During the 2025 regular legislative session, Texas lawmakers passed a wave of bills affecting the corporate governance of corporations and other entities in Texas—including bank holding companies and their bank and non-bank subsidiaries organized under the laws of the State of Texas. Many of these amendments impact the Texas Business Organizations Code (the “TBOC”) and were effective immediately, while others will take effect on September 1, 2025.
This Client Alert provides a brief overview of three significant bills that were passed by the Texas Legislature amending Texas corporate law: Senate Bill 29, Senate Bill 1057, and Senate Bill 2411. Many of the amendments made to the TBOC will require Texas entities to amend their governing documents, such as their certificate of formation or bylaws, to take advantage of the amendments. Because of this, we further discuss what steps bank holding companies and banks in Texas—including national banks who have elected to be governed by Texas law—should take to avail the benefits of these amendments to Texas law.
National banks with their main office or any branch office in Texas may also be impacted by these changes to Texas law if such entities have elected to follow the corporate governance provisions of the law of the State of Texas (in accordance with 12 C.F.R. § 7.2000 and to the extent not inconsistent with applicable Federal banking statutes or regulations, or bank safety and soundness).
Senate Bill 29 – New Corporate Governance Provisions
Senate Bill 29 is perhaps the most consequential piece of legislation passed this year regarding Texas corporate law and has garnered nationwide publicity and notoriety. Senate Bill 29 was immediately effective when signed into law by Texas Governor Greg Abbott and contains a host of new entity governance provisions that apply to Texas entities, many of which must be affirmatively adopted in the entity’s governing documents. Below is a summary of a few noteworthy examples:
- A new Section 21.419 has been added to the TBOC providing that officers and directors of a Texas corporation—including bank holding companies and banks—will be entitled to a presumption that they acted in good faith, on an informed basis, in furtherance of the corporation’s interests and in obedience to the law and the corporation’s governing documents. This new Section 21.419 of the TBOC applies to Texas for-profit corporations that have voting shares listed on a national securities exchanges or that have included in their governing documents an affirmative election to be governed by this new provision. This addition to the TBOC is viewed as a codification of the so-called “business judgment rule” for corporations. The new provision also provides that directors and officers of such publicly traded or electing corporation (including a bank holding company or bank) are not liable to the corporation or its shareholders for their acts or omissions, or breaches of duty, unless the claimant proves fraud, intentional misconduct, an ultra vires act or a knowing violation of law.
- What to do: We recommend that the boards of directors of Texas bank holding companies and banks carefully consider and discuss whether amending their governing documents to affirmatively elect to be governed by Section 21.419 of the TBOC would be in the best interest of the corporation or bank and its shareholders.
- There are numerous pros and cons that must be weighed before making a decision, including, for example, whether it is actually in the best interest of the corporation or the bank to insulate its officers from actions that may be negligent, grossly negligent, dishonest or unethical yet do not rise to the level of constituting “fraud, intentional misconduct, an ultra vires act or a knowing violation of law,” which are often more difficult to prove.
- Ultimately, any bank holding company or bank that affirmatively elects to be governed by Section 21.419 of the TBOC should qualify that such election is subject to all applicable federal and state banking laws and regulations, as well as safe and sound banking practices.
- Texas entities may now include in their governing documents a waiver of jury trial concerning internal entity claims (that is, claims involving the internal affairs of the entity).
- What to do: An entity’s governing documents must be amended to affirmatively adopt this language, and we recommend this language be included in the governing documents of bank holding companies and banks in Texas. However, corporations should be mindful that the Texas Constitution guarantees the right to a jury trial, and future litigation in Texas may question the enforceability of this TBOC provision permitting the governing documents of a Texas corporation to unilaterally waive shareholders’ rights to a jury trial without their informed and express agreement.
- Entity governing documents can specify an exclusive court forum and venue for internal entity claims.
- What to do: Many bank holding companies and banks already have “exclusive forum” provisions in their bylaws. Nevertheless, this amendment to Texas law permits a Texas entity to choose the Texas Business Court as the exclusive forum and venue for internal entity claims. We recommend “exclusive forum” provisions be amended to address this change.
