Texas has taken another step toward becoming one of the most business-friendly states in the nation. Recent legislation, Senate Bills 29 and 2411, signed by Governor Greg Abbott, introduces major updates to the Texas Business Organizations Code (TBOC).
These reforms expand protections for officers and directors, clarify governance rights, and create greater predictability for Texas companies. While some provisions apply automatically to public corporations, private companies must affirmatively adopt many of these new protections in their governing documents.
This summary highlights the key TBOC changes most relevant to Texas corporations, limited liability companies (LLCs), and limited partnerships (LPs), and outlines recommended next steps for private companies.
Texas courts have long applied the common-law business judgment rule, which shields corporate directors and officers from liability for decisions made in good faith and within the scope of their business judgment. SB 29 codifies and expands these protections in new TBOC Section 21.419.
Under Section 21.419, directors and officers are presumed to act:
- In good faith
- On an informed basis
- In the corporation’s best interest
- In compliance with law and governing documentsThis new statutory presumption applies automatically to public companies, and private companies can opt in by expressly adopting Section 21.419 in their governing documents.
If a private company adopts the modified business judgement rule, shareholders cannot do not have a cause of action against any officer or director unless the claimant successfully rebuts one or more of these presumptions and proves that the alleged breach involved fraud, intentional misconduct, ultra vires acts, or knowing violations of law.
SB 29 also extends similar protections to the governing persons of LLCs and LPs, confirming that these entities may expand, restrict, or eliminate fiduciary duties of loyalty, care, and good faith through their governing agreements.
SB 29 amends TBOC Section 21.218 to narrow the scope of shareholder inspection rights.
For corporations that elect to be governed by the new provisions, shareholders can no longer demand access to emails, text messages, or social media communications unless those communications directly effectuate a corporate action.
Additionally, corporations may now limit inspection rights while certain proceedings, such as derivative lawsuits, are pending.
Parallel provisions extend to LLCs and LPs.
SB 29 also revises TBOC Section 2.115 and adds new Section 2.116, authorizing companies to include in their governing documents:
Exclusive forum and venue provisions specifying where internal entity claims must be filed, and Waivers of the right to a jury trial in internal entity disputes.
A company may, for example, designate the Texas Business Court sitting in a particular county as the exclusive forum and venue, provided that court has jurisdiction. To ensure flexibility, private companies may want to designate an alternate forum and venue language if a claimant successfully challenges jurisdiction or venue of the designated court.
SB 2411 amends the TBOC to make clear that liability protections can be extended to officers. Previously, TBOC Section 7.001 allowed entities to limit liability only for “governing persons”, a term that excluded officers.
SB 2411 updates Section 7.001 to extend these protections to “managerial officials,” expressly including officers.
This amendment allows Texas entities, corporations, LLCs, and LPs to limit or eliminate officer liability to the company and its owners in their governing documents. The change aligns Texas with national corporate standards and promotes confident, informed decision-making by officers.
The passage of SB 29 and SB 2411 represents a significant modernization of Texas business law. These reforms enhance clarity, limit litigation exposure, and provide new tools for companies to strengthen governance frameworks.
To take advantage of the new TBOC provisions, private companies should:
- Amend their governing documents to adopt the codified business judgment rule and expanded protections for directors, officers, and managers.
- Include exclusive forum, venue, and jury waiver clauses consistent with TBOC Sections 2.115 and 2.116.
- Update certificates of formation to provide exculpation for officers.
- Revise internal governance provisions to align with new inspection and procedural rules.
For assistance in reviewing or amending your company’s documents, please contact FBFK Law.
