By Byron F. Egan

This article is part one of six articles in the “DExit to Texas: What You Need to Know About Reincorporating in the Lone Star State” series, which covers why Delaware companies are considering redomiciling in Texas and the primary differences between the two states.

Reincorporating in Texas does more than change a company’s state of formation, it reshapes the legal framework governing directors and officers. This article highlights how Texas law approaches fiduciary duties, board decision-making, and litigation exposure compared to Delaware.

Fiduciary Duties: A Texas-Centric Framework

One of the most significant changes when reincorporating in Texas is the shift in the fiduciary duty framework that governs directors and officers. Texas has its own well-established body of law on fiduciary duties, and the Texas Business Organizations Code (“TBOC”) expressly provides that directors and officers of a Texas corporation may, but are not required to, consider the laws, judicial decisions, or business practices of other states. A failure to consider or conform to out-of-state authorities does not constitute or imply a breach of the TBOC or any duty under Texas law. The TBOC also provides that its provisions may not be supplanted, contravened, or modified by the laws or judicial decisions of another state.

The Business Judgment Rule: Stronger Protections for Directors

Texas has long applied a strong common-law deference to directors’ business judgment. As the Texas Supreme Court stated in Sneed v. Webre, “The business judgment rule in Texas generally protects corporate officers and directors, who owe fiduciary duties to the corporation, from liability for acts that are within the honest exercise of their business judgment and discretion.”

The 2025 amendments to the TBOC significantly strengthened these protections through new Section 21.419, which codifies a statutory version of the business judgment rule. Under this provision, a director or officer is presumed to act (1) in good faith, (2) on an informed basis, (3) in furtherance of the corporation’s interests, and (4) in obedience to the law and the corporation’s governing documents. Neither the corporation nor its shareholders has a cause of action against a director or officer unless the claimant rebuts one or more of these presumptions and proves that the breach involved fraud, intentional misconduct, an ultra vires act, or a knowing violation of law. This statutory presumption applies to corporations with voting shares listed on a national securities exchange or to corporations that opt in through their governing documents.

No “Entire Fairness” or “Enhanced Scrutiny”

A critical distinction from Delaware is that Texas does not recognize the Delaware concepts of “entire fairness” or “enhanced scrutiny.” Under Delaware law, different standards of review apply depending on the context—the business judgment rule for routine decisions, enhanced scrutiny for defensive measures or sales of control, and entire fairness for transactions involving management or a principal stockholder. In Texas, by contrast, the TBOC respects actions approved by independent directors or a majority of shareholders without imposing these additional layers of scrutiny.

Caremark Claims

Texas has not adopted the expansion of fiduciary duties in Delaware stemming from the Caremark line of cases. In light of Texas Supreme Court decisions emphasizing deference to directors’ business judgment, Texas would likely treat Caremark-style claims as duty-of-care cases rather than adopting the broader oversight-liability framework recognized in Delaware.

Interested Party Transactions

Under TBOC Section 21.418, Texas provides a statutory safe harbor for interested-party transactions if any one of the following conditions is satisfied: (1) full disclosure to and approval by a majority of disinterested directors or committee members, (2) full disclosure to and approval by the shareholders, or (3) the transaction is fair to the corporation when authorized. If at least one of these conditions is met, neither the corporation nor its shareholders will have a cause of action against directors or officers for breach of duty with respect to the transaction. TBOC Section 21.416 also endorses the use of a special committee to review and approve transactions involving controlling shareholders, directors, or officers.

Additionally, TBOC Section 21.4161 establishes a novel four-step process for a corporation to obtain a prospective court ruling that special committee members are sufficiently independent and disinterested in considering a particular transaction. That determination is dispositive absent additional facts that were not presented to the court.

Takeaway

Texas offers a more director-deferential governance framework, with fewer judicial overlays than Delaware. Boards considering DEXIT should weigh the benefits of stronger statutory protections against differences in legal predictability and investor expectations.

The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice. For more information, please contact Byron F. Egan or a member of the Corporate & Securities practice.

Meet Byron

Byron F. Egan regularly handles business combinations of corporations, limited liability companies, and partnerships, including mergers and acquisitions, purchases and sales of stock, and other equity interests, and sales and exchanges of assets. He also handles the related entity governance and structure issues. In 2025, Byron published the fifth edition of EGAN ON ENTITIES: Corporations, Partnerships and Limited Liability Companies in Texas, a treatise on Texas, Delaware and other entity laws. Byron is the only attorney to have received the Burton Award for Legal Achievement four times and is consistently recognized among the top corporate and M&A lawyers in Texas by several publications.

Byron has consistently been recognized by Who’s Who Legal for over 15 years, including as a “Recommended” attorney in M&A and Corporate Governance and as a “Thought Leader” for M&A. He has also been named among The Best Lawyers in America since 1993 in the areas of Corporate Compliance Law, Corporate Governance Law, Corporate Law, and Mergers and Acquisitions Law.