- Authorizes a publicly traded Texas corporation (or an electing Texas corporation with more than 500 shareholders) to establish in its governing documents an ownership threshold for shareholder derivative actions, with the threshold not to exceed three percent (3%) of its outstanding shares.
- What to do: We recommend that the boards of directors of all eligible Texas bank holding companies and banks consider and discuss whether amending their governing documents to establish this ownership threshold for shareholder derivative actions would be in the best interest of the corporation or bank and its shareholders.
- The TBOC has been amended to provide that owner inspection rights do not apply to emails, text messages and similar electronic communications and social media account information (unless such items effectuate an action by the entity). Furthermore, for publicly-traded corporations, shareholder records inspection rights are now severely limited if the requesting shareholder has any pending litigation or derivative proceeding with the corporation.
Senate Bill 1057 – Restrictions on Shareholder Proposals for Public Companies
Senate Bill 1057 will become effective on September 1, 2025 and will make a number of amendments to the TBOC that are available to any “nationally listed corporation”, which is defined as a Texas corporation that (1) has a class of equity securities registered under Section 12(b) of the Securities Exchange Act of 1934; (2) is admitted to listing on a national securities exchange; and (3) either (a) has its principal office in Texas or (b) is admitted to listing on a stock exchange that has its principal office in Texas and has received approval by the Texas Securities Commissioner to act as a securities exchange under provisions of Subchapter C of Texas Government Code Chapter 4005.
Any “nationally listed corporation” may opt into the new provisions by amending its governing documents and providing notice of the opt-in amendment to shareholders in any proxy statement prior to the effectiveness of the amendment. The changes made by Senate Bill 1057 are not available to private corporations.
In short, Senate Bill 1057 would prohibit any shareholder of a nationally listed corporation that has opted into the provision from submitting a proposal for consideration at a meeting of shareholders unless the shareholder (or group of shareholders): (1) owns at least the lesser of $1 million of market value of voting shares or 3% of the corporation’s voting shares; (2) has owned and continues to own those shares for at least six months prior to and through the shareholders meeting; and (3) solicits holders of at least 67% of the voting shares to vote on the proposal.
Director nominations would not be subject to this ownership threshold.
A public company that opts into this new provision in the TBOC must provide notice of the opt-in amendment to shareholders in any proxy statement prior to the effectiveness of the amendment to the governing documents. However, it does not require shareholder approval of such amendment. Bylaws are one of the “governing documents” of a corporation, and bylaws may generally be amended by unilateral action of the board of directors without shareholder approval (unless prohibited by the existing provisions of its bylaws or certificate of formation).
Furthermore, a public company that opts into this new provision must include in any proxy statement provided to shareholders specific information about the process by which a shareholder (or group of shareholders) may submit a proposal on a matter requiring shareholder approval, including information as to how shareholders may contact other shareholders for the purpose of satisfying the ownership requirements in these new provisions.
Senate Bill 2411 – Additional Corporate Governance Changes to Consider
Senate Bill 2411 will become effective on September 1, 2025 and amends a wide variety of provisions of the TBOC, many of which derive from recent changes in the Model Business Corporation Act and Delaware entity statutes. Some of the more substantive amendments are summarized below.
- Authorizing Texas corporations, including bank holding companies and banks, to include provisions in their certificates of formation that exculpate officers from monetary liability for breaches of duty of due care to the same extent that governing persons can be exculpated.
- What to do: Boards of directors of all Texas bank holding companies and banks should consider and discuss whether to amend their certificates of formation to adopt this language. Note, however, that an amendment to an entity’s certificate of formation requires approval by both the board of directors and the shareholders.
- Any exculpation of officers should also be qualified and subject to all applicable federal and state banking laws and regulations, as well as safe and sound banking practices.
- Authorizing the board of directors of a for-profit corporation, without shareholder approval, to effect certain limited amendments to the corporation’s certificate of formation, including forward and reverse stock splits, subject to specified conditions.