Texas spent 2025 making a deliberate pitch to businesses: incorporate here, litigate here, stay here. Senate Bill 29 is the most substantive piece of that effort, and it rewrote parts of the Business Organizations Code that had gone largely untouched for years. If you own a company organized in Texas, some of your governing documents are now out of date, and a few of the protections you thought you had are stronger than they were.
Signed May 14, 2025 and effective immediately, SB 29 codified the business judgment rule, expanded what companies can put in their governing documents, and changed the mechanics of shareholder litigation. Our business law attorneys in Conroe have been working through the implications with clients across Montgomery County. Here is what actually changed and what it means for a closely held company.
The Business Judgment Rule Is Now in the Statute
Texas courts had long recognized a version of the business judgment rule, but it lived in case law and its contours were debated. SB 29 added Section 21.419 to the Business Organizations Code, putting the rule in the statute for corporations, with parallel treatment extended to other entity forms.
The practical effect is a presumption that directors and officers act in good faith, on an informed basis, and in the honest belief that their actions serve the company's best interests. A plaintiff challenging a decision must overcome that presumption by pleading and proving specific misconduct, generally fraud, intentional misconduct, an ultra vires act, or a knowing violation of law.
For a small Texas company, this matters most when a minority owner disagrees with a business decision and frames the disagreement as a breach of fiduciary duty. The codified rule raises the pleading burden meaningfully. Bad outcomes, standing alone, are not evidence of bad conduct.
What it does not protect
The rule protects the process of decision-making, not self-dealing. Interested transactions, usurpation of corporate opportunities, and conduct outside the scope of authority remain actionable. A director who benefits personally from a transaction still needs to follow the conflict-of-interest procedures in the Code.
Forum Selection and Jury Waiver Provisions
SB 29 expanded what Texas entities may place in their certificate of formation or governing documents in two ways that change how disputes get resolved.
Exclusive forum designation. An entity may now designate a specific Texas court, including the Texas Business Court, as the exclusive forum for internal entity claims. That means derivative suits, fiduciary duty claims among owners, and disputes over the governing documents can be channeled to a court with commercial expertise rather than landing wherever a plaintiff chooses to file.
Jury trial waiver. Governing documents may include a waiver of jury trial for internal entity claims. Owners are bound by it upon becoming owners.
Both of these require affirmative action. They are not defaults. A company formed before 2025, or formed afterward using a generic template, almost certainly does not have them.
The Texas Business Court Connection
Forum selection matters more now because the Texas Business Court became substantially more accessible in the same legislative session. House Bill 40, effective September 1, 2025, lowered the amount in controversy threshold for qualified transactions from $10 million to $5 million, permitted aggregation of related transactions toward that threshold, and added jurisdiction over certain intellectual property and arbitration-related matters.
For jurisdictional purposes, Montgomery County sits within the court's Eleventh Division, based in Houston. That places a substantial number of Woodlands-area companies within realistic reach of a specialized commercial forum for the first time.
HB 40 also removed the provision that would have abolished the six unfunded divisions in 2026, which signals that the court is a permanent fixture rather than a pilot program.
Shareholder Litigation Thresholds
SB 29 allows corporations that affirmatively opt in to require a minimum ownership stake before a shareholder may institute or maintain a derivative proceeding. The statute caps that threshold at three percent of outstanding shares.
This is aimed primarily at public companies facing nuisance derivative suits, but it is available to closely held corporations that elect it. Whether a small company should adopt it depends on ownership structure. In a three-owner company where each holds a third, a three percent floor accomplishes nothing. In a company with a fragmented minority, it can be meaningful.
Separately, Senate Bill 1057, effective September 1, 2025, tightened shareholder proposal thresholds for large Texas public companies. That change has little application to the closely held businesses most Montgomery County owners operate.
Books and Records
SB 29 also refined the scope of owner inspection rights, addressing what qualifies as books and records subject to a demand and what a proper purpose requires. The practical target is the expansive discovery-style demand, where a disgruntled owner requests years of internal correspondence under the banner of an inspection right.
If your operating agreement or bylaws contain their own inspection provisions, review them against the current statute. Governing documents that grant broader access than the Code requires will generally control, and many older templates do exactly that without anyone having thought about it.
What Montgomery County Business Owners Should Actually Do
Legislative changes of this kind produce a lot of commentary and very little action. Here is a practical list.
- Pull your governing documents. Certificate of formation, company agreement or bylaws, and any shareholder or member agreements. Most closely held Texas companies have not looked at these since formation.
- Decide on forum selection. If your company would benefit from having internal disputes heard in the Business Court, that provision has to be added. Consider whether the $5 million threshold is realistically within reach for your disputes.
- Consider a jury waiver. This is a real strategic choice with arguments both ways, not a formality.
- Review indemnification and advancement provisions. The codified business judgment rule works alongside indemnification, not instead of it.
- Confirm your conflict-of-interest procedures. The rule's protection depends on process, and process depends on documentation.
- Update the buy-sell provisions. Most internal disputes in closely held companies are really valuation and exit disputes. A functioning buy-sell provision prevents more litigation than any forum clause.
- Check your registered agent and filings. Administrative lapses undo governance planning quickly.
The Broader Texas Trend
SB 29 and HB 40 are part of a coordinated effort to make Texas a preferred state of incorporation. The Texas Stock Exchange began trading in 2026, and several large companies have redomesticated to Texas.
For a company doing business in Conroe or The Woodlands, the headline developments are less relevant than the practical ones. The meaningful takeaway is that Texas entity law is now more protective of directors and officers, more flexible about dispute resolution, and backed by a commercial court that is actually reachable. Those are advantages a small company can capture with a document amendment.
Owners should also connect entity planning to personal planning. A business interest is frequently the largest asset in an estate, and governing documents that conflict with an owner's estate plan create problems that surface at the worst possible time. Where the company holds real property, the title and lease structure deserves the same review.
Frequently Asked Questions
Does SB 29 apply to LLCs or only corporations?
The bill amended provisions across the Business Organizations Code affecting corporations, limited liability companies, and other entity forms, though specific provisions apply differently by entity type. The forum selection and governance flexibility provisions reach LLCs.
When did SB 29 take effect?
It was signed May 14, 2025 and took effect immediately upon signing.
Do I have to amend my documents to get the business judgment rule?
No. The codified rule applies by statute. The provisions requiring affirmative adoption are forum selection, jury waiver, and the derivative suit ownership threshold.
Is my company big enough for the Texas Business Court?
The qualified transaction threshold is $5 million in amount in controversy, with aggregation of related transactions permitted. Other jurisdictional bases exist. Many small companies will never reach it, which is worth knowing before adopting an exclusive forum clause.
Does the business judgment rule protect me from every lawsuit?
No. It creates a presumption that raises a plaintiff's burden. It does not shield self-dealing, fraud, knowing legal violations, or acts outside the scope of authority.
Should a two-owner company bother with any of this?
The forum and threshold provisions matter less at that scale. The buy-sell provisions, conflict procedures, and clear allocation of management authority matter enormously, and those are the places to spend the review time.
Your Next Step
Statutory protections only reach companies whose documents are positioned to use them. A governance review is a modest project with a durable payoff, and it is far cheaper than the dispute it prevents.
Griffin & Cain, Attorneys at Law advises closely held businesses throughout Montgomery and Walker Counties on formation, governance, and owner disputes. Schedule your consultation with business law attorney Robert S. Griffin to review your entity documents against current Texas law. Contact our Conroe office today. We serve businesses in Conroe, The Woodlands, Montgomery, Magnolia, and Huntsville.
