BILL ANALYSIS C.S.H.B. 15 By: Meyer Judiciary & Civil Jurisprudence Committee Report (Substituted) BACKGROUND AND PURPOSE According to the Fordham Journal of Corporate & Financial Law, the Harvard Law School Forum on Corporate Governance, and the Delaware Department of State, historically, the state of Delaware has been heralded as a legal home for business entities, as it was believed its extensive case law and business-focused Court of Chancery provided certainty for business decision-making. However, the bill author has informed the committee that in recent years, anti‑business sentiment and rulings have negated this perception and eroded trust in Delaware, causing entities to look to organize or move to states with business-friendly climates, such as Texas. C.S.H.B. 15 seeks to make Texas an attractive legal home for businesses by reforming statutory provisions governing certain business entities and enhancing the predictability and efficiency of Texas entity law and governance while maintaining strong protections for entity owners and transparency. CRIMINAL JUSTICE IMPACT It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution. ANALYSIS C.S.H.B. 15 amends the Business Organizations Code to revise statutory provisions relating to business activities of domestic entities, certain for-profit corporations, certain limited liability companies, and certain limited partnerships. General Provisions C.S.H.B. 15 expands the definition of "national securities exchange," as applicable to the code in its entirety, to include a stock exchange that has its principal office in Texas and has received approval by the securities commissioner under The Securities Act. Furthermore, the bill sets out a general provision regarding the laws governing the formation, internal affairs, and governance of an organization formed under the code or the internal affairs of which are governed by the code that does the following with regard to such a domestic entity: authorizes the managerial officials of such a domestic entity, in exercising their powers with respect to that entity, to consider the laws and judicial decisions of other states and the practices observed by entities formed in those states; and provides that 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 the code or of any duty existing under state laws. Powers of Domestic Entities Choice of Forum Provisions C.S.H.B. 15, in the choice of forum provision authorizing the governing documents of a domestic entity to require that any internal entity claims must be brought only in a court in Texas, expands that authorization to provide that the documents may also require, consistent with applicable state and federal jurisdictional requirements, that one or more courts in Texas having jurisdiction must serve as the exclusive forum and venue for any internal entity claims. Waiver of Trial by Jury C.S.H.B. 15 establishes that a domestic entity's governing documents may contain a waiver of the right to a jury trial concerning any internal entity claim. The bill establishes that, in a lawsuit asserting such a claim, a waiver of the right to a jury trial contained in the governing documents of a domestic entity is enforceable, regardless of whether the applicable governing document is signed by the members, owners, officers, or governing persons. A person asserting an internal entity claim is considered to have been informed of the waiver of the right to a jury trial contained in the governing documents and to have knowingly waived the right in the action if the person, as follows: voted for or affirmatively ratified the governing document containing the waiver; or acquired an equity security of the domestic entity or a predecessor to the entity at a time at which the waiver was included in the governing documents of the domestic entity or a predecessor to the entity, as applicable. The bill establishes that nothing in these provisions prevents an entity from showing that a person asserting an internal entity claim knowingly and informedly waived the right to a jury trial by any evidence satisfactory to the court having jurisdiction, including by the person's consent or acquiescence to the waiver contained in the governing documents. The bill defines "internal entity claim" by reference to the meaning assigned to that term by the choice of forum provisions applicable to a domestic entity. For-Profit Corporations Shareholder Rights and Restrictions: Examination of Records C.S.H.B. 15, with respect to the right of certain shareholders of a for-profit corporation to examine and copy, on written demand, applicable records of that corporation for a proper purpose, prohibits the inclusion in those applicable records of emails, text messages or similar electronic communications, or information from social media accounts unless such communication or information effectuates an action by the corporation. In addition, the bill sets out a provision that is applicable 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 subsequently described provisions of the bill establishing specific presumptions for directors and officers of certain corporations who take or decline to take certain actions on any matters of a corporation's business. Accordingly, with respect to such an applicable corporation, the bill establishes that for purposes of an applicable shareholder's entitlement to examine and copy the applicable corporation's records for a proper purpose, a written demand is not for a proper purpose if the applicable corporation reasonably determines that the demand is in connection with one of the following: an active or pending derivative proceeding in the right of the corporation under statutory provisions relating to those derivative proceedings that is or is expected to be instituted or maintained by the applicable shareholder or the shareholder's affiliate; or an active or pending civil lawsuit to which the corporation, or its affiliate, and the applicable shareholder, or the shareholder's affiliate, are or are expected to be adversarial named parties. Furthermore, the bill establishes that the provision as set out by the bill expressly does not impair the following rights: any rights of the applicable shareholder or the shareholder's affiliate to obtain discovery of records from the applicable corporation in an active or pending civil lawsuit described by the provision as set out by the bill or in the derivative proceeding subject to the applicable Business Organizations Code provision limiting discovery in a derivative proceeding; or any rights of the applicable shareholder to obtain a court order to compel production of records of the applicable corporation for examination by the holder as provided by the applicable Business Organizations Code provision relating to the power of the court to compel the production of applicable records of a corporation for examination, regardless of the period during which the shareholder was a beneficial shareholder or record holder and regardless of the number of shares held by the person. Board of Directors of a Corporation Committees of a Board of Directors C.S.H.B. 15 sets out a provision applicable to the board of directors of 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 subsequently described provisions of the bill establishing specific presumptions for directors and officers of certain corporations who take or decline to take certain actions on any matters of a corporation's business. The bill authorizes such a board of directors to adopt resolutions that authorize the formation of a committee of independent and disinterested directors to review and approve transactions involving the corporation or any of its subsidiaries and a controlling shareholder, director, or officer and specifies that this authority applies whether or not the transactions are contemplated at the time of the committee's formation or at the time of a corporation's applicable petition to an appropriate court for an evidentiary hearing, as authorized under subsequently described bill provisions, to determine whether the directors appointed to the committee are independent and disinterested. Determination of Independent and Disinterested Directors C.S.H.B. 15 sets out provisions describing the process used to determine whether board directors who are appointed to a committee formed under the bill's provisions to review and approve transactions involving an applicable corporation or any of its subsidiaries and a controlling shareholder, director, or officer are independent and disinterested with respect to such transactions. Accordingly, the bill provides the following: an applicable corporation that adopts a resolution for purposes of authorizing the formation of such a committee may petition a court having 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; the petition must be filed in the business court unless the corporation's principal place of business in Texas is located in a county not contained within an operating division of the business court, in which case the petition may be filed in a district court in the county in which the corporation's principal place of business in Texas is located; in the petition, the applicable corporation must 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; the corporation must give notice to the corporation's shareholders that, as follows: o such a petition has been filed; o identifies the court in which the petition is filed and provides the case number for the proceeding; o identifies counsel designated to act on behalf of the corporation and its shareholders, other than the controlling shareholder, director, or officer involved in the transaction; and o the shareholders, other than the controlling shareholder, director, or officer involved in the transaction, have the right to participate in the proceeding in person or through counsel; the required notice, if the corporation has a class of its shares listed on a national securities exchange, may be provided through the filing of a current report with the U.S. Securities and Exchange Commission in accordance with the requirements of the federal Securities Exchange Act of 1934 and any rules promulgated under that act; the court, not earlier than the 10th day after the date the required notice is given, must 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: o object to counsel designated by the corporation in the petition on the ground that the designated counsel is insufficiently independent and disinterested; or o request designation by the court as the appropriate legal counsel; the court, after determining the appropriate legal counsel, must 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 and legal counsel for the corporation may participate in the hearing, and the court, after hearing and reviewing the evidence presented, must make its determination as to whether the directors on the committee are independent and disinterested; and the court's determination that the directors are independent and disinterested is 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. Contracts or Transactions Involving Interested Directors and Officers C.S.H.B. 15 sets out a provision applicable 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 subsequently described provisions of the bill establishing specific presumptions for directors and officers of certain corporations who take or decline to take certain actions on any matters of a corporation's business. Accordingly, the bill establishes that, regardless of whether the conditions in current law under which an otherwise valid and enforceable contract or transaction involving interested directors and officers is valid and enforceable and is not void or voidable 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, as follows: had a relationship with an applicable corporation as a managerial official or had a financial interest; or took any of the following actions authorized for a person with such a relationship or interest unless the cause of action is permitted by the bill's provisions establishing specific presumptions for directors and officers of certain corporations who take or decline to take certain actions on any matters of a corporation's business: o was present at or participated in and, if the person is a director or committee member, voted at a meeting of the board of directors or of a committee of the board that authorizes the contract or transaction; or o signed, in the person's capacity as a director or committee member, a unanimous written consent of the directors or committee members to authorize the contract or transaction. Presumptions for Directors and Officers of Certain Corporations C.S.H.B. 15 sets out provisions applicable only to a corporation that has a class or series of voting shares listed on a national securities exchange or that has included in its governing documents a statement affirmatively electing to be governed by these applicable provisions. Accordingly, the bill provides the following: in taking or declining to take any action on any matters of an applicable corporation's business, a director or officer is presumed to act in good faith, on an informed basis, in furtherance of the interests of the corporation, and in obedience to the law and the corporation's governing documents; neither an applicable corporation nor any of the corporation's shareholders has a cause of action against the corporation's director or officer as a result of any act or omission in the person's capacity as a director or officer unless the claimant rebuts one or more of the aforementioned presumptions and it is proven by the claimant that, as follows: o 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 o the breach involved fraud, intentional misconduct, an ultra vires act, or a knowing violation of law; such presumptions are in addition to any legal presumption arising under common law or the Business Organizations Code, in favor of any managerial official of a corporation to which these bill provisions apply, and 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 these bill provisions do not apply; and a party, in alleging fraud, intentional misconduct, an ultra vires act, or a knowing violation of the law under these bill provisions, must state with particularity the circumstances constituting the alleged action. These bill provisions relating to the presumptions expressly do not limit the effectiveness or applicability of a provision contained in the certificate of formation or similar instrument of a corporation limiting monetary liability of a governing person. Derivative Proceedings Standing to Bring Proceeding C.S.H.B. 15, for purposes of statutory provisions governing derivative proceedings, expands the definition of "shareholder" to include two or more shareholders acting in concert under an informal or formal agreement or understanding with respect to a derivative proceeding. The bill, with respect to a corporation with common shares listed on a national securities exchange or a corporation that has made an affirmative election to be governed by the aforementioned provisions of the bill establishing specific presumptions for directors and officers of certain corporations who take or decline to take certain actions on any matters of a corporation's business and has 500 or more shareholders, authorizes a shareholder to institute or maintain a derivative proceeding if 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. This authorization applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before that date 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. Determination by Directors or Independent Persons C.S.H.B. 15 authorizes an individual appointed by the court to a panel of independent and disinterested individuals for the purpose of making a determination of how to proceed on allegations made in a demand or petition relating to a derivative proceeding to be a director. The bill authorizes a corporation, before the corporation's determination of how to proceed on the allegations, to petition the court having jurisdiction to make a finding as to whether the directors identified or appointed by an affirmative vote are independent and disinterested with respect to the allegations made in the demand. The bill requires such a petition to be filed, as follows: if a derivative proceeding