Bill Shields Company Directors From Lawsuits By Owners

The text as introduced · 3,155 words

89R15624 PRL-F

By: Hughes
S.B. No. 29

A BILL TO BE ENTITLED

AN ACT

relating to business entities.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 1.002(55-a), Business Organizations

Code, is amended to read as follows:

(55-a) "National securities exchange" means :

(A) an exchange registered as a national

securities exchange under Section 6, Securities Exchange Act of

1934 (15 U.S.C. Section 78f) ; or

(B) a stock exchange that:

(i) has its principal office in this state;

and

(ii) has received approval by the

securities commissioner under Subchapter C, Chapter 4005,

Government Code .

SECTION 2. Subchapter B, Chapter 1, Business Organizations

Code, is amended by adding Section 1.056 to read as follows:

Sec. 1.056. LAWS GOVERNING FORMATION, INTERNAL AFFAIRS, AND

GOVERNANCE OF DOMESTIC ENTITY. (a) The plain meaning of the text

of this code may not be supplanted, contravened, or modified by the

laws or judicial decisions of any other state.

(b) The managerial officials of a domestic entity, in

exercising their powers with respect to the domestic entity, may

consider the laws and judicial decisions of other states and the

practices observed by entities formed in those other states. The

failure or refusal of a managerial official to consider, or to

conform the exercise of the managerial official's powers to, the

laws, judicial decisions, or practices of another state does not

constitute or imply a breach of this code or of any duty existing

under the laws of this state.

SECTION 3. Section 2.115(b), Business Organizations Code,

is amended to read as follows:

(b) The governing documents of a domestic entity [ may

require ], consistent with applicable state and federal

jurisdictional requirements, may require:

(1) that any internal entity claims shall be brought

only in a court in this state ; and

(2) that one or more courts in this state having

jurisdiction shall serve as the exclusive forum and venue for any

internal entity claims .

SECTION 4. Subchapter B, Chapter 2, Business Organizations

Code, is amended by adding Section 2.116 to read as follows:

Sec. 2.116. WAIVER OF TRIAL BY JURY. (a) In this section,

"internal entity claim" has the meaning assigned by Section 2.115.

(b) The governing documents of a domestic entity may contain

an enforceable waiver of the right to a jury trial concerning any

internal entity claim, regardless of whether the applicable

governing document is signed by the members, owners, officers, or

governing persons.

(c) A waiver of jury trial in the governing documents of a

domestic entity shall be a knowing and informed waiver of a person

who:

(1) voted for or affirmatively ratified the governing

document containing the waiver;

(2) acquired an equity security of the domestic entity

at a time at which the waiver was included in the governing

documents; or

(3) is otherwise shown by evidence satisfactory to an

appropriate court to have knowingly and informedly consented or

acquiesced to the waiver.

SECTION 5. Section 4.051, Business Organizations Code, is

amended to read as follows:

Sec. 4.051. GENERAL RULE. (a) A filing instrument

submitted to the secretary of state takes effect on filing, except

as permitted by Section 4.052 or as provided by the provisions of

this code that apply to the entity making the filing or other law.

(b) Subject to Subsection (c), a revised filing instrument,

curing the deficiencies in the initial rejected filing instrument

identified by the secretary of state, is considered filed as of the

date of the delivery to the secretary of state of the initial

rejected filing instrument and takes effect as specified in this

subchapter if the revised filing instrument:

(1) is delivered to the secretary of state not later

than the 10th business day following the date on which the notice of

rejection is mailed by the secretary of state;

(2) is found to be acceptable by the secretary of

state; and

(3) is the first revised filing instrument.

(c) Subsection (b) applies to a filing instrument that

creates or forms a new domestic entity or amends the name of an

existing domestic entity only if:

(1) the name of the new domestic entity or the amended

name of the existing domestic entity, as applicable, was reserved

under Subchapter C, Chapter 5, or was registered under Subchapter

D, Chapter 5, with the secretary of state by or on behalf of the

filer on or before the date the initial rejected filing instrument

is delivered to the secretary of state; and

(2) the name reservation or registration remains in

effect at least until the revised filing instrument delivered to

the secretary of state under Subsection (b) takes effect.

