The recent phenomena of “DExit” reincorporations of Delaware corporations to Texas and the development of “Y’all Street” have highlighted the benefits of the Texas Business Organizations Code. The TBOC is the work product over the course of three decades by a dedicated group of volunteer Texas lawyers. Where did the TBOC come from?
The Background
The origins of the TBOC date back to 1995. The TBOC was a joint project of the Business Law Section of the State Bar of Texas, the Office of the Texas Secretary of State and the Texas Legislative Council. The Texas statutes historically were contained in the Vernon’s Black’s Statutes first published in 1925 by a private corporation. This compilation of Texas statutes was organized into 131 alphabetically arranged “titles” covering subjects of widely varying coherency and scope. This compilation proved inadequate to accommodate growth of the statutes in a rational manner.
Since 1963, the Texas Legislative Council has been required by law — Section 323.007 of the Government Code — to revise and reorganize the 1925 Black’s Statutes into new codes. The codification process included reclassifying and rearranging the statutes in a more logical order, emphasizing a numbering system and format that would accommodate future expansion of the law, eliminating repealed, invalid, duplicative and other ineffective provisions and improving the draftsmanship of the law. Over the course of many years, various portions of the Black’s Statutes were reorganized into codes by the Legislative Council.
By 1995, a new code containing the statutes governing for-profit and nonprofit private-sector entities had not yet been enacted. The leadership of the Business Law Section was determined that the section should try to take the lead in drafting this new code. Prior to that time, I had been actively involved in Business Law Section activities relating primarily to Uniform Commercial Code updates. In 1995, I volunteered to chair a newly formed ad hoc committee of attorneys who were members of the Business Law Section to lead the effort in codifying the private-sector entities statutes. I and other committee members had discussions with the Legislative Council, which welcomed our participation in the codification effort. In the codification process, the Legislative Council’s mandate was not to make any substantive revisions to the Texas statutes. Several of the code projects prior to that time had contained substantive revisions and were prepared to a great extent by parties other than the Legislative Council, although the Legislative Council participated in the projects primarily as the draftsmen. The same process was followed in the drafting of the TBOC.
Drafting the Code
The committee held numerous meetings to outline the plans for the codification project. While for the most part the TBOC represented a nonsubstantive codification of existing statutes, substantive improvements were made to effect the additional goals of modernizing, simplifying and standardizing provisions, procedures and filings across multiple types of entities. The TBOC recodified the following statutes scattered throughout the Black’s Statutes: the Texas Business Corporation Act, Texas Non-Profit Corporation Act, Texas Miscellaneous Corporation Laws Act, Texas Limited Liability Company Act, Texas Revised Limited Partnership Act, Texas Real Estate Investment Trust Act, Texas Uniform Unincorporated Non-Profit Associations Act, Texas Professional Corporation Act, Texas Associations Act, Texas Revised Partnership Act, Cooperative Associations Act and other provisions of Texas statutes governing private-sector entities.
The TBOC introduced a novel “hub-and-spoke” approach. Title 1 of the TBOC contained the “hub” provisions common to all domestic entities, thereby simplifying and standardizing provisions, procedures and filings across all entity types. We spent a lot of time at the initial stages to decide on new defined terms that applied to all types of entities. Examples include “certificate of formation,” “governing documents,” “governing person” and “winding up.” Besides new definitions, Title 1 included provisions governing powers, purposes, formation, filings, names, meeting and voting procedures, registered agents and offices, liability protection, indemnification, foreign entities, procedures for mergers, conversions, interest exchanges and sales of all or substantially all of assets, procedures for winding up and termination and administrative procedures. After outlining Title 1 of the TBOC, the committee had to start the drafting process. During the organizing process, in truly “old-school” fashion, I made photocopies of the various existing statutes, cut out similar provisions found in most of the statutes, sorted the similar provisions together and taped them onto sheets of paper. I then photocopied the sheets of paper with the compiled similar provisions and sent them to the respective attorneys who volunteered to prepare the first drafts of the new chapters in Title 1.
The task of initially drafting several of the TBOC’s “spokes” governing types of entities was undertaken by the then standing Business Law Section committees — the partnerships law committee, corporation law committee and limited liability company committee. The Legislative Council was also heavily involved in the drafting process. The Council prepared some of the first drafts of various titles of the TBOC not undertaken by section committees or committee members. After initial drafts were prepared by section attorneys, these drafts were turned over to the Legislative Council to transform into plain English and reorganize and modernize the text into separate sections, chapters and subchapters. Numerous drafts of all portions of the TBOC were exchanged multiple times between the Legislative Council and the committee over several years until the drafting process was completed in early 1999.
During the drafting process, the committee decided to make various substantive changes that went beyond merely reorganizing provisions and combining similar provisions into Title 1. One major substantive change was to modernize the language in the TBOC to enable electronic filings with the Texas Secretary of State. Filing documents and procedures were simplified and standardized across types of entities. The TBOC adopted a default rule of perpetual existence for all types of entities, thereby simplifying filing instruments. The procedures for winding up and terminating various types of entities were harmonized. New standard criminal penalties and civil liability were introduced to protect the integrity of the filing system while other provisions enhanced the flexibility of the filing procedures. Outmoded provisions such as the requirement that corporations and real estate investment trusts have at least $1,000 in capital before commencing business were omitted. Other changes were made to make the Texas law more consistent with Delaware corporate law and the Model Business Corporation Act, including eliminating statutory preemptive rights and cumulative voting rights as a default rule.