has been instituted, in the court in which the proceeding was instituted; and if no derivative proceeding has been instituted, in the business court. However, the bill authorizes a petition to be filed in a district court in the county in which the corporation's principal place of business in Texas is located if no derivative proceeding has been instituted and the corporation's principal place of business in Texas is located in a county not contained within an operating division of the business court. C.S.H.B. 15 requires the corporation to serve a copy of the petition on the shareholder filing the derivative proceeding or making the demand. The bill requires the court in which a petition is filed to conduct an evidentiary hearing on the petition on or before the 45th day after the date the petition is filed unless extended for good cause. The bill entitles a shareholder on whom a petition is served to be served with all notices and papers filed in the action and to intervene in the action to challenge the petition. Unless good cause is shown, a shareholder who is not already a party to the action must intervene not later than the seventh day before the date the petition is heard by the court. The bill requires the court, not later than the 75th day after the date the petition is filed unless extended for good cause, to sign an order stating whether the directors are independent and disinterested. The bill establishes that a court's finding that the directors or individuals are independent and disinterested is 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. Payment of Expenses on Termination of a Derivative Proceeding C.S.H.B. 15 establishes that, for purposes of the provision authorizing a court to order payment of expenses on termination of a derivative proceeding, a substantial benefit to a corporation does not include additional or amended disclosures made to shareholders, regardless of materiality. This bill provision applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before the bill's effective date 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. Application to Foreign Corporations C.S.H.B. 15 clarifies that, for purposes of the applicability of certain Business Organizations Code provisions regarding derivative proceedings to foreign corporations, the consideration in current law of those provisions as procedural provisions that do not relate to the internal affairs of the foreign corporation applies only with respect to foreign corporations. Limited Liability Companies Presumptions for Governing Persons of Certain Limited Liability Companies C.S.H.B. 15 sets out provisions applicable only to a limited liability company that has a class or series of voting membership interests listed on a national securities exchange or that has included in its company agreement a statement affirmatively electing to be governed by these applicable provisions. Accordingly, the bill provides the following: in taking or declining to take any action on any matters of a limited liability company's business, a governing person or officer, and each affiliate or associate of a governing person or officer, is presumed to act in good faith, on an informed basis, in furtherance of the interests of the limited liability company, and in obedience to the law and the limited liability company's company agreement; neither an applicable limited liability company nor any of the company's members has a cause of action against a governing person or officer or any affiliate or associate of a governing person or officer of the company as a result of any act or omission in the person's capacity as a governing person or officer of the company unless the claimant rebuts one or more of the aforementioned presumptions and it is proven by the claimant that, as follows: o the act or omission of the governing person or officer or affiliate or associate of a governing person or officer constituted a breach of one or more of the person's duties as a governing person or officer; and o the breach involved fraud, intentional misconduct, an ultra vires act, or a knowing violation of law; such presumptions are in addition to any legal presumption arising under common law or the Business Organizations Code, in favor of any governing person or officer to which these bill provisions apply, and 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 governing person or officer of any domestic entity, including any limited liability company to which these bill provisions do not apply; and a party, in alleging fraud, intentional misconduct, an ultra vires act, or a knowing violation of the law under these provisions, must state with particularity the circumstances constituting the alleged action. These provisions expressly do not limit the effectiveness or applicability of a provision contained in the certificate of formation or company agreement or similar instrument of a limited liability company limiting monetary liability of a governing person or officer. Elimination of Duties and Liabilities C.S.H.B. 15 authorizes the company agreement of a limited liability company to eliminate any duties, including fiduciary duties, and related liabilities that a member, manager, officer, or other person has to the company or to a member or manager of the company, in addition to the authority in current law for such a company agreement to expand or restrict such duties and liabilities. Derivative Proceedings Standing to Bring Proceeding C.S.H.B. 15, for purposes of statutory provisions governing derivative proceedings, expands the definition of "member" to include two or more members acting in concert under an informal or formal agreement or understanding with respect to a derivative proceeding. The bill, with respect to a limited liability company with membership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's provisions relating to presumptions for governing persons of certain limited liability companies and has 500 or more members, authorizes a member to institute or maintain a derivative proceeding if at the time the derivative proceeding is instituted, the member beneficially owns a number of the membership interests sufficient to meet the required ownership threshold to institute a derivative proceeding in the right of the limited liability company identified in the limited liability company's certificate of formation or company agreement, provided that the required ownership threshold does not exceed three percent of the outstanding membership interests of the limited liability company. This authorization applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before that date 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. Payment of Expenses on the Termination of a Derivative Proceeding C.S.H.B. 15 establishes that, for purposes of the statutory authorization for a court to order the payment of certain expenses on termination of a derivative proceeding, a substantial benefit to the limited liability company does not include additional or amended disclosures made to the members, regardless of materiality. This provision applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before that date 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. Supplemental Recordkeeping Requirements: Right to Examine Records C.S.H.B. 15, with respect to the right of certain members of a limited liability company or assignees of a membership interest in a limited liability company to examine and copy, on written demand, applicable records of that company for a proper purpose, prohibits the inclusion in those records of emails, text messages or similar electronic communications, or information from social media accounts unless such communication or information effectuates an action by the company. The bill conditions such a right of an applicable member or assignee on whether the governing documents of the limited liability company provide otherwise. For purposes of that right of such a member or assignee to examine and copy the applicable limited liability company's records for a proper purpose, the bill does the following applicable only to a limited liability company that has a class or series of voting membership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's provisions relating to presumptions for governing persons of certain limited liability companies: restricts the authority to make the written demand to a member or an assignee that has held the membership interest for at least six months immediately preceding the member's or assignee's demand; establishes that a written demand is not for a proper purpose if the applicable limited liability company reasonably determines that the demand is in connection with: o an active or pending derivative proceeding in the right of the limited liability company under statutory provisions relating to derivative proceedings that is or is expected to be instituted or maintained by the applicable member or assignee or the member's or assignee's affiliate; or o an active or pending civil lawsuit to which the company, or its affiliate, and the applicable member or assignee, or the member's or assignee's affiliate, are or are expected to be adversarial named parties. Furthermore, the bill establishes that these provisions relating to the proper purpose of a written demand expressly do not impair any rights of an applicable member or assignee or the member's or assignee's affiliate to obtain discovery of records from the limited liability company in a civil lawsuit described by those provisions or in the derivative proceeding subject to discovery. Limited Partnerships Effect of Partnership Agreement C.S.H.B. 15 sets out a provision applicable only to a limited partnership that has a class or series of voting limited partnership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's provisions relating to presumptions for general partners and officers of certain limited partnerships. The bill authorizes such a partnership agreement to eliminate the partner's duty of loyalty, the partner's duty of care, and the obligation of good faith under applicable Business Organizations Code provisions, to the extent the governing documents of the partnership include a statement affirmatively electing to do so. Presumptions for General Partners and Officers of Certain Limited Partnerships C.S.H.B. 15 sets out provisions applicable only to a limited partnership that has a class or series of voting limited partnership interests listed on a national securities exchange or that has included in its governing documents a statement affirmatively electing to be governed by these applicable provisions. Accordingly, the bill provides the following: in taking or declining to take any action on any matters of a limited partnership's business, any general partner of the limited partnership, including any director, officer, member, or other affiliate of the general partner, is presumed to act in good faith, on an informed basis, in furtherance of the interests of the limited partnership, and in obedience to the law and the limited partnership's partnership agreement; neither an applicable limited partnership nor any of the limited partnership's partners has a cause of action against a general partner of the limited partnership, including any director, officer, member, or other affiliate of the general partner, as a result of any act or omission in the person's capacity as a general partner or as an officer or director of the general partner unless the claimant rebuts one or more of the aforementioned presumptions and it is proven by the claimant that: o the general partner's or any director, officer, member, or other affiliate of the general partner's act or omission constituted a breach of one or more of the person's duties as a general partner, director, or officer; and o the breach involved fraud, intentional misconduct, an ultra vires act, or a knowing violation of law; such presumptions are in addition to any legal presumption arising under common law or the Business Organizations Code, in favor of any general partner or member or managerial official of a general partner to which these bill provisions apply, and 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 limited partnership to which these bill provisions do not apply; and a party, in alleging fraud, intentional misconduct, an ultra vires act, or a knowing violation of the law under these provisions, must state with particularity the circumstances constituting the alleged action. These bill provisions expressly do not limit the effectiveness or applicability of a provision contained in the certificate of formation or partnership agreement or similar instrument of a partnership limiting monetary liability of a governing person. Derivative Actions Standing to Bring Proceeding C.S.H.B. 15, for purposes of statutory provisions governing derivative actions, expands the definition of "limited partner" to include two or more limited partners acting in concert under an informal or formal agreement or understanding with respect to a derivative proceeding. The bill, with respect to a limited partnership with limited partnership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's provisions relating to presumptions for general partners and officers of certain limited partnerships and has 500 or more limited partners, authorizes a limited partner to institute or maintain a derivative proceeding if at the time the derivative proceeding is instituted, the partner beneficially owns a number of limited partnership interests sufficient to meet the required ownership threshold to institute a derivative proceeding in the right of the limited partnership identified in the limited partnership's certificate of formation or partnership agreement, provided that the required ownership threshold does not exceed three percent of the outstanding limited partnership interests of the limited partnership. This authorization applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before that date 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. Payment of Expenses on Termination of a Derivative Proceeding C.S.H.B. 15 establishes that, for purposes of the statutory provisions authorizing a court to order the payment of certain expenses on termination of a derivative proceeding, a substantial benefit to the limited partnership does not include additional or amended disclosures made to the limited partners, regardless of materiality. This provision applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before the bill's effective date 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. Right to Examine Records C.S.H.B. 15, with respect to the right of a partner or an assignee of a partnership interest in a limited partnership to examine and copy, on written demand, applicable records of that partnership for a proper purpose, prohibits the inclusion in those records of emails, text messages or similar electronic communications, or information from social media accounts unless such communication or information effectuates an action by the limited partnership. The bill conditions such a right of an applicable partner or assignee on whether the governing documents of the limited partnership provide otherwise. For purposes of that right of such a partner or assignee to examine and copy the applicable limited partnership's records for a proper purpose, the bill does the following applicable only to a limited partnership that has a class or series of voting limited partnership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's provisions relating to presumptions for general partners and officers of certain limited partnerships: restricts the authority to make the written demand to a limited partner or an assignee that has held the limited partnership interest for at least six months immediately preceding the limited partner's or assignee's demand; and establishes that a written demand is not for a proper purpose if the limited partnership reasonably determines that the demand is in connection with: o an active or pending derivative proceeding in the right of the limited partnership under statutory provisions relating to derivative actions that is or is expected to be instituted or maintained by the limited partner or assignee or the limited partner's or assignee's affiliate; or o an active or pending civil