SECTION 6. Section 21.218, Business Organizations Code, is

amended by amending Subsection (b) and adding Subsections (b-2) and

(b-3) to read as follows:

(b) On written demand stating a proper purpose, a holder of

shares of a corporation for at least six months immediately

preceding the holder's demand, or a holder of at least five percent

of all of the outstanding shares of a corporation, is entitled to

examine and copy, at a reasonable time at the corporation's

principal place of business or other location approved by the

corporation and the holder, the corporation's books, records of

account, minutes, share transfer records, and other records,

whether in written or other tangible form, if the records are

[ record is ] reasonably related to and appropriate to examine and

copy for that proper purpose. For purposes of this subsection, the

records of the corporation shall not include e-mails, text messages

or similar electronic communications, or information from social

media accounts unless the particular e-mail, communication, or

social media information affects an action by the corporation.

(b-2) This subsection applies only to a corporation that has

a class or series of voting shares listed on a national securities

exchange or that has made an affirmative election to be governed by

Section 21.419. For purposes of Subsection (b), a written demand

shall not be for a proper purpose if the corporation reasonably

determines that the demand is in connection with:

(1) an active or pending derivative proceeding in the

right of the corporation under Subchapter L that is or is expected

to be instituted or maintained by the holder or the holder's

affiliate; or

(2) an active or pending civil lawsuit to which the

corporation, or its affiliate, and the holder, or the holder's

affiliate, are or are expected to be adversarial named parties.

(b-3) Subsection (b-2) does not impair any rights of:

(1) the holder or the holder's affiliate to obtain

discovery of records from the corporation in:

(A) a civil lawsuit described by Subsection

(b-2)(2); or

(B) the derivative proceeding subject to Section

21.556; or

(2) the holder to obtain a court order to compel

production of records of the corporation for examination by the

holder as provided by Subsection (c).

SECTION 7. Section 21.416, Business Organizations Code, is

amended by adding Subsection (g) to read as follows:

(g) This subsection applies only to a corporation that has a

class or series of voting shares listed on a national securities

exchange or that has made an affirmative election to be governed by

Section 21.419. The board of directors may adopt resolutions that

authorize the formation of a committee of independent and

disinterested directors to review and approve transactions,

whether or not contemplated at the time of the committee's

formation or a petition under Section 21.4161, involving the

corporation or any of its subsidiaries and a controlling

shareholder, director, or officer.

SECTION 8. Subchapter I, Chapter 21, Business Organizations

Code, is amended by adding Section 21.4161 to read as follows:

Sec. 21.4161. DETERMINATION OF INDEPENDENT AND

DISINTERESTED DIRECTORS. (a) A corporation that adopts a

resolution to authorize the formation of a committee of independent

and disinterested directors under Section 21.416(g) may petition a

court having appropriate jurisdiction to hold an evidentiary

hearing to determine whether the directors appointed to the

committee are independent and disinterested with respect to any

transactions involving the corporation or any of its subsidiaries

and a controlling shareholder, director, or officer.

(b) In the petition, the corporation shall designate legal

counsel to act on behalf of the corporation and its shareholders,

other than the controlling shareholder, director, or officer

involved in the transaction, and shall give notice to the

shareholders of the designated counsel and the petition.

(c) If the corporation has a class of its shares listed on a

national securities exchange, the notice required by Subsection (b)

may be provided through the filing of a current report with the

United States Securities and Exchange Commission in accordance with

the requirements of the Securities Exchange Act of 1934 (15 U.S.C.

Section 78 et seq.), and any rules promulgated under that Act.

(d) Promptly after receiving a petition, and not earlier

than the 10th day after the date the notice required under

Subsection (b) is given, the court shall hold a preliminary hearing

to determine the appropriate legal counsel to represent the

corporation and its shareholders, other than the controlling

shareholder, director, or officer involved in the transaction,

whether or not the same as the legal counsel identified in the

petition. Any other legal counsel representing a shareholder,

other than the controlling shareholder, director, or officer

involved in the transaction, may participate in the hearing to

request designation by the court as the appropriate legal counsel.

