Houston Daily

The Alliance for Corporate Excellence has announced the filing of an amicus brief in support of Texas Senate Bill 29. This legislation permits public companies to establish a 3% ownership threshold for derivative claims, aiming to reduce frivolous lawsuits. The announcement was made on the social media platform X.

Under the provisions of Texas SB 29, public corporations and private corporations with at least 500 shareholders that choose to adopt this new regime can include an ownership threshold for derivative proceedings in their governing documents. This threshold cannot exceed 3% of outstanding equity. The change is designed to limit derivative lawsuits initiated by shareholders with minimal stakes, who may be more motivated by legal fees than by the company's best interests. It aims to provide companies with regulatory certainty and protect against opportunistic lawsuits from plaintiffs with negligible investments.

SB 29 also contains a provision that prohibits attorneys' fees in derivative proceedings when the only outcome is additional or amended disclosures to shareholders, known as "disclosure-only" settlements. These types of suits often result in legal costs without substantive benefits to the company or its shareholders. According to amendments under SB 29 in the Texas Business Organizations Code, these changes are intended to disincentivize frivolous derivative lawsuits and reduce litigation burdens on corporations.

Corporate law experts indicate that one goal of SB 29 is to "shield directors from frivolous suits" by introducing procedural safeguards and thresholds for shareholder derivative claims. Pillsbury states that these reforms reflect Texas's effort to become more competitive with "business-friendly" jurisdictions by providing corporations tools to mitigate opportunistic litigation. These procedural guardrails also include granting deference to independent and disinterested directors or committees when evaluating whether derivative claims should proceed.

The Alliance for Corporate Excellence, a Texas-based advocacy organization founded by business leaders, believes corporate governance should prioritize long-term investment and operational performance over litigation risk. It supports amendments like SB 29 that offer companies greater control over internal governance procedures, reduce uncertainty, and limit legal exposure from minor shareholders or lawsuits with limited merit. According to their mission statement, the Alliance seeks to make Texas not only a hub for incorporations but broadly a superior jurisdiction for conducting business by counterbalancing what they perceive as lawsuit activism and decision-making uncertainty.