lawsuit to which the partnership, or its affiliate, and the limited partner or assignee, or the limited partner's or assignee's affiliate, are or are expected to be adversarial named parties. Furthermore, the bill establishes that these provisions relating to the right of a partner or assignee of such a limited partnership to make such a written demand expressly do not impair any rights of the applicable partner or assignee or the limited partner's or assignee's affiliate to obtain discovery of records from the limited partnership in a civil lawsuit described by those provisions relating to the proper purpose or in the derivative proceeding subject to discovery. EFFECTIVE DATE On passage, or, if the bill does not receive the necessary vote, September 1, 2025. COMPARISON OF INTRODUCED AND SUBSTITUTE While C.S.H.B. 15 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill. General Provisions The substitute omits a provision of the introduced prohibiting the plain meaning of the text of the Business Organizations Code from being supplanted, contravened, or modified by the laws or judicial decisions of any other state. Waiver of Trial by Jury The introduced authorized a domestic entity's governing documents to contain an enforceable waiver of the right to a jury trial concerning any internal entity claim, regardless of whether the applicable document is signed by the members, owners, officers, or governing persons. The substitute omits this provision and instead includes provisions that do the following: authorize a domestic entity's governing documents to contain a waiver of the right to such a jury trial; and establish that, in a lawsuit asserting an internal entity claim, a waiver of the right to a jury trial contained in those governing documents is enforceable, regardless of whether the applicable document is signed by those individuals. Whereas the introduced required a waiver of jury trial in a domestic entity's governing documents to be a knowing and informed waiver of a person who meets certain criteria, the substitute establishes that a person asserting an internal entity claim is considered to have been informed of the waiver of the right to a jury trial contained in those documents and to have knowingly waived the right in the action if the person meets certain criteria. The substitute does the following with respect to those criteria: whereas the introduced established as a criterion that a person acquired an equity security of the domestic entity at a time at which the waiver was included in the governing documents, the substitute specifies as a criterion that a person acquired an equity security of the domestic entity or a predecessor to the entity at a time at which the waiver was included in the governing documents of the domestic entity or a predecessor to the entity, as applicable; and omits the introduced version's requirement for a waiver of jury trial in those documents to be a knowing and informed waiver of a person who is otherwise shown by evidence satisfactory to an appropriate court to have knowingly and informedly consented or acquiesced to the waiver. Additionally, the substitute includes a provision absent from the introduced establishing that nothing in the bill's provisions relating to the waiver of trial by jury prevents an entity from showing that a person asserting an internal entity claim knowingly and informedly waived the right to a jury trial by any evidence satisfactory to the court having jurisdiction, including by the person's consent or acquiescence to the waiver contained in the governing documents. When Filings Take Effect: General Rule The substitute omits the following provisions present in the introduced: a provision which established that 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 by state law if the revised filing instrument: o 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; o is found to be acceptable by the secretary of state; and o is the first revised filing instrument; a provision that made such provision applicable to a filing instrument that creates or forms a new domestic entity or amends the name of an existing domestic entity only if: o the name of the new domestic entity or the amended name of the existing domestic entity, as applicable, was reserved or registered under applicable state law 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 o the name reservation or registration remains in effect at least until the revised filing instrument delivered to the secretary of state takes effect; and a provision which established that the aforementioned provisions apply only to a filing instrument submitted to the secretary of state on or after the bill's effective date and a filing instrument submitted to the secretary of state before that date 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. For-Profit Corporations Shareholder Rights and Restrictions Whereas the introduced excepted email, text messages or similar electronic communications, and social media account information that affects an action by a corporation from the prohibition against a corporation's records including those types of communication or information with respect to the right of certain shareholders to lawfully examine and copy the corporation's records, the substitute instead excepts email, text messages or similar electronic communications, and social media account information that effectuates an action by the corporation from that prohibition. Determination of Independent and Disinterested Directors The substitute includes a requirement absent from the introduced for a petition to hold an evidentiary hearing to determine whether the board of directors appointed to a committee formed under the bill's provisions are independent and disinterested with respect to certain transactions to be filed in the business court unless the corporation's principal place of business in Texas is located in a county not contained within an operating division of the business court. The substitute includes a provision absent from the introduced establishing that, if the corporation's principal place of business in Texas is located in such a county, the petition may be filed in a district court in the county in which the corporation's principal place of business in Texas is located. Whereas the introduced required the corporation to give notice to the shareholders of the designated counsel and the petition, the substitute instead requires the corporation to give notice to the corporation's shareholders that, as follows: a petition has been filed; identifies the court in which the petition is filed and provides the case number for the proceeding; identifies counsel designated to act on behalf of the corporation and its shareholders, other than the controlling shareholder, director, or officer involved in the transaction; and the shareholders, other than the controlling shareholder, director, or officer involved in the transaction, have the right to participate in the proceeding in person or through counsel. While both the introduced and the substitute require the court, not earlier than the 10th day after the required notice is given, to hold a preliminary hearing to determine the appropriate legal counsel to represent the corporation and its applicable shareholders, the substitute does not include the specification that the court do so promptly after receiving a petition. Additionally, the substitute includes an authorization absent from the introduced for any other legal counsel representing a shareholder, other than the controlling shareholder, director, or officer involved in the applicable transaction, to participate in the hearing to object to counsel designated by the corporation in the petition on the ground that the designated counsel is insufficiently independent and disinterested. Presumptions for Directors and Officers of Certain Corporations Whereas the introduced established that the provisions relating to presumptions for directors and officers of certain corporations do 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, the substitute establishes that those provisions do not limit the effectiveness or applicability of such a provision. Derivative Proceedings Both the introduced and the substitute expand the requisite conditions under which a shareholder of a corporation that has made the applicable affirmative election regarding its governance may institute or maintain a derivative proceeding. However, the substitute includes a specification absent from the introduced that the corporation must have also a minimum of 500 shareholders. Determination by Directors or Independent Persons The substitute includes an authorization absent from the introduced for an individual appointed by the court to a panel of independent and disinterested individuals for the purpose of making a determination of how to proceed on allegations made in a demand or petition relating to a derivative proceeding to be a director. While the introduced authorized a corporation, before the corporation's determination of how to proceed on those allegations, to 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 are independent and disinterested with respect to the allegations made in the demand, the substitute does not. The substitute instead authorizes the corporation, before the corporation's determination of how to proceed on those allegations, to petition the court having jurisdiction to make a finding as to whether the directors identified or appointed are independent and disinterested with respect to those allegations. The substitute omits a requirement from the introduced for a corporation, if a derivative proceeding was not instituted, to 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. The substitute instead includes the following provisions absent from the introduced setting out the following: the manner in which the petition must be filed if a derivative proceeding has been instituted or if no derivative proceeding has been instituted; the manner in which a petition may be filed if the corporation's principal place of business in Texas is located in a county not contained within an operating division of the business court; a requirement for the corporation to serve a copy of the petition on the shareholder filing the derivative proceeding or making the demand; a requirement for a court in which the petition is filed to conduct an evidentiary hearing on the petition on or before the 45th day after the date the petition is filed, unless extended for good cause; a provision entitling a shareholder on whom a petition is served to be served with all notices and papers filed in the action and to intervene in the action to challenge the petition; and a deadline for a shareholder who is not already a party to the action to intervene not later than the seventh day before the date the petition is heard by the court, unless good cause is shown. Whereas the introduced required the court, after hearing and reviewing the evidence presented, to make its determination as to whether the directors are independent and disinterested, the substitute requires the court to sign an order stating whether the directors are independent and disinterested not later than the 75th day after the date the petition is filed, unless extended for good cause. Limited Liability Companies The substitute includes provisions relating to the following with respect to the business activities of certain limited liability companies that were not in the introduced: the presumptions for governing persons of certain limited liability companies that have a class or series of voting membership interests listed on a national securities exchange or included in its company agreement a statement affirmatively electing to be governed by the bill's applicable provisions who take or decline to take any action on any matters of the limited liability company's business; the authority for the company agreement of a limited liability company to eliminate certain duties and related liabilities; the expansion of the definition of "member" under statutory provisions governing derivative proceedings of limited liability companies to include two or more members acting in concert under an informal or formal agreement or understanding with respect to the proceeding; the authorization for a member of an applicable limited liability company to institute or maintain a derivative proceeding if certain conditions exist at the time the derivative proceeding is instituted; the specification that, for purposes of the statutory authorization for a court to order the payment of certain expenses on termination of a derivative proceeding, the substantial benefit to the limited liability company on termination of a derivative proceeding does not include additional or amended disclosures made to the members, regardless of materiality; the supplemental recordkeeping requirements of limited liability companies and the right of a member of a limited liability company or an assignee of a membership interest in a limited liability company to examine and copy certain records; and the applicability of certain provisions regarding a derivative proceeding that is instituted on or after the bill's effective date. Limited Partnerships The substitute includes provisions relating to the following with respect to the business activities of limited partnerships that were not in the introduced: an authorization for a limited partnership agreement that has a class or series of voting limited partnership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's applicable provisions to eliminate the duty of loyalty, the duty of care, and the obligation of good faith under applicable Business Organizations Code provisions, to the specified extent; the presumptions for general partners and officers of such limited partnerships who take or decline to take any action on any matters of a limited partnership's business; the expansion of the definition of "limited partner" under statutory provisions governing derivative actions of limited partnerships to include two or more limited partners acting in concert under an informal or formal agreement or understanding with respect to the proceeding; the authorization for an applicable limited partner that has 500 or more limited partners to institute or maintain a derivative proceeding if certain conditions exist at the time the derivative proceeding is instituted; the specification that, for purposes of the statutory authorization for a court to order the payment of certain expenses on termination of a derivative proceeding, the substantial benefit to the limited partnership does not include additional or amended disclosures made to the limited partners, regardless of materiality; the examination of the limited partnership's records and the written demand by a partner or a partner's assignee to examine and copy records for a proper purpose; and the applicability of certain provisions regarding a derivative proceeding that is instituted on or after the bill's effective date.
BILL ANALYSIS
# BILL ANALYSIS
C.S.H.B. 15
By: Meyer
Judiciary & Civil Jurisprudence
Committee Report (Substituted)
C.S.H.B. 15
By: Meyer
Judiciary & Civil Jurisprudence
Committee Report (Substituted)
BACKGROUND AND PURPOSE According to the Fordham Journal of Corporate & Financial Law, the Harvard Law School Forum on Corporate Governance, and the Delaware Department of State, historically, the state of Delaware has been heralded as a legal home for business entities, as it was believed its extensive case law and business-focused Court of Chancery provided certainty for business decision-making. However, the bill author has informed the committee that in recent years, anti‑business sentiment and rulings have negated this perception and eroded trust in Delaware, causing entities to look to organize or move to states with business-friendly climates, such as Texas. C.S.H.B. 15 seeks to make Texas an attractive legal home for businesses by reforming statutory provisions governing certain business entities and enhancing the predictability and efficiency of Texas entity law and governance while maintaining strong protections for entity owners and transparency.
CRIMINAL JUSTICE IMPACT It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.
RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.