(e) After the court determines the appropriate legal

counsel under Subsection (d), the court shall promptly hold an

evidentiary hearing as to whether the directors on the committee

are independent and disinterested with respect to transactions

involving the corporation or any of its subsidiaries and a

controlling shareholder, director, or officer. The appropriate

legal counsel determined under Subsection (d) and legal counsel for

the corporation may participate in the hearing. After hearing and

reviewing the evidence presented, the court shall make its

determination as to whether the directors on the committee are

independent and disinterested.

(f) The court's determination that the directors are

independent and disinterested under Subsection (e) shall be

dispositive in the absence of facts, not presented to the court,

constituting evidence sufficient to prove that one or more of those

directors is not independent and disinterested with respect to a

particular transaction involving the corporation or any of its

subsidiaries and a controlling shareholder, director, or officer.

SECTION 9. Section 21.418, Business Organizations Code, is

amended by adding Subsection (f) to read as follows:

(f) This subsection applies only to a corporation that has a

class or series of voting shares listed on a national securities

exchange or has made an affirmative election to be governed by

Section 21.419. Regardless of whether the conditions of Subsection

(b) are satisfied, neither the corporation nor any of the

corporation's shareholders will have a cause of action against any

director or officer for breach of duty with respect to the making,

authorization, or performance of the contract or transaction

because the director or officer had the relationship or interest

described by Subsection (a) or took any of the actions authorized by

Subsection (d) unless the cause of action is permitted by Section

21.419.

SECTION 10. Subchapter I, Chapter 21, Business

Organizations Code, is amended by adding Section 21.419 to read as

follows:

Sec. 21.419. PRESUMPTIONS FOR DIRECTORS AND OFFICERS OF

CERTAIN CORPORATIONS. (a) This section applies only to a

corporation that has:

(1) a class or series of voting shares listed on a

national securities exchange; or

(2) included in its governing documents a statement

affirmatively electing to be governed by this section.

(b) In taking or declining to take any action on any matters

of a corporation's business, a director or officer is presumed to

act:

(1) in good faith;

(2) on an informed basis;

(3) in furtherance of the interests of the

corporation; and

(4) in obedience to the law and the corporation's

governing documents.

(c) Neither a corporation nor any of the corporation's

shareholders has a cause of action against a director or officer of

the corporation as a result of any act or omission in the person's

capacity as a director or officer unless:

(1) the claimant rebuts one or more of the

presumptions established by Subsection (b); and

(2) it is proven by the claimant that:

(A) the director's or officer's act or omission

constituted a breach of one or more of the person's duties as a

director or officer; and

(B) the breach involved fraud, intentional

misconduct, an ultra vires act, or a knowing violation of law.

(d) The presumptions established by this section:

(1) are in addition to any legal presumption arising

under common law or this code, in favor of any managerial official

of a corporation to which this section applies; and

(2) do not abrogate, preempt, or lessen any other

defense, presumption, immunity, or privilege under other

constitutional, statutory, case, or common law or rule provisions,

in favor of any managerial official of any domestic entity,

including any corporation to which this section does not apply.

(e) In alleging fraud, intentional misconduct, an ultra

vires act, or a knowing violation of the law under Subsection

(c)(2)(B), a party must state with particularity the circumstances

constituting the fraud, intentional misconduct, ultra vires act, or

knowing violation of law.

(f) This section does not limit the effect of a provision

contained in the certificate of formation or similar instrument of

a corporation limiting monetary liability of a governing person as

permitted by Section 7.001.

SECTION 11. Section 21.551(2), Business Organizations

Code, is amended to read as follows:

(2) "Shareholder" includes :

(A) a shareholder as defined by Section 1.002 ;

(B) [ or ] a beneficial owner whose shares are held

in a voting trust or by a nominee on the beneficial owner's behalf ;

or

(C) two or more shareholders acting in concert

under an informal or formal agreement or understanding with respect

to a derivative proceeding .

