Texas SB 29, the Business Court, and Reincorporation

By Trenton Roberts, Andrew Brown and Spencer Kendrick

Texas corporate law has changed in a short window, and business owners keep asking whether any of it should change how they are organized. SB 29 (S.B. 29, 89th Legislature), effective May 14, 2025, amended the Texas Business Organizations Code to codify a business judgment rule, to allow certain corporations to set an ownership threshold for derivative suits, and to let domestic entities specify a Texas exclusive forum for internal entity claims. The Texas Business Court, created by H.B. 19 in 2023, began receiving cases on September 1, 2024. H.B. 40, effective September 1, 2025, then clarified and broadened that court's jurisdiction. Some public companies have also reincorporated in Texas, including Tesla, which converted from a Delaware corporation to a Texas corporation in June 2024. We watch these changes closely because they now sit in the same conversation as ordinary formation and governance work for Texas companies. The practical question for a closely held company is narrower than the public-company debate: which of these tools actually reach a company that is not listed, and which ones are optional documents worth considering.

SB 29 and the business judgment rule

SB 29 added Section 21.419 to the Business Organizations Code. For a corporation to which the statute applies, a director or officer is presumed to act in good faith, on an informed basis, in furtherance of the interests of the corporation, and in obedience to the law and the corporation's governing documents. To sustain a cause of action, a claimant must rebut one or more of those presumptions, prove that the act or omission was a breach of duty, and prove that the breach involved fraud, intentional misconduct, an ultra vires act, or a knowing violation of law. The statute also requires particularized pleading of those circumstances.

This is a codification of a business judgment rule, and it is not automatically the law of every Texas corporation. It applies to corporations that have a class or series of voting shares listed on a national securities exchange, and to corporations that affirmatively elect, in their governing documents, to be governed by Section 21.419. A closely held company that never makes that election is not pulled into the statute by default. Whether to opt in is a real decision. The statute can make certain officer and director claims harder to plead and to prove. It also changes the litigation landscape in ways a company should understand with counsel before the certificate of formation or bylaws are amended. We will not tell every private company to elect in, or to stay out. We will say the election should be deliberate, documented, and consistent with the owners' expectations about how disputes will be handled.

SB 29 also includes related process tools, including a path for a corporation to petition a court for a determination that directors appointed to a special committee are independent and disinterested. Those tools are aimed mainly at the same population of public or large-holder corporations that are already thinking about derivative litigation. They are worth knowing about. They are not the first drafting issue in a five-owner operating company.

Ownership thresholds for derivative suits

Section 21.552 of the Business Organizations Code, as amended, allows certain corporations to set a minimum ownership threshold for a shareholder to institute a derivative proceeding, so long as the threshold does not exceed three percent of the corporation's outstanding shares. The threshold must be stated in the certificate of formation or the bylaws.

The companies that may use this tool are corporations with common shares listed on a national securities exchange, and corporations that have made the Section 21.419 election and have 500 or more shareholders. A closely held company with a handful of owners will almost never meet the 500-shareholder branch, and it is not listed. For those companies, the three percent cap is not a lever that S.B. 29 puts in the bylaws. Their derivative-standing questions still run through the existing statutory and common-law framework, plus whatever the shareholders' agreement already says about who can sue and when.

If a company is approaching a broader shareholder base, or is considering a listing, that is the moment to revisit Section 21.552, the 21.419 election, and the rest of the governing documents as a package. Do not drop a three percent clause into a 10-shareholder corporation's bylaws and assume it will be effective.

Exclusive forum, and related governing-document provisions

SB 29 also amended the Business Organizations Code to confirm that the governing documents of a domestic entity may, consistent with state and federal jurisdictional requirements, require that internal entity claims be brought only in a court in Texas, and that one or more Texas courts serve as the exclusive forum and venue for those claims. Section 2.115 is the exclusive-forum provision. An "internal entity claim" is a claim of any nature, including a derivative claim in the right of the entity, that is based on, arises from, or relates to the internal affairs of the entity.

Unlike the business judgment rule and the derivative ownership threshold, exclusive-forum language is available to domestic entities more broadly, not only to listed companies. For a Texas LLC or corporation that already has a Texas principal place of business and a Texas shareholders' or company agreement, a clause that keeps internal disputes in Texas can reduce the risk of a fight about where the case will be heard. It does not create a claim, and it does not replace the need for a well-drafted buy-sell or dispute provision among the owners.