ANALYSIS C.S.H.B. 15 amends the Business Organizations Code to revise statutory provisions relating to business activities of domestic entities, certain for-profit corporations, certain limited liability companies, and certain limited partnerships. General Provisions C.S.H.B. 15 expands the definition of "national securities exchange," as applicable to the code in its entirety, to include a stock exchange that has its principal office in Texas and has received approval by the securities commissioner under The Securities Act. Furthermore, the bill sets out a general provision regarding the laws governing the formation, internal affairs, and governance of an organization formed under the code or the internal affairs of which are governed by the code that does the following with regard to such a domestic entity: authorizes the managerial officials of such a domestic entity, in exercising their powers with respect to that entity, to consider the laws and judicial decisions of other states and the practices observed by entities formed in those states; and provides that 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 the code or of any duty existing under state laws. Powers of Domestic Entities Choice of Forum Provisions C.S.H.B. 15, in the choice of forum provision authorizing the governing documents of a domestic entity to require that any internal entity claims must be brought only in a court in Texas, expands that authorization to provide that the documents may also require, consistent with applicable state and federal jurisdictional requirements, that one or more courts in Texas having jurisdiction must serve as the exclusive forum and venue for any internal entity claims. Waiver of Trial by Jury C.S.H.B. 15 establishes that a domestic entity's governing documents may contain a waiver of the right to a jury trial concerning any internal entity claim. The bill establishes that, in a lawsuit asserting such a claim, a waiver of the right to a jury trial contained in the governing documents of a domestic entity is enforceable, regardless of whether the applicable governing document is signed by the members, owners, officers, or governing persons. A person asserting an internal entity claim is considered to have been informed of the waiver of the right to a jury trial contained in the governing documents and to have knowingly waived the right in the action if the person, as follows: voted for or affirmatively ratified the governing document containing the waiver; or acquired an equity security of the domestic entity or a predecessor to the entity at a time at which the waiver was included in the governing documents of the domestic entity or a predecessor to the entity, as applicable. The bill establishes that nothing in these provisions prevents an entity from showing that a person asserting an internal entity claim knowingly and informedly waived the right to a jury trial by any evidence satisfactory to the court having jurisdiction, including by the person's consent or acquiescence to the waiver contained in the governing documents. The bill defines "internal entity claim" by reference to the meaning assigned to that term by the choice of forum provisions applicable to a domestic entity. For-Profit Corporations Shareholder Rights and Restrictions: Examination of Records C.S.H.B. 15, with respect to the right of certain shareholders of a for-profit corporation to examine and copy, on written demand, applicable records of that corporation for a proper purpose, prohibits the inclusion in those applicable records of emails, text messages or similar electronic communications, or information from social media accounts unless such communication or information effectuates an action by the corporation. In addition, the bill sets out a provision that is applicable 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 subsequently described provisions of the bill establishing specific presumptions for directors and officers of certain corporations who take or decline to take certain actions on any matters of a corporation's business. Accordingly, with respect to such an applicable corporation, the bill establishes that for purposes of an applicable shareholder's entitlement to examine and copy the applicable corporation's records for a proper purpose, a written demand is not for a proper purpose if the applicable corporation reasonably determines that the demand is in connection with one of the following: an active or pending derivative proceeding in the right of the corporation under statutory provisions relating to those derivative proceedings that is or is expected to be instituted or maintained by the applicable shareholder or the shareholder's affiliate; or an active or pending civil lawsuit to which the corporation, or its affiliate, and the applicable shareholder, or the shareholder's affiliate, are or are expected to be adversarial named parties. Furthermore, the bill establishes that the provision as set out by the bill expressly does not impair the following rights: any rights of the applicable shareholder or the shareholder's affiliate to obtain discovery of records from the applicable corporation in an active or pending civil lawsuit described by the provision as set out by the bill or in the derivative proceeding subject to the applicable Business Organizations Code provision limiting discovery in a derivative proceeding; or any rights of the applicable shareholder to obtain a court order to compel production of records of the applicable corporation for examination by the holder as provided by the applicable Business Organizations Code provision relating to the power of the court to compel the production of applicable records of a corporation for examination, regardless of the period during which the shareholder was a beneficial shareholder or record holder and regardless of the number of shares held by the person. Board of Directors of a Corporation Committees of a Board of Directors C.S.H.B. 15 sets out a provision applicable to the board of directors of 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 subsequently described provisions of the bill establishing specific presumptions for directors and officers of certain corporations who take or decline to take certain actions on any matters of a corporation's business. The bill authorizes such a board of directors to adopt resolutions that authorize the formation of a committee of independent and disinterested directors to review and approve transactions involving the corporation or any of its subsidiaries and a controlling shareholder, director, or officer and specifies that this authority applies whether or not the transactions are contemplated at the time of the committee's formation or at the time of a corporation's applicable petition to an appropriate court for an evidentiary hearing, as authorized under subsequently described bill provisions, to determine whether the directors appointed to the committee are independent and disinterested. Determination of Independent and Disinterested Directors C.S.H.B. 15 sets out provisions describing the process used to determine whether board directors who are appointed to a committee formed under the bill's provisions to review and approve transactions involving an applicable corporation or any of its subsidiaries and a controlling shareholder, director, or officer are independent and disinterested with respect to such transactions. Accordingly, the bill provides the following: an applicable corporation that adopts a resolution for purposes of authorizing the formation of such a committee may petition a court having 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; the petition must be filed in the business court unless the corporation's principal place of business in Texas is located in a county not contained within an operating division of the business court, in which case the petition may be filed in a district court in the county in which the corporation's principal place of business in Texas is located; in the petition, the applicable corporation must 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; the corporation must give notice to the corporation's shareholders that, as follows: o such a petition has been filed; o identifies the court in which the petition is filed and provides the case number for the proceeding; o identifies counsel designated to act on behalf of the corporation and its shareholders, other than the controlling shareholder, director, or officer involved in the transaction; and o the shareholders, other than the controlling shareholder, director, or officer involved in the transaction, have the right to participate in the proceeding in person or through counsel; the required notice, if the corporation has a class of its shares listed on a national securities exchange, may be provided through the filing of a current report with the U.S. Securities and Exchange Commission in accordance with the requirements of the federal Securities Exchange Act of 1934 and any rules promulgated under that act; the court, not earlier than the 10th day after the date the required notice is given, must 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: o object to counsel designated by the corporation in the petition on the ground that the designated counsel is insufficiently independent and disinterested; or o request designation by the court as the appropriate legal counsel; the court, after determining the appropriate legal counsel, must 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 and legal counsel for the corporation may participate in the hearing, and the court, after hearing and reviewing the evidence presented, must make its determination as to whether the directors on the committee are independent and disinterested; and the court's determination that the directors are independent and disinterested is 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. Contracts or Transactions Involving Interested Directors and Officers C.S.H.B. 15 sets out a provision applicable 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 subsequently described provisions of the bill establishing specific presumptions for directors and officers of certain corporations who take or decline to take certain actions on any matters of a corporation's business. Accordingly, the bill establishes that, regardless of whether the conditions in current law under which an otherwise valid and enforceable contract or transaction involving interested directors and officers is valid and enforceable and is not void or voidable 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, as follows: had a relationship with an applicable corporation as a managerial official or had a financial interest; or took any of the following actions authorized for a person with such a relationship or interest unless the cause of action is permitted by the bill's provisions establishing specific presumptions for directors and officers of certain corporations who take or decline to take certain actions on any matters of a corporation's business: o was present at or participated in and, if the person is a director or committee member, voted at a meeting of the board of directors or of a committee of the board that authorizes the contract or transaction; or o signed, in the person's capacity as a director or committee member, a unanimous written consent of the directors or committee members to authorize the contract or transaction. Presumptions for Directors and Officers of Certain Corporations C.S.H.B. 15 sets out provisions applicable only to a corporation that has a class or series of voting shares listed on a national securities exchange or that has included in its governing documents a statement affirmatively electing to be governed by these applicable provisions. Accordingly, the bill provides the following: in taking or declining to take any action on any matters of an applicable corporation's business, a director or officer is presumed to act in good faith, on an informed basis, in furtherance of the interests of the corporation, and in obedience to the law and the corporation's governing documents; neither an applicable corporation nor any of the corporation's shareholders has a cause of action against the corporation's director or officer as a result of any act or omission in the person's capacity as a director or officer unless the claimant rebuts one or more of the aforementioned presumptions and it is proven by the claimant that, as follows: o 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 o the breach involved fraud, intentional misconduct, an ultra vires act, or a knowing violation of law; such presumptions are in addition to any legal presumption arising under common law or the Business Organizations Code, in favor of any managerial official of a corporation to which these bill provisions apply, and 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 these bill provisions do not apply; and a party, in alleging fraud, intentional misconduct, an ultra vires act, or a knowing violation of the law under these bill provisions, must state with particularity the circumstances constituting the alleged action. These bill provisions relating to the presumptions expressly do not limit the effectiveness or applicability of a provision contained in the certificate of formation or similar instrument of a corporation limiting monetary liability of a governing person. Derivative Proceedings Standing to Bring Proceeding C.S.H.B. 15, for purposes of statutory provisions governing derivative proceedings, expands the definition of "shareholder" to include two or more shareholders acting in concert under an informal or formal agreement or understanding with respect to a derivative proceeding. The bill, with respect to a corporation with common shares listed on a national securities exchange or a corporation that has made an affirmative election to be governed by the aforementioned provisions of the bill establishing specific presumptions for directors and officers of certain corporations who take or decline to take certain actions on any matters of a corporation's business and has 500 or more shareholders, authorizes a shareholder to institute or maintain a derivative proceeding if 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. This authorization applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before that date 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. Determination by Directors or Independent Persons C.S.H.B. 15 authorizes an individual appointed by the court to a panel of independent and disinterested individuals for the purpose of making a determination of how to proceed on allegations made in a demand or petition relating to a derivative proceeding to be a director. The bill authorizes a corporation, before the corporation's determination of how to proceed on the allegations, to petition the court having jurisdiction to make a finding as to whether the directors identified or appointed by an affirmative vote are independent and disinterested with respect to the allegations made in the demand. The bill requires such a petition to be filed, as follows: if a derivative proceeding has been instituted, in the court in which the proceeding was instituted; and if no derivative proceeding has been instituted, in the business court. However, the bill authorizes a petition to be filed in a district court in the county in which the corporation's principal place of business in Texas is located if no derivative proceeding has been instituted and the corporation's principal place of business in Texas is located in a county not contained within an operating division of the business court. C.S.H.B. 15 requires the corporation to serve a copy of the petition on the shareholder filing the derivative proceeding or making the demand. The bill requires the court in which a petition is filed to conduct an evidentiary hearing on the petition on or before the 45th day after the date the petition is filed unless extended for good cause. The bill entitles a shareholder on whom a petition is served to be served with all notices and papers filed in the action and to intervene in the action to challenge the petition. Unless good cause is shown, a shareholder who is not already a party to the action must intervene not later than the seventh day before the date the petition is heard by the court. The bill requires the court, not later than the 75th day after the date the petition is filed unless extended for good cause, to sign an order stating whether the directors are independent and disinterested. The bill establishes that a court's finding that the directors or individuals are independent and disinterested is 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. Payment of Expenses on Termination of a Derivative Proceeding C.S.H.B. 15 establishes that, for purposes of the provision authorizing a court to order payment of expenses on termination of a derivative proceeding, a substantial benefit to a corporation does not include additional or amended disclosures made to shareholders, regardless of materiality. This bill provision applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before the bill's effective date 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. Application to Foreign Corporations C.S.H.B. 15 clarifies that, for purposes of the applicability of certain Business Organizations Code provisions regarding derivative proceedings to foreign corporations, the consideration in current law of those provisions as procedural provisions that do not relate to the internal affairs of the foreign corporation applies only with respect to foreign corporations. Limited Liability Companies Presumptions for Governing Persons of Certain Limited Liability Companies C.S.H.B. 15 sets out provisions applicable only to a limited liability company that has a class or series of voting membership interests listed on a national securities exchange or that has included in its company agreement a statement affirmatively electing to be governed by these applicable provisions. Accordingly, the bill provides the following: in taking or declining to take any action on any matters of a limited liability company's business, a governing person or officer, and each affiliate or associate of a governing person or officer, is presumed to act in good faith, on an informed basis, in furtherance of the interests of the limited liability company, and in obedience to the law and the limited liability company's company agreement; neither an applicable limited liability company nor any of the company's members has a cause of action against a governing person or officer or any affiliate or associate of a governing person or officer of the company as a result of any act or omission in the person's capacity as a governing person or officer of the company unless the claimant rebuts one or more of the aforementioned presumptions and it is proven by the claimant that, as follows: o the act or omission of the governing person or officer or affiliate or associate of a governing person or officer constituted a breach of one or more of the person's duties as a governing person or officer; and o the breach involved fraud, intentional misconduct, an ultra vires act, or a knowing violation of law; such presumptions are in addition to any legal presumption arising under common law or the Business Organizations Code, in favor of any governing person or officer to which these bill provisions apply, and 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 governing person or officer of any domestic entity, including any limited liability company to which these bill provisions do not apply; and a party, in