During Texas’ 89th Legislative Session, Governor Abbott signed into effect a number of bills amending the Texas Business Organizations Code (TBOC). These amendments constitute part of Texas’ continued efforts to establish itself as a leading jurisdiction of choice for U.S. business organizations, challenging even Delaware in its business-friendly legal framework. Many of the amendments made during the recent Texas Legislative Session were designed to mirror certain of the 2024 amendments made to Delaware’s General Corporation Law, as well as recent changes to the Model Business Corporation Act. Among the bills signed by Governor Abbott was Senate Bill 2411 which, upon becoming effective on September 1, 2025, will implement various changes to the TBOC including the ability to exculpate officers from monetary damages, the power of directors of a corporation to effect certain amendments to the corporation’s Certificate of Formation, the ability to appoint representatives within a plan of merger or plan of exchange, the ability to approve certain agreements or other documents in “substantially final form,” automatic approval of actions contemplated under a plan of conversion, and reinforced concurrent jurisdiction of the Texas Business Court with Texas district courts.
Officer Exculpation
Perhaps the most notable change to the TBOC made by S.B. 2411 is the ability to exculpate officers of a corporation from monetary damages to the same extent as directors under the corporation’s Certificate of Formation. Currently, the TBOC allows corporation’s to provide in their Certificate of Formation that “governing persons” are not liable to the corporation or its owners for monetary damages arising out of such governing person’s acts or omissions in their capacity as a governing person, provided that such limitation of liability will not extend to (i) a breach of the governing person’s duty of loyalty, (ii) an act or omission in bad faith that constitutes a breach of any duty of the governing person to the corporation or that involves intentional misconduct or a knowing violation of law, (iii) a transaction from which the governing person received an improper benefit, or (iv) liability for an act or omission which is provided by statute. While “governing persons” does include directors of a corporation, it does not include officers. Following the changes made by S.B. 2411, the term “governing person” in this context is being replaced with the term “managerial official,” thereby allowing officers to be shielded from monetary liability under a corporation’s Certificate of Formation to the same extent as directors.
Non-Shareholder Approved Amendments to Certificate of Formation
S.B. 2411 also expands the circumstances under which directors of a corporation may make amendments to the corporation’s Certificate of Formation without shareholder approval. Currently, directors are authorized to amend the Certificate of Formation without shareholder approval only where the amendment involves changing the word “company,” “corporation,” “incorporated,” or “limited” (or any abbreviation of those words) in the corporation’s name to another of those words or abbreviations. Following the amendments made by S.B. 2411, directors will also be allowed to amend the Certificate of Formation without shareholder approval to (i) omit any provision that specifies the name and address of an organizer or director, (ii) omit provisions that were necessary to change, exchange, reclassify, subdivide, combine, or cancel shares, provided that such change, exchange, reclassification, subdivision, combination, or cancellation has already taken place, or (iii) if the corporation only has one class of stock that hasn’t been divided into series, effect a forward or reverse stock split (provided that the reverse stock split is “primarily for the purpose of maintaining the listing eligibility of the class on any applicable national securities exchange”).
Mergers and Exchanges: Representatives and Disclosure Schedules
The amended text of the TBOC will now expressly provide that in any merger or interest exchange, the plan of merger or plan of exchange, as applicable, may provide for the appointment of a representative to act on behalf of the owners of an entity involved in the merger or exchange. The plan of merger or exchange may additionally provide that such representative has the sole and exclusive authority to act on behalf of the owners in the exchange, including the authority to enforce or settle the rights of the owners under the plan of merger or exchange. The plan may also prescribe the irrevocable nature and binding effect of the representative’s appointment as to all owners and provide that the provisions relating to such appointment may not be amended after the merger or interest exchange has taken effect without the requisite consent specified in the plan.
Additionally, S.B. 2411 adds new language to the TBOC which specifies that disclosure letters, disclosure schedules, and other similar documents to be delivered in connection with a plan of merger or exchange, are not considered as part of the plan of merger or exchange unless such plan expressly states that the document is to be regarded as part of the plan.
Ratification of “Substantially Final Form”
The “governing authority” of any domestic entity will now have the ability to approve any plans, agreements, instruments or other documents requiring approval of the governing authority under the TBOC in either “final form” or “substantially final form”. Additionally, if a document is approved in “substantially final form,” the governing authority may subsequently ratify the final form of the document, prior to the effectiveness of the filing of such document with the Secretary of State, with the ratification being retroactively applied to the date that the document was approved in its “substantially final form”.
Authorization of Additional Actions Under Plan of Conversion
When a domestic entity undergoes a conversion pursuant to the TBOC, all further actions to be taken by the converted entity in connection with the conversion which are described in the plan of conversion are now considered to be automatically authorized, adopted and approved by the converted entity and its owners merely by the nature of such actions’ inclusion in the plan of conversion. This amendment eliminates the need for converted entities to execute separate resolutions approving actions contemplated by a plan of conversion. Rather, the fact that such actions are described in the plan of conversion is now sufficient to consider such actions approved by the converted entity and its owners.
References to Texas Business Court
Finally, S.B. 2411 reinforces the new Texas Business Court’s concurrent jurisdiction with Texas district courts by explicitly stating that any reference or grant of jurisdiction (including a grant of exclusive jurisdiction) to a “district court” within the TBOC now also constitutes a reference or grant of jurisdiction to the Texas Business Court. This amendment comes on the heels of a successful debut year for the Business Court and signals the Texas Legislature’s intent that the Business Court become a permanent fixture in the Texas court system.
