Texas has adopted important amendments to its corporate statute. This reference guide summarizes the key changes and what they mean for directors and officers.~~Texas has recently taken meaningful steps to further enhance its appeal as an attractive home for corporations and their operations. Among the most significant recent initiatives were a set of amendments to the Texas Business Organizations Code (TBOC) enacted during the 89th Texas legislature, whose regular session concluded on June 2, 2025. This reference guide examines the four bills passed by the legislature that resulted in the most significant amendments to the TBOC from a corporate governance perspective – Senate Bill 29, Senate Bill 1057, Senate Bill 2411 and Senate Bill 2337 (together, the “2025 TBOC Amendments”). The 2025 TBOC Amendments are aimed at limiting litigation risks and potential liabilities for directors and officers, improving the regulatory framework governing interactions between proxy advisory firms and shareholders, and providing additional certainty in corporate formalities, while balancing the interests of boards of directors, management and shareholders.~~This reference guide provides (1) a summary of the four principal impacts on directors and officers of the 2025 TBOC Amendments, (2) an overview of the new proxy advisor firm regulatory law, and (3) a summary chart of the key statutory provisions introduced by the 2025 TBOC Amendments.~~It is important to note that certain provisions of the amended TBOC automatically apply and certain other provisions require action by the corporation to opt in. As such, we have provided an application guide in the summary chart at the end of this reference guide.~~In addition, it is important to note that several provisions do not go into effect until September 1, 2025. An asterisk (*) denotes that a provision of the amended TBOC takes effect on
September 1, 2025.~~I.
FOUR KEY IMPLICATIONS FOR DIRECTORS AND OFFICERS~~1. Enhanced Protections for Directors and Officers~~The 2025 TBOC Amendments provide the following enhanced protections for directors and officers of a Texas corporation:~~2. Limitations on Litigation-Related Matters~~The 2025 TBOC Amendments create several new limitations on certain litigation-related matters involving a Texas corporation:~~3. Limitations on Shareholder Proposals (New TBOC Section 21.373)*~~Under a new provision, “nationally listed corporations” may elect to adopt limitations on shareholder proposals. A “nationally listed corporation” is defined as a Texas corporation (a) with equity securities registered under Section 12(b) of the Securities Exchange Act of 1934, (b) that is listed on a national securities exchange, and (c) that has either (i) a principal office in Texas or (ii) a listing on a Texas-headquartered stock exchange approved by the Texas Securities Commissioner. Under Texas case law, a corporation’s “principal office” is where its officers direct, control, and coordinate activities.~~If a corporation opts in to this provision, then, subject to the corporation’s governing documents, a shareholder or group seeking to submit a proposal must meet the following heightened requirements:~~These heightened requirements apply to proposals on any matter to be submitted to shareholders for approval at a meeting of shareholders, including proposals submitted under Exchange Act Rule 14a-8 and floor proposals under advance notice bylaws, other than director nominations and procedural resolutions that are “ancillary to the conduct of the meeting.”~~A Texas corporation may implement these limitations in its certificate of formation or bylaws. Although the new provision does not require shareholder approval for such an amendment, it requires that any proxy statement issued before the amendment is adopted include a description of the amendment. Once adopted, all proxy statements must include instructions regarding how shareholders may submit proposals and contact other shareholders to satisfy ownership thresholds.~~4. Technical Transaction Execution Improvements for Approval of Mergers, Major Transactions and Related Actions (Amended TBOC Sections 3.106, 10.002, 10.004 and 10.104)*~~The 2025 TBOC Amendments streamline the approval and administration of major business transactions, as summarized below:~~II.