alleging fraud, intentional misconduct, an ultra vires act, or a knowing violation of the law under these provisions, must state with particularity the circumstances constituting the alleged action. These provisions expressly do not limit the effectiveness or applicability of a provision contained in the certificate of formation or company agreement or similar instrument of a limited liability company limiting monetary liability of a governing person or officer. Elimination of Duties and Liabilities C.S.H.B. 15 authorizes the company agreement of a limited liability company to eliminate any duties, including fiduciary duties, and related liabilities that a member, manager, officer, or other person has to the company or to a member or manager of the company, in addition to the authority in current law for such a company agreement to expand or restrict such duties and liabilities. Derivative Proceedings Standing to Bring Proceeding C.S.H.B. 15, for purposes of statutory provisions governing derivative proceedings, expands the definition of "member" to include two or more members acting in concert under an informal or formal agreement or understanding with respect to a derivative proceeding. The bill, with respect to a limited liability company with membership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's provisions relating to presumptions for governing persons of certain limited liability companies and has 500 or more members, authorizes a member to institute or maintain a derivative proceeding if at the time the derivative proceeding is instituted, the member beneficially owns a number of the membership interests sufficient to meet the required ownership threshold to institute a derivative proceeding in the right of the limited liability company identified in the limited liability company's certificate of formation or company agreement, provided that the required ownership threshold does not exceed three percent of the outstanding membership interests of the limited liability company. This authorization applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before that date 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. Payment of Expenses on the Termination of a Derivative Proceeding C.S.H.B. 15 establishes that, for purposes of the statutory authorization for a court to order the payment of certain expenses on termination of a derivative proceeding, a substantial benefit to the limited liability company does not include additional or amended disclosures made to the members, regardless of materiality. This provision applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before that date 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. Supplemental Recordkeeping Requirements: Right to Examine Records C.S.H.B. 15, with respect to the right of certain members of a limited liability company or assignees of a membership interest in a limited liability company to examine and copy, on written demand, applicable records of that company for a proper purpose, prohibits the inclusion in those records of emails, text messages or similar electronic communications, or information from social media accounts unless such communication or information effectuates an action by the company. The bill conditions such a right of an applicable member or assignee on whether the governing documents of the limited liability company provide otherwise. For purposes of that right of such a member or assignee to examine and copy the applicable limited liability company's records for a proper purpose, the bill does the following applicable only to a limited liability company that has a class or series of voting membership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's provisions relating to presumptions for governing persons of certain limited liability companies: restricts the authority to make the written demand to a member or an assignee that has held the membership interest for at least six months immediately preceding the member's or assignee's demand; establishes that a written demand is not for a proper purpose if the applicable limited liability company reasonably determines that the demand is in connection with: o an active or pending derivative proceeding in the right of the limited liability company under statutory provisions relating to derivative proceedings that is or is expected to be instituted or maintained by the applicable member or assignee or the member's or assignee's affiliate; or o an active or pending civil lawsuit to which the company, or its affiliate, and the applicable member or assignee, or the member's or assignee's affiliate, are or are expected to be adversarial named parties. Furthermore, the bill establishes that these provisions relating to the proper purpose of a written demand expressly do not impair any rights of an applicable member or assignee or the member's or assignee's affiliate to obtain discovery of records from the limited liability company in a civil lawsuit described by those provisions or in the derivative proceeding subject to discovery. Limited Partnerships Effect of Partnership Agreement C.S.H.B. 15 sets out a provision applicable only to a limited partnership that has a class or series of voting limited partnership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's provisions relating to presumptions for general partners and officers of certain limited partnerships. The bill authorizes such a partnership agreement to eliminate the partner's duty of loyalty, the partner's duty of care, and the obligation of good faith under applicable Business Organizations Code provisions, to the extent the governing documents of the partnership include a statement affirmatively electing to do so. Presumptions for General Partners and Officers of Certain Limited Partnerships C.S.H.B. 15 sets out provisions applicable only to a limited partnership that has a class or series of voting limited partnership interests listed on a national securities exchange or that has included in its governing documents a statement affirmatively electing to be governed by these applicable provisions. Accordingly, the bill provides the following: in taking or declining to take any action on any matters of a limited partnership's business, any general partner of the limited partnership, including any director, officer, member, or other affiliate of the general partner, is presumed to act in good faith, on an informed basis, in furtherance of the interests of the limited partnership, and in obedience to the law and the limited partnership's partnership agreement; neither an applicable limited partnership nor any of the limited partnership's partners has a cause of action against a general partner of the limited partnership, including any director, officer, member, or other affiliate of the general partner, as a result of any act or omission in the person's capacity as a general partner or as an officer or director of the general partner unless the claimant rebuts one or more of the aforementioned presumptions and it is proven by the claimant that: o the general partner's or any director, officer, member, or other affiliate of the general partner's act or omission constituted a breach of one or more of the person's duties as a general partner, director, or officer; and o the breach involved fraud, intentional misconduct, an ultra vires act, or a knowing violation of law; such presumptions are in addition to any legal presumption arising under common law or the Business Organizations Code, in favor of any general partner or member or managerial official of a general partner to which these bill provisions apply, and 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 limited partnership to which these bill provisions do not apply; and a party, in alleging fraud, intentional misconduct, an ultra vires act, or a knowing violation of the law under these provisions, must state with particularity the circumstances constituting the alleged action. These bill provisions expressly do not limit the effectiveness or applicability of a provision contained in the certificate of formation or partnership agreement or similar instrument of a partnership limiting monetary liability of a governing person. Derivative Actions Standing to Bring Proceeding C.S.H.B. 15, for purposes of statutory provisions governing derivative actions, expands the definition of "limited partner" to include two or more limited partners acting in concert under an informal or formal agreement or understanding with respect to a derivative proceeding. The bill, with respect to a limited partnership with limited partnership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's provisions relating to presumptions for general partners and officers of certain limited partnerships and has 500 or more limited partners, authorizes a limited partner to institute or maintain a derivative proceeding if at the time the derivative proceeding is instituted, the partner beneficially owns a number of limited partnership interests sufficient to meet the required ownership threshold to institute a derivative proceeding in the right of the limited partnership identified in the limited partnership's certificate of formation or partnership agreement, provided that the required ownership threshold does not exceed three percent of the outstanding limited partnership interests of the limited partnership. This authorization applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before that date 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. Payment of Expenses on Termination of a Derivative Proceeding C.S.H.B. 15 establishes that, for purposes of the statutory provisions authorizing a court to order the payment of certain expenses on termination of a derivative proceeding, a substantial benefit to the limited partnership does not include additional or amended disclosures made to the limited partners, regardless of materiality. This provision applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before the bill's effective date 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. Right to Examine Records C.S.H.B. 15, with respect to the right of a partner or an assignee of a partnership interest in a limited partnership to examine and copy, on written demand, applicable records of that partnership for a proper purpose, prohibits the inclusion in those records of emails, text messages or similar electronic communications, or information from social media accounts unless such communication or information effectuates an action by the limited partnership. The bill conditions such a right of an applicable partner or assignee on whether the governing documents of the limited partnership provide otherwise. For purposes of that right of such a partner or assignee to examine and copy the applicable limited partnership's records for a proper purpose, the bill does the following applicable only to a limited partnership that has a class or series of voting limited partnership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's provisions relating to presumptions for general partners and officers of certain limited partnerships: restricts the authority to make the written demand to a limited partner or an assignee that has held the limited partnership interest for at least six months immediately preceding the limited partner's or assignee's demand; and establishes that a written demand is not for a proper purpose if the limited partnership reasonably determines that the demand is in connection with: o an active or pending derivative proceeding in the right of the limited partnership under statutory provisions relating to derivative actions that is or is expected to be instituted or maintained by the limited partner or assignee or the limited partner's or assignee's affiliate; or o an active or pending civil lawsuit to which the partnership, or its affiliate, and the limited partner or assignee, or the limited partner's or assignee's affiliate, are or are expected to be adversarial named parties. Furthermore, the bill establishes that these provisions relating to the right of a partner or assignee of such a limited partnership to make such a written demand expressly do not impair any rights of the applicable partner or assignee or the limited partner's or assignee's affiliate to obtain discovery of records from the limited partnership in a civil lawsuit described by those provisions relating to the proper purpose or in the derivative proceeding subject to discovery.
EFFECTIVE DATE On passage, or, if the bill does not receive the necessary vote, September 1, 2025.
COMPARISON OF INTRODUCED AND SUBSTITUTE While C.S.H.B. 15 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill. General Provisions The substitute omits a provision of the introduced prohibiting the plain meaning of the text of the Business Organizations Code from being supplanted, contravened, or modified by the laws or judicial decisions of any other state. Waiver of Trial by Jury The introduced authorized a domestic entity's governing documents to contain an enforceable waiver of the right to a jury trial concerning any internal entity claim, regardless of whether the applicable document is signed by the members, owners, officers, or governing persons. The substitute omits this provision and instead includes provisions that do the following: authorize a domestic entity's governing documents to contain a waiver of the right to such a jury trial; and establish that, in a lawsuit asserting an internal entity claim, a waiver of the right to a jury trial contained in those governing documents is enforceable, regardless of whether the applicable document is signed by those individuals. Whereas the introduced required a waiver of jury trial in a domestic entity's governing documents to be a knowing and informed waiver of a person who meets certain criteria, the substitute establishes that a person asserting an internal entity claim is considered to have been informed of the waiver of the right to a jury trial contained in those documents and to have knowingly waived the right in the action if the person meets certain criteria. The substitute does the following with respect to those criteria: whereas the introduced established as a criterion that a person acquired an equity security of the domestic entity at a time at which the waiver was included in the governing documents, the substitute specifies as a criterion that a person acquired an equity security of the domestic entity or a predecessor to the entity at a time at which the waiver was included in the governing documents of the domestic entity or a predecessor to the entity, as applicable; and omits the introduced version's requirement for a waiver of jury trial in those documents to be a knowing and informed waiver of a person who is otherwise shown by evidence satisfactory to an appropriate court to have knowingly and informedly consented or acquiesced to the waiver. Additionally, the substitute includes a provision absent from the introduced establishing that nothing in the bill's provisions relating to the waiver of trial by jury prevents an entity from showing that a person asserting an internal entity claim knowingly and informedly waived the right to a jury trial by any evidence satisfactory to the court having jurisdiction, including by the person's consent or acquiescence to the waiver contained in the governing documents. When Filings Take Effect: General Rule The substitute omits the following provisions present in the introduced: a provision which established that 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 by state law if the revised filing instrument: o 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; o is found to be acceptable by the secretary of state; and o is the first revised filing instrument; a provision that made such provision applicable to a filing instrument that creates or forms a new domestic entity or amends the name of an existing domestic entity only if: o the name of the new domestic entity or the amended name of the existing domestic entity, as applicable, was reserved or registered under applicable state law 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 o the name reservation or registration remains in effect at least until the revised filing instrument delivered to the secretary of state takes effect; and a provision which established that the aforementioned provisions apply only to a filing instrument submitted to the secretary of state on or after the bill's effective date and a filing instrument submitted to the secretary of state before that date 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. For-Profit Corporations Shareholder Rights and Restrictions Whereas the introduced excepted email, text messages or similar electronic communications, and social media account information that affects an action by a corporation from the prohibition against a corporation's records including those types of communication or information with respect to the right of certain shareholders to lawfully examine and copy the corporation's records, the substitute instead excepts email, text messages or similar electronic communications, and social media account information that effectuates an action by the corporation from that prohibition. Determination of Independent and Disinterested Directors The substitute includes a requirement absent from the introduced for a petition to hold an evidentiary hearing to determine whether the board of directors appointed to a committee formed under the bill's provisions are independent and disinterested with respect to certain transactions to be filed in the business court unless the corporation's principal place of business in Texas is located in a county not contained within an operating division of the business court. The substitute includes a provision absent from the introduced establishing that, if the corporation's principal place of business in Texas is located in such a county, the petition may be filed in a district court in the county in which the corporation's principal place of business in Texas is located. Whereas the introduced required the corporation to give notice to the shareholders of the designated counsel and the petition, the substitute instead requires the corporation to give notice to the corporation's shareholders that, as follows: a petition has been filed; identifies the court in which the petition is filed and provides the case number for the proceeding; identifies counsel designated to act on behalf of the corporation and its shareholders, other than the controlling shareholder, director, or officer involved in the transaction; and the shareholders, other than the controlling shareholder, director, or officer involved in the transaction, have the right to participate in the proceeding in person or through counsel. While both the introduced and the substitute require the court, not earlier than the 10th day after the required notice is given, to hold a preliminary hearing to determine the appropriate legal counsel to represent the corporation and its applicable shareholders, the substitute does not include the specification that the court do so promptly after receiving a petition. Additionally, the substitute includes an authorization absent from the introduced for any other legal counsel representing a shareholder, other than the controlling shareholder, director, or officer involved in the applicable transaction, to participate in the hearing to object to counsel designated by the corporation in the petition on the ground that the designated counsel is insufficiently independent and disinterested. Presumptions for Directors and Officers of Certain Corporations Whereas the introduced