SB 29 also addresses jury-trial waivers for internal entity claims in the governing documents, including when those waivers are treated as knowing because a person voted for or ratified the document, or purchased or continued to hold the interest after the waiver was included. A jury waiver is a separate, serious election. We do not treat it as boilerplate to copy from a public-company form into a family-owned LLC without a discussion among the owners.

H.B. 40 later confirmed that venue for certain internal governance and Business Organizations Code actions may be established in a company's governing documents for an operating division of the Business Court. That is useful drafting if the company wants the Business Court in particular, not only "a Texas court." Derivative claims are not in the same cross-reference, so they should be handled carefully in the clause rather than assumed to follow automatically.

The Texas Business Court: what it is, and what it is not

The Business Court is a statewide statutory trial court created by H.B. 19, 88th Legislature. It was created September 1, 2024, and it began receiving civil actions commenced on or after that date. Its divisions correspond to the state's administrative judicial regions. Divisions covering the state's most populous counties, including the Dallas division, opened first. The remaining divisions were later continued by H.B. 40, but they remain inactive until they are funded by legislative appropriation. Jurisdiction is concurrent with the district courts, not exclusive. Filing in or removing a case to the Business Court still has to fit the statute.

Under Texas Government Code Chapter 25A, as amended by H.B. 40 effective September 1, 2025, the court generally has concurrent jurisdiction over specified business actions in which the amount in controversy exceeds $5 million, excluding interest, statutory damages, exemplary damages, penalties, attorney's fees, and court costs. The covered categories include derivative proceedings, actions regarding governance, governing documents, or internal affairs, certain securities and trade-regulation claims, actions alleging breaches of duty by owners or managerial officials, and actions arising out of the Business Organizations Code. If a party is a publicly traded company, that $5 million amount-in-controversy threshold does not apply to the actions described in the statute. H.B. 40 also confirmed jurisdiction over certain intellectual property and Texas Uniform Trade Secrets Act claims, certain arbitration-related proceedings, and qualified transactions and commercial contracts meeting the statutory tests, and it provided that the amount in controversy is the total of all joined parties' claims. Consumer-transaction claims of the kind the statute carves out remain outside the court's jurisdiction.

For a closely held company, the $5 million threshold is the practical filter. Many owner disputes, employment-tinged ownership fights, and mid-size contract cases will still be heard in district court. The Business Court is a meaningful option for larger governance, securities, and commercial disputes, and for companies that want a forum of judges who regularly hear business cases. It is not a new small-claims venue for every internal disagreement.

Why some companies are reincorporating in Texas, and whether a closely held company should care

Public-company reincorporation is a real trend, and it should be described accurately. Tesla converted from a Delaware corporation to a Texas corporation in June 2024, after stockholders approved the conversion. Other public companies have since taken steps to redomicile or reincorporate in Texas. The reasons those boards cite, in their own disclosures, usually include the Business Court, the SB 29 amendments, and a desire to have internal affairs governed by Texas law in a Texas forum. Those are board-level decisions for listed companies, made with their own counsel, and they involve securities-law, tax, and dissenting-stockholder issues that this article does not try to resolve.

A closely held Texas company that is already organized under the Business Organizations Code is not "behind" because it has not reincorporated. It is already a Texas entity. The useful work is more ordinary: decide whether to add an exclusive-forum clause, decide whether a corporation should opt into Section 21.419, update the company agreement or shareholders' agreement so it still matches how the owners actually operate, and understand when a future dispute might be eligible for the Business Court. If the company is a Delaware entity with its operations in Texas, a conversion or domestication into a Texas entity can be worth a serious look, but it is a transaction. It has tax, contract-consent, licensing, and lending consequences. It is not a one-page filing that inherits every SB 29 feature automatically.

We advise on Texas entity formation, governing documents, and the contract work that has to travel with any conversion. The formation analysis in choosing a business entity in Texas and in Texas series LLCs still comes first. The 2025 amendments are an overlay, not a substitute, for that analysis. Our business law services page describes the broader work.

Want to run your scenario by us? info@robertsandwillie.com or (469) 910-4017. Sending a message does not create an attorney-client relationship.

This article is for general information and is not legal advice. Attorney Advertising. Roberts & Willie, PLLC, Dallas, Texas; Trenton Roberts, responsible attorney.