SECTION 12. Section 21.552(a), Business Organizations

Code, is amended to read as follows:

(a) Subject to Subsection (b), a shareholder may not

institute or maintain a derivative proceeding unless:

(1) the shareholder:

(A) was a shareholder of the corporation at the

time of the act or omission complained of; or

(B) became a shareholder by operation of law

originating from a person that was a shareholder at the time of the

act or omission complained of; [ and ]

(2) the shareholder fairly and adequately represents

the interests of the corporation in enforcing the right of the

corporation ; and

(3) for a corporation with common shares listed on a

national securities exchange or that has made an affirmative

election to be governed by Section 21.419, at the time the

derivative proceeding is instituted, the shareholder beneficially

owns a number of the common shares sufficient to meet the required

ownership threshold to institute a derivative proceeding in the

right of the corporation identified in the corporation's

certificate of formation or bylaws, provided that the required

ownership threshold does not exceed three percent of the

outstanding shares of the corporation .

SECTION 13. Section 21.554, Business Organizations Code, is

amended by amending Subsection (b) and adding Subsections (c), (d),

(e), and (f) to read as follows:

(b) The court shall appoint a panel under Subsection (a)(3)

if the court determines [ finds ] that the individuals recommended by

the corporation are independent and disinterested and are otherwise

qualified with respect to expertise, experience, independent

judgment, and other factors considered appropriate by the court

under the circumstances to make the determinations. An individual

appointed by the court to a panel under this section may not be held

liable to the corporation or the corporation's shareholders for an

action taken or omission made by the individual in that capacity,

except for an act or omission constituting fraud or wilful

misconduct.

(c) Before the corporation's determination of how to

proceed on the allegations under Subsection (a), the corporation

may petition the court in which the derivative proceeding has been

instituted, or a court having proper jurisdiction if no derivative

proceeding has been instituted, to request a determination as to

whether the directors identified or appointed under Subsection

(a)(1) or (2) are independent and disinterested with respect to the

allegations made in the demand.

(d) For purposes of Subsection (c), if a derivative

proceeding was not instituted, the corporation must promptly

deliver a copy of the petition to the shareholder making the demand

who will have the right, if promptly exercised, to challenge the

petition before the court makes its determination.

(e) After hearing and reviewing the evidence presented, the

court shall make its determination as to whether the directors are

independent and disinterested.

(f) A court's determination that the directors or

individuals are independent and disinterested under this section

shall be dispositive in the absence of discovery of facts, not

presented to the court, constituting evidence sufficient to prove

that one or more of those directors or individuals are not

independent and disinterested.

SECTION 14. Section 21.561, Business Organizations Code, is

amended by adding Subsection (c) to read as follows:

(c) For purposes of Subsection (b), a substantial benefit to

the corporation does not include additional or amended disclosures

made to the shareholders, regardless of materiality.

SECTION 15. Section 21.562(a), Business Organizations

Code, is amended to read as follows:

(a) In a derivative proceeding brought in the right of a

foreign corporation, the matters covered by this subchapter are

governed by the laws of the jurisdiction of formation of the foreign

corporation, except for Sections 21.555, 21.560, and 21.561, which

with respect to foreign corporations are procedural provisions and

do not relate to the internal affairs of the foreign corporation,

unless applying the laws of the jurisdiction of formation of the

foreign corporation requires otherwise with respect to Section

21.555.

SECTION 16. (a) Section 4.051, Business Organizations

Code, as amended by this Act, applies only to a filing instrument

submitted to the secretary of state on or after the effective date

of this Act. A filing instrument submitted to the secretary of

state before the effective date of this Act is governed by the law

in effect on the date the filing instrument was submitted, and the

former law is continued in effect for that purpose.

(b) Sections 21.552(a) and 21.561, Business Organizations

Code, as amended by this Act, apply only to a derivative proceeding

instituted on or after the effective date of this Act. A derivative

proceeding instituted before the effective date of this Act is

governed by the law in effect on the date the proceeding was

instituted, and the former law is continued in effect for that

purpose.

SECTION 17. This Act takes effect immediately if it

receives a vote of two-thirds of all the members elected to each

house, as provided by Section 39, Article III, Texas Constitution.

If this Act does not receive the vote necessary for immediate

effect, this Act takes effect September 1, 2025.