. Derivative Litig., 315 A.3d 446, 459 (Del. 2024). If the party challenging the interested transaction rebuts the business judgment rule, the Chancery Court will then review the transaction under the entire fairness standard, which requires a showing by the corporation that the transaction was entirely fair to the corporation and its shareholders when it was authorized as demonstrated by both fair price and fair dealing. Id.

Similarly, S.B. 29 would prevent a shareholder from bringing suit against the corporation unless the shareholder can rebut the presumptions established by the business judgment rule, despite proof that a director or officer was interested or voted in a meeting authorizing the transaction. At first blush, Texas’ statutory provision may provide even more protection for a corporation’s directors and officers than Delaware’s “safe harbor.”

S.B. 29 would protect against certain common shareholder suit issues

Through S.B. 29, Texas entities also stand to gain additional rights in disputes with shareholders through various provisions.

Exclusive jurisdiction in Texas

S.B. 29 would allow a Texas entity’s governing documents to require that one or more Texas courts be the exclusive forum and venue for an internal affairs claim.

Waiver of jury trial

Further, entities would be allowed to waive the right to a jury trial on any internal affair claim. S.B. 29 would require the jury waiver to be knowing and informed. But S.B. 29 would also codify that a jury waiver is “knowing and informed” when a person voted for or affirmatively ratified the governing document, acquired equity shares of the entity when a waiver existed in the governing document or otherwise knowingly or informedly consented or acquiesced to the jury waiver.

Limitation of books and records inspection rights

S.B. 29 also seeks to modify shareholder, member and partner rights to inspect company records. S.B. 29 would exclude forms of electronic communications, like emails, text messages and social media information from corporate records unless the information “effectuates an action taken by the corporation.” And for publicly-traded companies and partnerships, S.B. 29 would prohibit a books and records inspection if the entity reasonably determines the written demand is in connection with active or future derivative or civil suits where the entity (or related entities) are expected to be named as adversarial parties. However, S.B. 29 would not impair the rights of a holder or the holder’s affiliate to obtain discovery of the documents in connection with a civil or derivative suit or compel the production of those records for examination.

Conclusion

Like the establishment of the Texas Business Court, S.B. 29’s modernization of corporate law in Texas seeks to drive investment into Texas’ favorable corporate landscape. The bill now moves to the House to continue the legislative process. 

For those following these modernization efforts, S.B. 29 will certainly be one to watch. We will continue to monitor S.B. 29’s status in the Texas Legislature, reporting on any significant modifications to S.B. 29 as it winds through the Texas House and monitoring its impacts if it is eventually enacted.

Special thanks to law clerk Kirsten Krebs for assisting in the preparation of this article.

1 See Bill Analysis of S.B. 29 at 1.