established that the provisions relating to presumptions for directors and officers of certain corporations do 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, the substitute establishes that those provisions do not limit the effectiveness or applicability of such a provision. Derivative Proceedings Both the introduced and the substitute expand the requisite conditions under which a shareholder of a corporation that has made the applicable affirmative election regarding its governance may institute or maintain a derivative proceeding. However, the substitute includes a specification absent from the introduced that the corporation must have also a minimum of 500 shareholders. Determination by Directors or Independent Persons The substitute includes an authorization absent from the introduced for an individual appointed by the court to a panel of independent and disinterested individuals for the purpose of making a determination of how to proceed on allegations made in a demand or petition relating to a derivative proceeding to be a director. While the introduced authorized a corporation, before the corporation's determination of how to proceed on those allegations, to 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 are independent and disinterested with respect to the allegations made in the demand, the substitute does not. The substitute instead authorizes the corporation, before the corporation's determination of how to proceed on those allegations, to petition the court having jurisdiction to make a finding as to whether the directors identified or appointed are independent and disinterested with respect to those allegations. The substitute omits a requirement from the introduced for a corporation, if a derivative proceeding was not instituted, to 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. The substitute instead includes the following provisions absent from the introduced setting out the following: the manner in which the petition must be filed if a derivative proceeding has been instituted or if no derivative proceeding has been instituted; the manner in which a petition may be filed if the corporation's principal place of business in Texas is located in a county not contained within an operating division of the business court; a requirement for the corporation to serve a copy of the petition on the shareholder filing the derivative proceeding or making the demand; a requirement for a court in which the petition is filed to conduct an evidentiary hearing on the petition on or before the 45th day after the date the petition is filed, unless extended for good cause; a provision entitling a shareholder on whom a petition is served to be served with all notices and papers filed in the action and to intervene in the action to challenge the petition; and a deadline for a shareholder who is not already a party to the action to intervene not later than the seventh day before the date the petition is heard by the court, unless good cause is shown. Whereas the introduced required the court, after hearing and reviewing the evidence presented, to make its determination as to whether the directors are independent and disinterested, the substitute requires the court to sign an order stating whether the directors are independent and disinterested not later than the 75th day after the date the petition is filed, unless extended for good cause. Limited Liability Companies The substitute includes provisions relating to the following with respect to the business activities of certain limited liability companies that were not in the introduced: the presumptions for governing persons of certain limited liability companies that have a class or series of voting membership interests listed on a national securities exchange or included in its company agreement a statement affirmatively electing to be governed by the bill's applicable provisions who take or decline to take any action on any matters of the limited liability company's business; the authority for the company agreement of a limited liability company to eliminate certain duties and related liabilities; the expansion of the definition of "member" under statutory provisions governing derivative proceedings of limited liability companies to include two or more members acting in concert under an informal or formal agreement or understanding with respect to the proceeding; the authorization for a member of an applicable limited liability company to institute or maintain a derivative proceeding if certain conditions exist at the time the derivative proceeding is instituted; the specification that, for purposes of the statutory authorization for a court to order the payment of certain expenses on termination of a derivative proceeding, the substantial benefit to the limited liability company on termination of a derivative proceeding does not include additional or amended disclosures made to the members, regardless of materiality; the supplemental recordkeeping requirements of limited liability companies and the right of a member of a limited liability company or an assignee of a membership interest in a limited liability company to examine and copy certain records; and the applicability of certain provisions regarding a derivative proceeding that is instituted on or after the bill's effective date. Limited Partnerships The substitute includes provisions relating to the following with respect to the business activities of limited partnerships that were not in the introduced: an authorization for a limited partnership agreement that has a class or series of voting limited partnership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's applicable provisions to eliminate the duty of loyalty, the duty of care, and the obligation of good faith under applicable Business Organizations Code provisions, to the specified extent; the presumptions for general partners and officers of such limited partnerships who take or decline to take any action on any matters of a limited partnership's business; the expansion of the definition of "limited partner" under statutory provisions governing derivative actions of limited partnerships to include two or more limited partners acting in concert under an informal or formal agreement or understanding with respect to the proceeding; the authorization for an applicable limited partner that has 500 or more limited partners to institute or maintain a derivative proceeding if certain conditions exist at the time the derivative proceeding is instituted; the specification that, for purposes of the statutory authorization for a court to order the payment of certain expenses on termination of a derivative proceeding, the substantial benefit to the limited partnership does not include additional or amended disclosures made to the limited partners, regardless of materiality; the examination of the limited partnership's records and the written demand by a partner or a partner's assignee to examine and copy records for a proper purpose; and the applicability of certain provisions regarding a derivative proceeding that is instituted on or after the bill's effective date.
BACKGROUND AND PURPOSE
According to the Fordham Journal of Corporate & Financial Law, the Harvard Law School Forum on Corporate Governance, and the Delaware Department of State, historically, the state of Delaware has been heralded as a legal home for business entities, as it was believed its extensive case law and business-focused Court of Chancery provided certainty for business decision-making. However, the bill author has informed the committee that in recent years, anti‑business sentiment and rulings have negated this perception and eroded trust in Delaware, causing entities to look to organize or move to states with business-friendly climates, such as Texas. C.S.H.B. 15 seeks to make Texas an attractive legal home for businesses by reforming statutory provisions governing certain business entities and enhancing the predictability and efficiency of Texas entity law and governance while maintaining strong protections for entity owners and transparency.
CRIMINAL JUSTICE IMPACT
It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.
RULEMAKING AUTHORITY
It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.
ANALYSIS
C.S.H.B. 15 amends the Business Organizations Code to revise statutory provisions relating to business activities of domestic entities, certain for-profit corporations, certain limited liability companies, and certain limited partnerships.
General Provisions
C.S.H.B. 15 expands the definition of "national securities exchange," as applicable to the code in its entirety, to include a stock exchange that has its principal office in Texas and has received approval by the securities commissioner under The Securities Act. Furthermore, the bill sets out a general provision regarding the laws governing the formation, internal affairs, and governance of an organization formed under the code or the internal affairs of which are governed by the code that does the following with regard to such a domestic entity:
authorizes the managerial officials of such a domestic entity, in exercising their powers with respect to that entity, to consider the laws and judicial decisions of other states and the practices observed by entities formed in those states; and
provides that 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 the code or of any duty existing under state laws.
Powers of Domestic Entities
Choice of Forum Provisions
C.S.H.B. 15, in the choice of forum provision authorizing the governing documents of a domestic entity to require that any internal entity claims must be brought only in a court in Texas, expands that authorization to provide that the documents may also require, consistent with applicable state and federal jurisdictional requirements, that one or more courts in Texas having jurisdiction must serve as the exclusive forum and venue for any internal entity claims.
Waiver of Trial by Jury
C.S.H.B. 15 establishes that a domestic entity's governing documents may contain a waiver of the right to a jury trial concerning any internal entity claim. The bill establishes that, in a lawsuit asserting such a claim, a waiver of the right to a jury trial contained in the governing documents of a domestic entity is enforceable, regardless of whether the applicable governing document is signed by the members, owners, officers, or governing persons. A person asserting an internal entity claim is considered to have been informed of the waiver of the right to a jury trial contained in the governing documents and to have knowingly waived the right in the action if the person, as follows:
voted for or affirmatively ratified the governing document containing the waiver; or
acquired an equity security of the domestic entity or a predecessor to the entity at a time at which the waiver was included in the governing documents of the domestic entity or a predecessor to the entity, as applicable.
The bill establishes that nothing in these provisions prevents an entity from showing that a person asserting an internal entity claim knowingly and informedly waived the right to a jury trial by any evidence satisfactory to the court having jurisdiction, including by the person's consent or acquiescence to the waiver contained in the governing documents. The bill defines "internal entity claim" by reference to the meaning assigned to that term by the choice of forum provisions applicable to a domestic entity.
For-Profit Corporations
Shareholder Rights and Restrictions: Examination of Records
C.S.H.B. 15, with respect to the right of certain shareholders of a for-profit corporation to examine and copy, on written demand, applicable records of that corporation for a proper purpose, prohibits the inclusion in those applicable records of emails, text messages or similar electronic communications, or information from social media accounts unless such communication or information effectuates an action by the corporation. In addition, the bill sets out a provision that is applicable 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 subsequently described provisions of the bill establishing specific presumptions for directors and officers of certain corporations who take or decline to take certain actions on any matters of a corporation's business. Accordingly, with respect to such an applicable corporation, the bill establishes that for purposes of an applicable shareholder's entitlement to examine and copy the applicable corporation's records for a proper purpose, a written demand is not for a proper purpose if the applicable corporation reasonably determines that the demand is in connection with one of the following:
an active or pending derivative proceeding in the right of the corporation under statutory provisions relating to those derivative proceedings that is or is expected to be instituted or maintained by the applicable shareholder or the shareholder's affiliate; or
an active or pending civil lawsuit to which the corporation, or its affiliate, and the applicable shareholder, or the shareholder's affiliate, are or are expected to be adversarial named parties.
Furthermore, the bill establishes that the provision as set out by the bill expressly does not impair the following rights:
any rights of the applicable shareholder or the shareholder's affiliate to obtain discovery of records from the applicable corporation in an active or pending civil lawsuit described by the provision as set out by the bill or in the derivative proceeding subject to the applicable Business Organizations Code provision limiting discovery in a derivative proceeding; or
any rights of the applicable shareholder to obtain a court order to compel production of records of the applicable corporation for examination by the holder as provided by the applicable Business Organizations Code provision relating to the power of the court to compel the production of applicable records of a corporation for examination, regardless of the period during which the shareholder was a beneficial shareholder or record holder and regardless of the number of shares held by the person.
Board of Directors of a Corporation
Committees of a Board of Directors
C.S.H.B. 15 sets out a provision applicable to the board of directors of 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 subsequently described provisions of the bill establishing specific presumptions for directors and officers of certain corporations who take or decline to take certain actions on any matters of a corporation's business. The bill authorizes such a board of directors to adopt resolutions that authorize the formation of a committee of independent and disinterested directors to review and approve transactions involving the corporation or any of its subsidiaries and a controlling shareholder, director, or officer and specifies that this authority applies whether or not the transactions are contemplated at the time of the committee's formation or at the time of a corporation's applicable petition to an appropriate court for an evidentiary hearing, as authorized under subsequently described bill provisions, to determine whether the directors appointed to the committee are independent and disinterested.
Determination of Independent and Disinterested Directors
C.S.H.B. 15 sets out provisions describing the process used to determine whether board directors who are appointed to a committee formed under the bill's provisions to review and approve transactions involving an applicable corporation or any of its subsidiaries and a controlling shareholder, director, or officer are independent and disinterested with respect to such transactions. Accordingly, the bill provides the following:
an applicable corporation that adopts a resolution for purposes of authorizing the formation of such a committee may petition a court having 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;
the petition must be filed in the business court unless the corporation's principal place of business in Texas is located in a county not contained within an operating division of the business court, in which case the petition may be filed in a district court in the county in which the corporation's principal place of business in Texas is located;
in the petition, the applicable corporation must 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;
the corporation must give notice to the corporation's shareholders that, as follows:
o such a petition has been filed;
o identifies the court in which the petition is filed and provides the case number for the proceeding;
o identifies counsel designated to act on behalf of the corporation and its shareholders, other than the controlling shareholder, director, or officer involved in the transaction; and
o the shareholders, other than the controlling shareholder, director, or officer involved in the transaction, have the right to participate in the proceeding in person or through counsel;
the required notice, if the corporation has a class of its shares listed on a national securities exchange, may be provided through the filing of a current report with the U.S. Securities and Exchange Commission in accordance with the requirements of the federal Securities Exchange Act of 1934 and any rules promulgated under that act;
the court, not earlier than the 10th day after the date the required notice is given, must 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:
o object to counsel designated by the corporation in the petition on the ground that the designated counsel is insufficiently independent and disinterested; or
o request designation by the court as the appropriate legal counsel;
the court, after determining the appropriate legal counsel, must 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 and legal counsel for the corporation may participate in the hearing, and the court, after hearing and reviewing the evidence presented, must make its determination as to whether the directors on the committee are independent and disinterested; and
the court's determination that the directors are independent and disinterested is 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.
Contracts or Transactions Involving Interested Directors and Officers
C.S.H.B. 15 sets out a provision applicable 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 subsequently described provisions of the bill establishing specific presumptions for directors and officers of certain corporations who take or decline to take certain actions on any matters of a corporation's business. Accordingly, the bill establishes that, regardless of whether the conditions in current law under which an otherwise valid and enforceable contract or transaction involving interested directors and officers is valid and enforceable and is not void or voidable 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, as follows:
had a relationship with an applicable corporation as a managerial official or had a financial interest; or
took any of the following actions authorized for a person with such a relationship or interest unless the cause of action is permitted by the bill's provisions establishing specific presumptions for directors and officers of certain corporations who take or decline to take certain actions on any matters of a corporation's business:
o was present at or participated in and, if the person is a director or committee member, voted at a meeting of the board of directors or of a committee of the board that authorizes the contract or transaction; or
o signed, in the person's capacity as a director or committee member, a unanimous written consent of the directors or committee members to authorize the contract or transaction.