To conform to the typical codification process followed by the Legislative Council, an extensive Reviser’s Report was prepared. The report contained, on a section-by-section basis, the revised statutory text that replaced the old text, the original text being replaced and a reviser’s note explaining any intended changes, the rationale for the changes and any editorial or structural adjustments made. This was an enormous project that required innumerable man hours by this author and other committee members. I nearly had a long-time secretary quit over this part of the project.
The committee benefited from significant contributions from many other practicing Texas corporate attorneys, notably James Peacock, Curtis Huff, Byron Egan, John Ale, Richard Tulli, George Coleman, Michael Pierce and Gregory Samuel. Lawyers from the staff of the Office of the Secretary of State, namely Lorna Wassdorf and Carmen Flores, participated over many years in the drafting of the TBOC. Prominent Texas law professors, including Robert Hamilton and Leon Lebowitz from the University of Texas, Alan Bromberg from Southern Methodist University Law School and Elizabeth Miller from Baylor Law School, made significant contributions to the drafting of the TBOC.
Passage and Two Decades of Updates
The Texas Business Law Foundation agreed to serve as a sponsor and to pay for lobbyists to push for passage of the TBOC by the Texas Legislature. The TBOC was first introduced in the Legislature late in the 1999 session. The TBOC was reintroduced in the 2001 Legislature, finally passed by the Legislature in 2003 and became effective for newly formed entities Jan. 1, 2006. The long delay after passage before the TBOC was effective allowed ample time to educate and inform all interested persons. The TBOC did not apply to entities in existence Jan. 1, 2006, until Jan. 1, 2010, unless the entity expressly elected early to opt into the TBOC as its governing statute. At the end of transition period on Jan. 1, 2010, the TBOC became applicable to all existing Texas private-sector entities, and the predecessor statutes were repealed.
Since the TBOC’s passage in 2003, the committee, which I have chaired since 1995, has drafted and recommended for passage one or more pieces of legislation for each biennial session of the Texas Legislature. Those pieces of legislation have continued the process of modernizing and updating the provisions of the TBOC to meet changing times and to address developments in the laws of other states governing business entities, including Delaware in particular.
Some highlights of developments in the TBOC over the last two decades are listed below:
- 2005 — electronic transmission for notices; renunciation of entity opportunities in certificate of formation
- 2007 — improvements to winding up provisions for LLCs and partnerships
- 2009 — series LLCs authorized; emergency governance provisions; procedures for dealing with beneficial owners of shares
- 2011 — improvements in provisions governing conflict-of-interest transactions; updating dissenter’s appraisal rights procedures; shareholder standing for derivative actions
- 2013 — social purposes for for-profit corporations; simplification of amended and restated certificates of formation
- 2015 — ratification of defective corporate acts; updates to provisions governing fundamental business transactions; combined tender offer and short-form merger; shareholder access to proxy statements
- 2017 — public benefit corporations authorized; entity naming standards modernized; more flexibility for board authorization of dividends and share issuances
- 2019 — use of electronic data systems authorized; harmonized derivative proceeding provisions across entity types; updated voting agreement provisions;
- 2021 — virtual shareholder meetings; updated emergency provisions; choice of Texas court for internal entity claims; reliance on financial information in making solvency determinations; registered and protected series in LLCs
- 2023 — improved provisions on delayed effective dates for filings; modernized reinstatement provisions for terminated entities; harmonized provisions relating to issuance of shares, rights and options
- 2025 — exculpation of officers from monetary liability for breach of duty of due care; choice of exclusive forum for internal entity claims; approval of plan or agreement in substantially final form; authorizing seller representative in mergers; amendments to corporate certificate of formation without shareholder approval; no awards of plaintiff’s legal fees in disclosure-only settlement in shareholder derivative proceeding; simplification of procedures for ratification of defective corporate acts
In the 2025 Legislature, the committee reviewed and provided editorial revisions to portions of Senate Bill 29 prior to its initial filing, but that bill was sponsored and largely drafted by the Alliance for Corporate Excellence. SB 29 contained major revisions to the TBOC, including codification of the business judgment rule. The committee did not participate in drafting SB 1057 (establishing ownership threshold and other requirements for shareholder proposals in electing nationally listed corporations) and SB 2337 (regulating proxy advisory firms). These 2025 TBOC amendments have been important in attracting numerous redomestications of corporations and master limited partnerships to Texas.
Conclusion
Prior to the adoption of the TBOC, Texas had a confusing, opaque and daunting set of private-sector entity statutes scattered across various volumes of the Black’s Statutes. For example, on the corporate front, the primary business corporation statute in Texas, the Texas Business Corporation Act, dated from the mid-1950s. While many parts had been revised, some parts multiple times, much of the TBCA remained as it was originally adopted in the 1950s with archaic language and principles. The TBCA had become a disorganized patchwork of provisions, and many of the key provisions governing business corporations were found in a separate statute known as the Texas Miscellaneous Corporations Laws Act. This situation impeded the formation and efficient governance of Texas corporations.
Although Texas had led the states in several entity-law modernizations — such as the limited liability partnership and the conversion of entities from one form to another — the patchwork presentation of the state’s entity statutes prevented it from having a national image as progressive as it actually was. The TBOC reorganized and modernized these statutes and, with the committee’s continuing efforts in updating the TBOC, has eliminated a lot of uncertainty in Texas laws governing businesses, has improved the organization and understandability of those laws and has modernized those laws, all to the benefit of Texas businesses and entities. All of these innovations have laid the groundwork for the surge in DExit filings and the ambitions of Y’all Street we are seeing today.