PROXY ADVISOR DISCLOSURE REQUIREMENTS
(TBOC New Chapter 6A)*~~The 2025 TBOC Amendments add new Chapter 6A, titled “Proxy Advisory Services,” which will require proxy advisory firms to make new public disclosures when advising on votes involving certain companies with connections to Texas. Chapter 6A applies to any “proxy advisor,” which is defined as a person who, for compensation, provides a proxy advisory service to shareholders of a company or to other persons with authority to vote on behalf of shareholders of a company. For this purpose, a “company” includes any publicly traded corporation that (i) is incorporated in Texas, (ii) has its principal place of business in Texas, or (iii) is incorporated in another state and has made a proposal to redomesticate to Texas. “Proxy advisory services” are broadly defined and include, among other things, advice or recommendations on how to vote on proposals, proxy statement research or analysis, ratings or research regarding corporate governance, and development of voting recommendations or policies. The scope of proposals covered by the law includes all proposals that are included in the company’s proxy statement, whether made by the company or by shareholders, including director elections and executive compensation.~~Disclosure obligations are triggered when a proxy advisory firm provides advice that:~~When these conditions apply, the proxy advisory firm must:~~“Materially Different” advice triggers additional disclosures. If a firm gives conflicting advice—such as (a) telling one client to vote for a proposal and another to vote against the same proposal or (b) advising a vote for or against a proposal in opposition to the recommendation of the company’s management when the client did not expressly request advice for a non-financial purpose, the advisor must, in addition to complying with the requirements above:~~Chapter 6A provides that a violation of these new provisions would be a deceptive trade practice under the Texas Deceptive Trade Practices-Consumer Protection Act, which allows for broad-sweeping private and public rights of action. The statute also provides that the recipient of the proxy advisory services, the company subject to the proxy proposal, and any shareholder of the subject company can bring actions seeking injunctive relief or a declaratory judgment against the proxy advisor. The plaintiff is then required to give notice to the Attorney General, who may intervene in the action.~~III.
2025 TBOC AMENDMENTS: SUMMARY OF KEY CHANGES~~PROVISION~~KEY CHANGES~~APPLICATION / SCOPE~~Senate Bill 29 (Amendments Effective May 14, 2025)~~§ 21.419 – Business Judgment Rule (BJR)~~~~Codifies BJR: acts of directors/officers are presumed (i) in good faith, (ii) informed, (iii) in the corporation’s best interests, and (iv) lawful. Rebuttal requires proof of (a) breach of duty and (b) fraud, intentional misconduct, ultra vires acts, or knowing violations of law. Does not limit monetary liability-limiting provisions in governing documents.~~Automatically applies to any publicly traded Texas corporation; a non-publicly traded Texas corporation may Opt In by affirmatively electing in its certificate of formation or bylaws to be governed by this section. Applies in addition to any presumption under common law or the TBOC.~~§ 21.418(f) – Related Party Transaction Approval~~~~Shields directors/officers from shareholder breach of duty claims regarding interested transactions, unless the cause of action is permitted under § 21.419.~~Automatically applies to any publicly traded Texas corporation; any other Texas corporation may Opt In by affirmatively electing in its certificate of formation or bylaws to be governed by § 21.419 – BJR Statute. Does not shield controlling stockholders.~~§§ 21.416 & 21.4161 – Committees and Related Party Transactions~~~~Allows Texas corporations to petition Texas Business Court (or in certain cases a district court) to determine if committee members reviewing related party transactions are “independent and disinterested.” The court’s determination is binding unless new facts arise. Requires notice of the petition to shareholders.~~Automatically applies to any publicly traded Texas corporation; any other Texas corporation may Opt In by affirmatively electing in its certificate of formation or bylaws to be governed by § 21.419 – BJR Statute.~~§ 21.552 – Limitations on Derivative Actions~~~~Permits Texas corporations to impose a minimum ownership threshold (up to 3% of outstanding shares) to bring derivative actions. Must be in certificate of formation or bylaws.~~Automatically applies to any publicly traded Texas corporation; any other Texas corporation with at least 500 shareholders may Opt In by affirmatively electing in its certificate of formation or bylaws to be governed by § 21.419 – BJR Statute.~~§§ 2.115 & 2.116 – Jury Trial Waivers and Forum Selection~~~~May (i) include waivers of jury trial for internal entity claims in certificate of formation or bylaws; and (ii) select an exclusive Texas forum and venue for internal entity claims.