Presumptions for Directors and Officers of Certain Corporations
C.S.H.B. 15 sets out provisions applicable only to a corporation that has a class or series of voting shares listed on a national securities exchange or that has included in its governing documents a statement affirmatively electing to be governed by these applicable provisions. Accordingly, the bill provides the following:
in taking or declining to take any action on any matters of an applicable corporation's business, a director or officer is presumed to act in good faith, on an informed basis, in furtherance of the interests of the corporation, and in obedience to the law and the corporation's governing documents;
neither an applicable corporation nor any of the corporation's shareholders has a cause of action against the corporation's director or officer as a result of any act or omission in the person's capacity as a director or officer unless the claimant rebuts one or more of the aforementioned presumptions and it is proven by the claimant that, as follows:
o 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
o the breach involved fraud, intentional misconduct, an ultra vires act, or a knowing violation of law;
such presumptions are in addition to any legal presumption arising under common law or the Business Organizations Code, in favor of any managerial official of a corporation to which these bill provisions apply, and 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 these bill provisions do not apply; and
a party, in alleging fraud, intentional misconduct, an ultra vires act, or a knowing violation of the law under these bill provisions, must state with particularity the circumstances constituting the alleged action.
These bill provisions relating to the presumptions expressly do not limit the effectiveness or applicability of a provision contained in the certificate of formation or similar instrument of a corporation limiting monetary liability of a governing person.
Derivative Proceedings
Standing to Bring Proceeding
C.S.H.B. 15, for purposes of statutory provisions governing derivative proceedings, expands the definition of "shareholder" to include two or more shareholders acting in concert under an informal or formal agreement or understanding with respect to a derivative proceeding. The bill, with respect to a corporation with common shares listed on a national securities exchange or a corporation that has made an affirmative election to be governed by the aforementioned provisions of the bill establishing specific presumptions for directors and officers of certain corporations who take or decline to take certain actions on any matters of a corporation's business and has 500 or more shareholders, authorizes a shareholder to institute or maintain a derivative proceeding if 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. This authorization applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before that date 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.
Determination by Directors or Independent Persons
C.S.H.B. 15 authorizes an individual appointed by the court to a panel of independent and disinterested individuals for the purpose of making a determination of how to proceed on allegations made in a demand or petition relating to a derivative proceeding to be a director. The bill authorizes a corporation, before the corporation's determination of how to proceed on the allegations, to petition the court having jurisdiction to make a finding as to whether the directors identified or appointed by an affirmative vote are independent and disinterested with respect to the allegations made in the demand. The bill requires such a petition to be filed, as follows:
if a derivative proceeding has been instituted, in the court in which the proceeding was instituted; and
if no derivative proceeding has been instituted, in the business court.
However, the bill authorizes a petition to be filed in a district court in the county in which the corporation's principal place of business in Texas is located if no derivative proceeding has been instituted and the corporation's principal place of business in Texas is located in a county not contained within an operating division of the business court.
C.S.H.B. 15 requires the corporation to serve a copy of the petition on the shareholder filing the derivative proceeding or making the demand. The bill requires the court in which a petition is filed to conduct an evidentiary hearing on the petition on or before the 45th day after the date the petition is filed unless extended for good cause. The bill entitles a shareholder on whom a petition is served to be served with all notices and papers filed in the action and to intervene in the action to challenge the petition. Unless good cause is shown, a shareholder who is not already a party to the action must intervene not later than the seventh day before the date the petition is heard by the court. The bill requires the court, not later than the 75th day after the date the petition is filed unless extended for good cause, to sign an order stating whether the directors are independent and disinterested. The bill establishes that a court's finding that the directors or individuals are independent and disinterested is 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.
Payment of Expenses on Termination of a Derivative Proceeding
C.S.H.B. 15 establishes that, for purposes of the provision authorizing a court to order payment of expenses on termination of a derivative proceeding, a substantial benefit to a corporation does not include additional or amended disclosures made to shareholders, regardless of materiality. This bill provision applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before the bill's effective date 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.
Application to Foreign Corporations
C.S.H.B. 15 clarifies that, for purposes of the applicability of certain Business Organizations Code provisions regarding derivative proceedings to foreign corporations, the consideration in current law of those provisions as procedural provisions that do not relate to the internal affairs of the foreign corporation applies only with respect to foreign corporations.
Limited Liability Companies
Presumptions for Governing Persons of Certain Limited Liability Companies
C.S.H.B. 15 sets out provisions applicable only to a limited liability company that has a class or series of voting membership interests listed on a national securities exchange or that has included in its company agreement a statement affirmatively electing to be governed by these applicable provisions. Accordingly, the bill provides the following:
in taking or declining to take any action on any matters of a limited liability company's business, a governing person or officer, and each affiliate or associate of a governing person or officer, is presumed to act in good faith, on an informed basis, in furtherance of the interests of the limited liability company, and in obedience to the law and the limited liability company's company agreement;
neither an applicable limited liability company nor any of the company's members has a cause of action against a governing person or officer or any affiliate or associate of a governing person or officer of the company as a result of any act or omission in the person's capacity as a governing person or officer of the company unless the claimant rebuts one or more of the aforementioned presumptions and it is proven by the claimant that, as follows:
o the act or omission of the governing person or officer or affiliate or associate of a governing person or officer constituted a breach of one or more of the person's duties as a governing person or officer; and
o the breach involved fraud, intentional misconduct, an ultra vires act, or a knowing violation of law;
such presumptions are in addition to any legal presumption arising under common law or the Business Organizations Code, in favor of any governing person or officer to which these bill provisions apply, and 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 governing person or officer of any domestic entity, including any limited liability company to which these bill provisions do not apply; and
a party, in alleging fraud, intentional misconduct, an ultra vires act, or a knowing violation of the law under these provisions, must state with particularity the circumstances constituting the alleged action.
These provisions expressly do not limit the effectiveness or applicability of a provision contained in the certificate of formation or company agreement or similar instrument of a limited liability company limiting monetary liability of a governing person or officer.
Elimination of Duties and Liabilities
C.S.H.B. 15 authorizes the company agreement of a limited liability company to eliminate any duties, including fiduciary duties, and related liabilities that a member, manager, officer, or other person has to the company or to a member or manager of the company, in addition to the authority in current law for such a company agreement to expand or restrict such duties and liabilities.
Derivative Proceedings
Standing to Bring Proceeding
C.S.H.B. 15, for purposes of statutory provisions governing derivative proceedings, expands the definition of "member" to include two or more members acting in concert under an informal or formal agreement or understanding with respect to a derivative proceeding. The bill, with respect to a limited liability company with membership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's provisions relating to presumptions for governing persons of certain limited liability companies and has 500 or more members, authorizes a member to institute or maintain a derivative proceeding if at the time the derivative proceeding is instituted, the member beneficially owns a number of the membership interests sufficient to meet the required ownership threshold to institute a derivative proceeding in the right of the limited liability company identified in the limited liability company's certificate of formation or company agreement, provided that the required ownership threshold does not exceed three percent of the outstanding membership interests of the limited liability company. This authorization applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before that date 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.
Payment of Expenses on the Termination of a Derivative Proceeding
C.S.H.B. 15 establishes that, for purposes of the statutory authorization for a court to order the payment of certain expenses on termination of a derivative proceeding, a substantial benefit to the limited liability company does not include additional or amended disclosures made to the members, regardless of materiality. This provision applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before that date 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.
Supplemental Recordkeeping Requirements: Right to Examine Records
C.S.H.B. 15, with respect to the right of certain members of a limited liability company or assignees of a membership interest in a limited liability company to examine and copy, on written demand, applicable records of that company for a proper purpose, prohibits the inclusion in those records of emails, text messages or similar electronic communications, or information from social media accounts unless such communication or information effectuates an action by the company. The bill conditions such a right of an applicable member or assignee on whether the governing documents of the limited liability company provide otherwise. For purposes of that right of such a member or assignee to examine and copy the applicable limited liability company's records for a proper purpose, the bill does the following applicable only to a limited liability company that has a class or series of voting membership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's provisions relating to presumptions for governing persons of certain limited liability companies:
restricts the authority to make the written demand to a member or an assignee that has held the membership interest for at least six months immediately preceding the member's or assignee's demand;
establishes that a written demand is not for a proper purpose if the applicable limited liability company reasonably determines that the demand is in connection with:
o an active or pending derivative proceeding in the right of the limited liability company under statutory provisions relating to derivative proceedings that is or is expected to be instituted or maintained by the applicable member or assignee or the member's or assignee's affiliate; or
o an active or pending civil lawsuit to which the company, or its affiliate, and the applicable member or assignee, or the member's or assignee's affiliate, are or are expected to be adversarial named parties.
Furthermore, the bill establishes that these provisions relating to the proper purpose of a written demand expressly do not impair any rights of an applicable member or assignee or the member's or assignee's affiliate to obtain discovery of records from the limited liability company in a civil lawsuit described by those provisions or in the derivative proceeding subject to discovery.
Limited Partnerships
Effect of Partnership Agreement
C.S.H.B. 15 sets out a provision applicable only to a limited partnership that has a class or series of voting limited partnership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's provisions relating to presumptions for general partners and officers of certain limited partnerships. The bill authorizes such a partnership agreement to eliminate the partner's duty of loyalty, the partner's duty of care, and the obligation of good faith under applicable Business Organizations Code provisions, to the extent the governing documents of the partnership include a statement affirmatively electing to do so.
Presumptions for General Partners and Officers of Certain Limited Partnerships
C.S.H.B. 15 sets out provisions applicable only to a limited partnership that has a class or series of voting limited partnership interests listed on a national securities exchange or that has included in its governing documents a statement affirmatively electing to be governed by these applicable provisions. Accordingly, the bill provides the following:
in taking or declining to take any action on any matters of a limited partnership's business, any general partner of the limited partnership, including any director, officer, member, or other affiliate of the general partner, is presumed to act in good faith, on an informed basis, in furtherance of the interests of the limited partnership, and in obedience to the law and the limited partnership's partnership agreement;
neither an applicable limited partnership nor any of the limited partnership's partners has a cause of action against a general partner of the limited partnership, including any director, officer, member, or other affiliate of the general partner, as a result of any act or omission in the person's capacity as a general partner or as an officer or director of the general partner unless the claimant rebuts one or more of the aforementioned presumptions and it is proven by the claimant that:
o the general partner's or any director, officer, member, or other affiliate of the general partner's act or omission constituted a breach of one or more of the person's duties as a general partner, director, or officer; and
o the breach involved fraud, intentional misconduct, an ultra vires act, or a knowing violation of law;
such presumptions are in addition to any legal presumption arising under common law or the Business Organizations Code, in favor of any general partner or member or managerial official of a general partner to which these bill provisions apply, and 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 limited partnership to which these bill provisions do not apply; and
a party, in alleging fraud, intentional misconduct, an ultra vires act, or a knowing violation of the law under these provisions, must state with particularity the circumstances constituting the alleged action.
These bill provisions expressly do not limit the effectiveness or applicability of a provision contained in the certificate of formation or partnership agreement or similar instrument of a partnership limiting monetary liability of a governing person.
Derivative Actions
Standing to Bring Proceeding
C.S.H.B. 15, for purposes of statutory provisions governing derivative actions, expands the definition of "limited partner" to include two or more limited partners acting in concert under an informal or formal agreement or understanding with respect to a derivative proceeding. The bill, with respect to a limited partnership with limited partnership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's provisions relating to presumptions for general partners and officers of certain limited partnerships and has 500 or more limited partners, authorizes a limited partner to institute or maintain a derivative proceeding if at the time the derivative proceeding is instituted, the partner beneficially owns a number of limited partnership interests sufficient to meet the required ownership threshold to institute a derivative proceeding in the right of the limited partnership identified in the limited partnership's certificate of formation or partnership agreement, provided that the required ownership threshold does not exceed three percent of the outstanding limited partnership interests of the limited partnership. This authorization applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before that date 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.
