Business lawyers — dealmakers and litigators alike — have a lot to digest from legislation enacted during the 2025 session to make Texas an attractive state for incorporations and to expand the jurisdiction of the specialized business courts.
Senate Bill 29, which went into effect last month, is designed to make it more difficult for a small group of shareholders to challenge business decisions. The law allows a corporation to waive jury trials and state in its bylaws an ownership requirement for a shareholder to bring a derivative claim for alleged wrongdoing that has harmed the corporation.
In the waning hours of the biennial session, the House and Senate agreed on language for expanding the jurisdiction of the Texas Business Court, a system of 10 judges in five urban areas established in 2023 to handle complex business-to-business litigation. Lawmakers did not expand the system to six rural regions but kept the door open for those courts in the future should the Legislature decide to fund them.
During deliberations on House Bill 40, members considered and rejected a proposal to remove a two-year term limit for business court judges, who are appointed by the governor and confirmed by the Senate, a departure from the state’s system of elected judges.
If signed into law, the bill would reduce the amount-in-controversy requirement from $10 million to $5 million for filing a lawsuit in or transferring a case to the business court. It also would expand the court’s subject matter jurisdiction to certain intellectual property claims and actions to enforce arbitration agreements. The bill would allow a company to designate the Business Court as the exclusive venue for resolving litigation relating to its internal affairs.
Taken together, the legislation supports efforts to make Texas the preferred destination for corporate relocation and reincorporation.
“HB 40 and SB 29 represent a coordinated legislative effort to elevate the Texas Business Court into a premier venue for resolving sophisticated commercial disputes. Both bills signal Texas’s ambition to rival Delaware as the nation’s corporate law capital,” said Rafe Schaefer, a Norton Rose Fulbright partner and one of the few lawyers to have a Business Court case pending at the Fifteenth Court of Appeals.
Lee Parsley, president and general counsel of Texans for Lawsuit Reform, said the two pieces of legislation will work together to “unleash the full potential of the Texas Business Court and entice more businesses to relocate and operate in Texas.”
SB 29
Christopher J. Babcock, a Dallas M&A partner at Foley & Lardner, helped draft SB 29 and was in the front row May 14 when Gov. Greg Abbott signed the bill in front of a crowd of legislators, including bill author Sen. Bryan Hughes, R-Mineola, and business leaders.
“I think what’s worth flagging is what really drove this bill were two things,” said Babcock in an interview with The Texas Lawbook. “One, it was the establishment of the business courts, which I think have been about a ten-year project to really have a dedicated business court in Texas that finally went live this past September. And the second was the sense there could be an opportunity for incorporations given that Delaware, which is historically seen as a stable jurisdiction, was becoming significantly less stable over time with decisions.”
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Much of the conversation around the bill focused on Elon Musk’s 2024 decision to pull Tesla and SpaceX out of Delaware after the Court of Chancery rejected his $56 billion pay package from Tesla over what the court said were extensive ties between Musk and those negotiating the package. Those two entities are now headquartered in Texas.
Christopher Converse, a Foley partner and co-drafter of the bill, said the law is not just about Tesla and Musk.
“This bill creates certainty and predictability for all Texas incorporated companies and was supported by a range of Texas-incorporated and Texas-headquartered businesses,” said Converse. “And I think it also is great for the state itself, because it’s going to encourage companies that are headquartered in other jurisdictions. They’re going to see this law and see these changes and see the benefits of incorporating in Texas, which is going to be good for Texas in general.”
Babcock said there have been other controversial Delaware rulings, including a 2024 opinion that questioned common M&A practices in an agreement between Microsoft and Activision Blizzard. The ruling was in response to a shareholder’s claims that the draft merger agreement omitted certain information and delegated authority to a subset of directors to finalize the agreement.
Delaware is home to about two-thirds of all Fortune 500 companies. A new law there includes safe harbor protections for insiders and limits stockholder inspection rights, according to an April 3 article on the website of The Temple 10-Q, a blog about business law at Temple University’s Beasley School of Law.
