Will the "Business Judgment Rule" Be Bigger (and Better) in Texas?, Trending now in ESG
On February 27, 2025, Senator Bryan Hughes (R-Tyler) filed Senate Bill 29 (S.B. 29), proposing several corporate reforms designed to cement Texas as the premier business-friendly jurisdiction in the nation. If enacted, S.B. 29 would amend the Texas Business Organizations Code to, among other things, codify the business judgment rule – a well-established common law principle in most states that protects corporate directors from personal liability for decisions made in good faith, with reasonable care, and in the company’s best interests.
Texas has long recognized the business judgment rule under common law. But, given the uncertainty that has recently unfolded in the Delaware Chancery Court, S.B. 29 would strengthen the business judgment rule's protection for directors by codifying a plaintiff's burden of proof with respect to fiduciary duty claims. And, it could limit litigation in other ways as well, as it would also set a minimum ownership threshold for standing to bring a derivative case and would prohibit attorney fee awards in disclosure-only settlements.
According to Senator Hughes, companies should move to Texas where they would not be “shackled by a burdensome Delaware legal establishment dominated by activist judges and special interest groups that deliberately disrespect the rights of shareholders.”
If passed, S.B. 29 has the potential to provide increased legal certainty for corporate directors and shareholders when making and executing business decisions, as well as provide greater clarity and predictability regarding judicial review of corporate decision-making.
Will S.B. 29 spur on a “Dexit”? It remains to be seen.
