By Byron F. Egan

This article is part five 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.

Proxy Advisory Rules and ESG Considerations

Texas has enacted proxy advisory service disclosure requirements that are unique among U.S. states. Under the Texas Business Organizations Code (TBOC) Chapter 6A, proxy advisors must provide disclosures to shareholders of a publicly traded company and the company itself if the advisor makes a recommendation or provides voting advice based on non-financial factors like ESG, DEI, sustainability, or social credit scores; recommends a vote against the Board’s position on shareholder proposals without a detailed financial analysis; prioritizes non-financial goals over the financial interests of shareholders; or recommends voting against a company-backed director nominee. Proxy advisory firms must also include a clear, publicly accessible statement on their website disclosing that their services include advice that is not based solely on the financial interests of shareholders.

Shareholder Right to Call Special Meetings

Under TBOC Section 21.352(a)(2), shareholders holding at least 10% of the shares entitled to vote may call a special shareholders’ meeting, although the certificate of formation can state a higher threshold up to 50%. In Delaware, by comparison, stockholders may only call a special meeting if specifically provided that authority in the certificate of incorporation or bylaws.

Director and Shareholder Action by Written Consent

A written consent stating the action taken and signed by all members of the board of directors is an act of the board of directors under TBOC Sections 21.415(b) and 6.201(b). Shareholders may act without a meeting with the written consent of all shareholders, or, if authorized by the certificate of formation, with the consent of shareholders having at least the minimum number of votes that would be necessary to take the action at a meeting. In Delaware, stockholders may act without a meeting with the written consent of holders having not less than the minimum number of votes that would be necessary to take the action at a meeting, unless the certificate of incorporation provides otherwise.

Derivative Suit Requirements

Under the TBOC, a shareholder may not institute a derivative proceeding until the 91st day after filing a written demand with the corporation stating with particularity the subject matter and requesting that the corporation take suitable action, unless the shareholder is notified that the demand has been rejected or the corporation is suffering or would suffer irreparable injury. Additionally, TBOC Section 21.552(a)(3) allows publicly traded corporations (and those that opt in with at least 500 shareholders) to include a provision in their governing documents imposing an ownership threshold for shareholders to institute derivative proceedings, provided that the threshold cannot exceed 3% of outstanding shares.

TBOC Section 21.554(c) also allows a corporation to preemptively obtain a determination on the independence and disinterestedness of directors tasked with evaluating a shareholder demand, which triggers a 45-day deadline for an evidentiary hearing and a 75-day deadline for a court determination.

Mandatory Indemnification

Unless otherwise provided in the governing documents, a Texas corporation shall indemnify a director, officer, former director, or former officer against reasonable expenses actually incurred by the person in connection with a proceeding in which the person is a respondent because of their role, if the person is wholly successful, on the merits or otherwise, in the defense of the proceeding.

Takeaway

Companies considering a DExit to Texas should carefully weigh these practical differences—from proxy advisory disclosure rules and lower special meeting thresholds to derivative suit ownership requirements and mandatory indemnification—as each represents a meaningful departure from Delaware’s framework that can materially affect corporate governance, shareholder relations, and litigation exposure.

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.