According to the article, opponents of the Delaware law said it “undermines corporate governance and will shield tech billionaires from a wide array of potential misconduct claims.”
Any concerns in Texas about SB 29 were muted as the bill enjoyed bipartisan support.
“We wanted to clarify that our standard should make it clear that when making decisions on business matters, we defer to directors. And the directors are evaluated by their shareholders who elect them and who support them, rather than sort of third-party activists through litigation,” Babcock said.
“And then we clarified the scope of the business judgment rule to make it clear that you really have to show some actual wrongdoing. And if you show wrongdoing, if there is wrongdoing, those claims should proceed,” he said.
Allowing each corporation to determine the appropriate level for meritorious claims to move forward is going to be subject to discussion and market forces, Babcock added. Disgruntled shareholders will have four years to gather support to meet the threshold set in a company’s bylaws.
Schaefer said SB 29’s codification of the business judgment rule will provide Texas entities with predictability and protection.
“And SB 29’s codification of various safe harbor protections and procedures allows companies and boards to obtain up-front determinations about whether or not transactions are conflicted, which means companies will be able to turn to the Business Court for pre-closing determinations that would foreclose later challenges to those deals. Of course, much remains to be seen regarding how these pre-transaction safe harbor disputes will work in practice, as well as just how quickly the courts can adjudicate these disputes,” Schaefer said.
HB 40
In its first six months of operation, the Business Court handled more than 80 cases. The trickle of cases could increase under provisions of HB 40 by Rep. Brooks Landgraf, R-Odessa.
The most significant change in the bill would lower the minimum amount in controversy for Business Court jurisdiction from $10 million to $5 million and amend the definition of a qualified transaction to include a series of related transactions.
Paul Genender, a Dallas litigation partner at Paul Hastings, said it will be easier to aggregate transactions in an ongoing business-to-business relationship to get to $5 million. He said he has talked to several Business Court judges who are eager to educate law firm litigators and transactional lawyers about the fledgling system and the benefits of appearing before a judge with time to dig into the complexities of a case.
“I think there’s confusion among some of the practitioners about how do you get into the courts. How do you stay in the court system if that’s where you want to be,” said Genender. “And so one of my takeaways in looking at the changes, including the direction to the Supreme Court of Texas to develop new rules, is we want it to be clearer what claims can go to those courts and stay in those courts.”
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Paul Hastings partner Craig Stanfield said he thinks intellectual property-related issues will become an active part of the Business Court docket.
“And I wouldn’t be surprised if maybe some of the traditional district courts wouldn’t be happy to see some of those cases go to the [business] courts,” he said. “I don’t think they’ll be flooded, but I think we’re going to have a much more robust flow of cases in there.”
HB 40 moved Montgomery County into the Houston-based Eleventh Business Court Division. The bill would create six new court divisions in rural regions, but legislative budget writers did not appropriate the estimated $19 million needed to get those courts up and running over a two-year period. Lawmakers could revisit the issue during the 2027 session.
Schaefer and fellow Norton Rose partner Andrew Price have a critical jurisdictional issue pending at the Fifteenth Court of Appeals, the new appellate court created to handle Business Court appeals. Their appeal arose out of a dispute involving Lone Star NGL Product Services related to two natural gas purchase agreements and presents the question of whether the Business Court has jurisdiction over removal of a pre-Sept. 1, 2024, lawsuit where both parties expressly consented to such jurisdiction.
Bracewell partner Brad Benoit, chair of the firm’s energy litigation practice group, said he expects the Business Court to take on a greater role in coming years.
“After achieving proof of concept in the first year of operations with a moderated volume of cases, the reduction of the amount in controversy requirement from $10 million to $5 million for business disputes will afford the Business Court a more meaningful role in the progress of large litigation in Texas and in the development of Texas business law,” said Benoit. “The legislation’s inclusion of intellectual property and trade secret disputes will also bring another important genre of commercial litigation within the Business Court’s reach.”