Texas Senate Bill 29 Expands Corporate Protections

In a significant legislative move, Governor Greg Abbott signed Texas Senate Bill 29 (S.B. 29) and Texas Senate Bill 1057 (S.B. 1057) into law, marking a pivotal shift for privately held companies in Texas. These bills introduce comprehensive changes to corporate governance and litigation practices, aiming to enhance the operational efficiency and legal clarity specifically for private corporations. This article delves into the specific provisions of these bills and their implications for privately held entities in Texas.

Business Judgment Rule

S.B. 29 codifies the Business Judgment Rule, providing a statutory framework that protects directors and officers of private corporations from personal liability for decisions made in good faith and in the best interest of the company. Notably, the bill includes an opt-in provision, allowing private corporations to choose whether to adopt these protections. This codification offers a safeguard for corporate decision-makers, encouraging prudent risk-taking and strategic planning without the fear of unwarranted litigation.

Waiver of Jury Trial

The codification of the waiver of jury trials for internal entity claims represents a significant shift in dispute resolution for private corporations. This provision allows companies to opt for bench trials, which can offer a more efficient and predictable legal process. The waiver of jury trials is expected to reduce litigation costs and expedite the resolution of internal disputes, benefiting both the corporations and the judicial system.

Exclusive Forum Selection

S.B. 29 and S.B. 1057 introduce provisions for exclusive forum selection clauses, allowing private corporations to designate specific courts for resolving internal disputes. This measure provides legal certainty and consistency, reducing the risk of conflicting judgments across different jurisdictions. By centralizing legal proceedings, the bills aim to streamline dispute resolution and enhance the predictability of legal outcomes.

Limitation of Books and Records Demands

The legislation imposes limitations on demands for books and records, notably excluding electronic communications from such demands. This restriction aims to protect sensitive corporate information and reduce the administrative burden on companies. By narrowing the scope of permissible demands, the bills seek to balance transparency with the need for operational confidentiality.

Limiting Recovery of Attorney’s Fees in ‘Disclosure Only’ Settlements

The bills also address the recovery of attorney’s fees in disclosure-only settlements, imposing restrictions that aim to curb excessive litigation costs. By limiting fee recovery, the legislation discourages meritless lawsuits and promotes more substantive legal claims. This provision is anticipated to reduce the frequency of litigation driven solely by the prospect of attorney’s fees, thereby fostering a more equitable legal environment for private corporations.

Class and Series Voting Rights

The bills also address changes to class and series voting rights, offering greater flexibility for privately held companies. These changes allow corporations to tailor voting rights to better reflect the interests of different shareholder classes, thereby enhancing corporate governance and aligning decision-making processes with shareholder priorities.

Conclusion

The enactment of Texas Senate Bill 29 and Texas Senate Bill 1057 represents a transformative development for privately held companies in Texas. By codifying key corporate governance principles and refining litigation practices, these bills set Texas apart as a premier destination for entity formation and domestication.

If you’re exploring the advantages of Texas Senate Bill 29 for your privately held company, the BoyarMiller team is here to assist in forming your entity in Texas or moving your existing entity to Texas to take advantage of Texas’ favorable legal landscape.