~~A Texas corporation may Opt In by including such waiver in its certificate of formation or bylaws. Includes derivative actions.~~§ 21.218 – Inspection Rights~~~~Publicly traded Texas corporations and Texas corporations that opt in to § 21.419 may deny inspection to shareholders involved in active/pending derivative proceedings or civil lawsuits. Excludes emails, texts, and social media from all corporate records subject to inspection rights unless they effectuate corporate action. Discovery rights remain intact.~~Automatically applies to any publicly traded Texas corporation; any other Texas corporation may Opt In by affirmatively electing in its certificate of formation or bylaws to be governed by § 21.419 – BJR Statute.~~Senate Bill 1057 (Amendments Effective September 1, 2025)~~§ 21.373 – Requirements for Shareholder Proposals~~~~To submit a proposal, a shareholder/group must hold $1 million in market value or 3% of voting shares as of the date proposal is submitted, must have held the shares for at least six months and through the shareholder meeting, and must solicit at least 67% of voting power with respect to the proposal.~~A “nationally listed corporation” may Opt In by affirmatively electing to include such requirements in its certificate of formation or bylaws and disclosed in proxy, together with certain instructional information. No shareholder approval required (unless added as an amendment to the certificate of formation).~~Senate Bill 2411 (Amendments Effective September 1, 2025)~~§ 7.001 – Officer Exculpation~~~~Permits exculpation of officers for monetary damages to same extent as statutorily permitted for directors. Exclusions: breaches of loyalty, intentional misconduct, improper benefit, statutory violations.~~A Texas corporation may Opt In by including such provision in its certificate of formation.~~§§ 3.106, 10.002, 10.004, 10.104 – Approval of Forms, Plan of Merger, and Additional Administrative Changes~~~~Authorizes approval of corporate documents (e.g., plan of merger) in final or substantially final form. Disclosure schedules are not part of the plan unless expressly included. Permits irrevocable appointment of representatives to enforce post-transaction rights.~~Applies Automatically.~~§ 1.057 – Texas Law Controls~~Establishes that the TBOC’s plain meaning governs; the TBOC cannot be supplemented, contravened or modified by the case law or statutes from other states. Directors and officers of a Texas corporation may, but are not required to, consider the laws and practices of other states in exercising their powers. A failure to consider or conform to such out-of-state authorities does not constitute or imply a breach of the TBOC or any duty under Texas law.~~Applies Automatically.~~§ 21.561(c)– Excluding Attorney Fee Awards for Enhanced Disclosure~~Prohibits the recovery of attorneys’ fees for “disclosure only” settlements in a derivative proceeding, regardless of materiality. Under Section 21.561(b), a shareholder plaintiff may not recover attorneys’ fees unless the court finds the proceeding has resulted in a substantial benefit to the corporation. New Section 21.561(c) provides that a substantial benefit does not include “additional or amended disclosures made to shareholders, regardless of materiality.”~~Applies Automatically.~~Senate Bill 2337 (Amendments Effective September 1, 2025)~~(New Chapter) 6A.001, 6A.201-202 – Proxy Advisory Firm Regulation~~~~Requires proxy advisors to provide certain disclosures to shareholders and the company if the proxy advisor makes recommendation or provides voting advice, where the advice/recommendation is based on non-financial factors or where the proxy advisor provides conflicting advice/recommendations to clients.~~Applies Automatically to any publicly traded entity that (i) is organized or created in Texas, (ii) has its principal place of business in Texas or (iii) has made a proposal in its proxy statement to become a Texas entity.~~The following Gibson Dunn lawyers prepared this update: Hillary H. Holmes, Gerald Spedale, Jonathan Whalen, and Patrick Cowherd.~~Gibson Dunn’s Texas lawyers are available to assist with any questions you may have regarding these developments. To learn more, please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Securities Regulation & Corporate Governance practice group, or the authors:~~Hillary H. Holmes – Houston (+1 346.718.6602, hholmes@gibsondunn.com)~~Gerry Spedale – Houston (+1 346.718.6888, gspedale@gibsondunn.com)~~Jonathan Whalen – Dallas (+1 214.698.3196, jwhalen@gibsondunn.com)~~Patrick Cowherd – Houston (+1 346.718.6607, pcowherd@gibsondunn.com)~~© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.gibsondunn.com.~~Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. Gibson Dunn (and its affiliates, attorneys, and employees) shall not have any liability in connection with any use of these materials. The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. Please note that facts and circumstances may vary, and prior results do not guarantee a similar outcome.~~~~Download PDF~~
Jul 7
Deal Summary