Payment of Expenses on Termination of a Derivative Proceeding
C.S.H.B. 15 establishes that, for purposes of the statutory provisions authorizing a court to order the payment of certain expenses on termination of a derivative proceeding, a substantial benefit to the limited partnership does not include additional or amended disclosures made to the limited partners, regardless of materiality. This provision applies only to a derivative proceeding instituted on or after the bill's effective date. A derivative proceeding instituted before the bill's effective date 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.
Right to Examine Records
C.S.H.B. 15, with respect to the right of a partner or an assignee of a partnership interest in a limited partnership to examine and copy, on written demand, applicable records of that partnership for a proper purpose, prohibits the inclusion in those records of emails, text messages or similar electronic communications, or information from social media accounts unless such communication or information effectuates an action by the limited partnership. The bill conditions such a right of an applicable partner or assignee on whether the governing documents of the limited partnership provide otherwise. For purposes of that right of such a partner or assignee to examine and copy the applicable limited partnership's records for a proper purpose, the bill does the following applicable only to a limited partnership that has a class or series of voting limited partnership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's provisions relating to presumptions for general partners and officers of certain limited partnerships:
restricts the authority to make the written demand to a limited partner or an assignee that has held the limited partnership interest for at least six months immediately preceding the limited partner's or assignee's demand; and
establishes that a written demand is not for a proper purpose if the limited partnership reasonably determines that the demand is in connection with:
o an active or pending derivative proceeding in the right of the limited partnership under statutory provisions relating to derivative actions that is or is expected to be instituted or maintained by the limited partner or assignee or the limited partner's or assignee's affiliate; or
o an active or pending civil lawsuit to which the partnership, or its affiliate, and the limited partner or assignee, or the limited partner's or assignee's affiliate, are or are expected to be adversarial named parties.
Furthermore, the bill establishes that these provisions relating to the right of a partner or assignee of such a limited partnership to make such a written demand expressly do not impair any rights of the applicable partner or assignee or the limited partner's or assignee's affiliate to obtain discovery of records from the limited partnership in a civil lawsuit described by those provisions relating to the proper purpose or in the derivative proceeding subject to discovery.
EFFECTIVE DATE
On passage, or, if the bill does not receive the necessary vote, September 1, 2025.
COMPARISON OF INTRODUCED AND SUBSTITUTE
While C.S.H.B. 15 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill.
General Provisions
The substitute omits a provision of the introduced prohibiting the plain meaning of the text of the Business Organizations Code from being supplanted, contravened, or modified by the laws or judicial decisions of any other state.
Waiver of Trial by Jury
The introduced authorized a domestic entity's governing documents to contain an enforceable waiver of the right to a jury trial concerning any internal entity claim, regardless of whether the applicable document is signed by the members, owners, officers, or governing persons. The substitute omits this provision and instead includes provisions that do the following:
authorize a domestic entity's governing documents to contain a waiver of the right to such a jury trial; and
establish that, in a lawsuit asserting an internal entity claim, a waiver of the right to a jury trial contained in those governing documents is enforceable, regardless of whether the applicable document is signed by those individuals.
Whereas the introduced required a waiver of jury trial in a domestic entity's governing documents to be a knowing and informed waiver of a person who meets certain criteria, the substitute establishes that a person asserting an internal entity claim is considered to have been informed of the waiver of the right to a jury trial contained in those documents and to have knowingly waived the right in the action if the person meets certain criteria. The substitute does the following with respect to those criteria:
whereas the introduced established as a criterion that a person acquired an equity security of the domestic entity at a time at which the waiver was included in the governing documents, the substitute specifies as a criterion that a person acquired an equity security of the domestic entity or a predecessor to the entity at a time at which the waiver was included in the governing documents of the domestic entity or a predecessor to the entity, as applicable; and
omits the introduced version's requirement for a waiver of jury trial in those documents to be a knowing and informed waiver of a person who is otherwise shown by evidence satisfactory to an appropriate court to have knowingly and informedly consented or acquiesced to the waiver.
Additionally, the substitute includes a provision absent from the introduced establishing that nothing in the bill's provisions relating to the waiver of trial by jury prevents an entity from showing that a person asserting an internal entity claim knowingly and informedly waived the right to a jury trial by any evidence satisfactory to the court having jurisdiction, including by the person's consent or acquiescence to the waiver contained in the governing documents.
When Filings Take Effect: General Rule
The substitute omits the following provisions present in the introduced:
a provision which established that 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 by state law if the revised filing instrument:
o 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;
o is found to be acceptable by the secretary of state; and
o is the first revised filing instrument;
a provision that made such provision applicable to a filing instrument that creates or forms a new domestic entity or amends the name of an existing domestic entity only if:
o the name of the new domestic entity or the amended name of the existing domestic entity, as applicable, was reserved or registered under applicable state law 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
o the name reservation or registration remains in effect at least until the revised filing instrument delivered to the secretary of state takes effect; and
a provision which established that the aforementioned provisions apply only to a filing instrument submitted to the secretary of state on or after the bill's effective date and a filing instrument submitted to the secretary of state before that date 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.
For-Profit Corporations
Shareholder Rights and Restrictions
Whereas the introduced excepted email, text messages or similar electronic communications, and social media account information that affects an action by a corporation from the prohibition against a corporation's records including those types of communication or information with respect to the right of certain shareholders to lawfully examine and copy the corporation's records, the substitute instead excepts email, text messages or similar electronic communications, and social media account information that effectuates an action by the corporation from that prohibition.
Determination of Independent and Disinterested Directors
The substitute includes a requirement absent from the introduced for a petition to hold an evidentiary hearing to determine whether the board of directors appointed to a committee formed under the bill's provisions are independent and disinterested with respect to certain transactions to be filed in the business court unless the corporation's principal place of business in Texas is located in a county not contained within an operating division of the business court. The substitute includes a provision absent from the introduced establishing that, if the corporation's principal place of business in Texas is located in such a county, the petition may be filed in a district court in the county in which the corporation's principal place of business in Texas is located.
Whereas the introduced required the corporation to give notice to the shareholders of the designated counsel and the petition, the substitute instead requires the corporation to give notice to the corporation's shareholders that, as follows:
a petition has been filed;
identifies the court in which the petition is filed and provides the case number for the proceeding;
identifies counsel designated to act on behalf of the corporation and its shareholders, other than the controlling shareholder, director, or officer involved in the transaction; and
the shareholders, other than the controlling shareholder, director, or officer involved in the transaction, have the right to participate in the proceeding in person or through counsel.
While both the introduced and the substitute require the court, not earlier than the 10th day after the required notice is given, to hold a preliminary hearing to determine the appropriate legal counsel to represent the corporation and its applicable shareholders, the substitute does not include the specification that the court do so promptly after receiving a petition. Additionally, the substitute includes an authorization absent from the introduced for any other legal counsel representing a shareholder, other than the controlling shareholder, director, or officer involved in the applicable transaction, to participate in the hearing to object to counsel designated by the corporation in the petition on the ground that the designated counsel is insufficiently independent and disinterested.
Presumptions for Directors and Officers of Certain Corporations
Whereas the introduced established that the provisions relating to presumptions for directors and officers of certain corporations do 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, the substitute establishes that those provisions do not limit the effectiveness or applicability of such a provision.
Derivative Proceedings
Both the introduced and the substitute expand the requisite conditions under which a shareholder of a corporation that has made the applicable affirmative election regarding its governance may institute or maintain a derivative proceeding. However, the substitute includes a specification absent from the introduced that the corporation must have also a minimum of 500 shareholders.
Determination by Directors or Independent Persons
The substitute includes an authorization absent from the introduced for an individual appointed by the court to a panel of independent and disinterested individuals for the purpose of making a determination of how to proceed on allegations made in a demand or petition relating to a derivative proceeding to be a director. While the introduced authorized a corporation, before the corporation's determination of how to proceed on those allegations, to 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 are independent and disinterested with respect to the allegations made in the demand, the substitute does not. The substitute instead authorizes the corporation, before the corporation's determination of how to proceed on those allegations, to petition the court having jurisdiction to make a finding as to whether the directors identified or appointed are independent and disinterested with respect to those allegations.
The substitute omits a requirement from the introduced for a corporation, if a derivative proceeding was not instituted, to 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. The substitute instead includes the following provisions absent from the introduced setting out the following:
the manner in which the petition must be filed if a derivative proceeding has been instituted or if no derivative proceeding has been instituted;
the manner in which a petition may be filed if the corporation's principal place of business in Texas is located in a county not contained within an operating division of the business court;
a requirement for the corporation to serve a copy of the petition on the shareholder filing the derivative proceeding or making the demand;
a requirement for a court in which the petition is filed to conduct an evidentiary hearing on the petition on or before the 45th day after the date the petition is filed, unless extended for good cause;
a provision entitling a shareholder on whom a petition is served to be served with all notices and papers filed in the action and to intervene in the action to challenge the petition; and
a deadline for a shareholder who is not already a party to the action to intervene not later than the seventh day before the date the petition is heard by the court, unless good cause is shown.
Whereas the introduced required the court, after hearing and reviewing the evidence presented, to make its determination as to whether the directors are independent and disinterested, the substitute requires the court to sign an order stating whether the directors are independent and disinterested not later than the 75th day after the date the petition is filed, unless extended for good cause.
Limited Liability Companies
The substitute includes provisions relating to the following with respect to the business activities of certain limited liability companies that were not in the introduced:
the presumptions for governing persons of certain limited liability companies that have a class or series of voting membership interests listed on a national securities exchange or included in its company agreement a statement affirmatively electing to be governed by the bill's applicable provisions who take or decline to take any action on any matters of the limited liability company's business;
the authority for the company agreement of a limited liability company to eliminate certain duties and related liabilities;
the expansion of the definition of "member" under statutory provisions governing derivative proceedings of limited liability companies to include two or more members acting in concert under an informal or formal agreement or understanding with respect to the proceeding;
the authorization for a member of an applicable limited liability company to institute or maintain a derivative proceeding if certain conditions exist at the time the derivative proceeding is instituted;
the specification that, for purposes of the statutory authorization for a court to order the payment of certain expenses on termination of a derivative proceeding, the substantial benefit to the limited liability company on termination of a derivative proceeding does not include additional or amended disclosures made to the members, regardless of materiality;
the supplemental recordkeeping requirements of limited liability companies and the right of a member of a limited liability company or an assignee of a membership interest in a limited liability company to examine and copy certain records; and
the applicability of certain provisions regarding a derivative proceeding that is instituted on or after the bill's effective date.
Limited Partnerships
The substitute includes provisions relating to the following with respect to the business activities of limited partnerships that were not in the introduced:
an authorization for a limited partnership agreement that has a class or series of voting limited partnership interests listed on a national securities exchange or that has made an affirmative election to be governed by the bill's applicable provisions to eliminate the duty of loyalty, the duty of care, and the obligation of good faith under applicable Business Organizations Code provisions, to the specified extent;
the presumptions for general partners and officers of such limited partnerships who take or decline to take any action on any matters of a limited partnership's business;
the expansion of the definition of "limited partner" under statutory provisions governing derivative actions of limited partnerships to include two or more limited partners acting in concert under an informal or formal agreement or understanding with respect to the proceeding;
the authorization for an applicable limited partner that has 500 or more limited partners to institute or maintain a derivative proceeding if certain conditions exist at the time the derivative proceeding is instituted;
the specification that, for purposes of the statutory authorization for a court to order the payment of certain expenses on termination of a derivative proceeding, the substantial benefit to the limited partnership does not include additional or amended disclosures made to the limited partners, regardless of materiality;
the examination of the limited partnership's records and the written demand by a partner or a partner's assignee to examine and copy records for a proper purpose; and
the applicability of certain provisions regarding a derivative proceeding that is instituted on or after the bill's effective date.