The Lone Star State is making moves to compete with Delaware as the corporate capital of the United States. Twin bills, H.B. 15 and S.B. 29, seek to modernize corporate law in Texas to attract new business and investments.
Texas seems to be following the corporate law precedents of Delaware, Nevada, Wyoming, and South Dakota, but it goes a little further than most, explicitly allowing the waiver of all jury trials in internal disputes. If you want to sue a Texas company, you’ll only be able to do so in a Texas court, and the bill erects various burdensome obstacles to litigation.
What would change?
These new bills will rewrite the way Texas courts look at any type of lawsuit against a Texas enterprise, from fraud claims to shareholder actions. The bill strengthens corporate secrecy, internal governance autonomy, and protections for company leadership against shareholder and external legal challenges.
The bills seek to shield businesses from frivolous lawsuits, and it codifies the “business judgment rule,” which protects directors from liability when making “good-faith” decisions.
Shareholders suing the company will not be able to access internal emails, and corporate officers can ignore the laws of other states. That means all claims against a company would have to be litigated exclusively in Texas courts.
Importantly, it would enable jury waivers, meaning that all claims would be heard by a judge, even if the waiver wasn’t signed by all stakeholders. In practical terms, this would likely mean much fewer blockbuster jury awards. Bench trials are much less risky than jury trials. They’re also faster and less costly for the company.
Who is jumping on board?
Not surprisingly, H.B 15 has attracted the attention of the Texas Blockchain Council, which has been raising awareness about its progress on social media.
While the Texas Blockchain Council touts itself as an industry association “working to make the State of Texas the jurisdiction of choice for bitcoin, blockchain, and digital asset innovation,” it makes sense that the nonprofit would strongly support a corporate reform bill. For several years, Texas has positioned itself as a mecca for crypto entrepreneurs. Yet, there are still several advantages to incorporating in Delaware.
H.B. 15 and S.B. 29 might change that. In September of 2024, Texas ushered in the Texas Business Court, a specialized court that handles commercial disputes presided over by judges with litigation experience in complex business affairs. Currently, 70% of Fortune 500 companies are incorporated in Delaware, where the Delaware Court of Chancery has historically enjoyed a respected reputation for equitable resolutions.
Delaware: The Most Unremarkable State
Delaware is utterly boring and unremarkable. It has nothing going for it, except for its reputation as Corporate America’s host state. Recently, however, the reputation of the Court of Chancery has been knocked down a few pegs by high-profile companies.
Citing concerns about activist judges and unfair judgments, these companies, Tesla being the most notable, have left Delaware to incorporate in other states. Meanwhile, Meta has been reported to be exploring a move to reincorporate in Texas or possibly Nevada.
This would be a nightmare for the state government of Delaware, which receives nearly half of its 1.6 billion in tax revenue from the 1.8 million companies that call the state home. To put that in perspective, most other states only collect around 10-15% of their tax revenue from companies.
The corporate flight from Delaware, nicknamed Dexit, might end up being more a trickle than a flood, according to the numbers. While some blue-chip companies have departed from Delaware, other companies continue to incorporate there because of its robust legal framework.
As Texas continues to modernize its own legal framework, the Lone Star State might quickly become a more attractive locale to incorporate.
Texas courts Big Crypto
It’s about to get much more difficult to sue a company in Texas, and so entrepreneurs considering where to incorporate might do well to add it to the list.
As Lee Bratcher, President of the Texas Blockchain Council, points out, the H.B. 15 bill serves to keep Texas competitive in financial services innovation. It does so by reinforcing Texas as a business-friendly state by providing more predictability regarding judicial review and overall clarity.
Texas has continued to make itself a haven for all things crypto. Lawmakers are currently pushing for a Texas Strategic Bitcoin Reserve, and more bitcoin miners operate in Texas than in any other state due to its pro-crypto regulatory environment and cheap energy.
Corporate governance reforms would be another big win for the Texas crypto industry.
However, many of these companies are incorporated in Delaware and elsewhere. As the Texas Business Court becomes more established and the provisions of HB-15 are adopted, that might change in Texas’s favor.
Author: Laird Dilorenzo
#Crypto #Blockchain #DigitalAssets #DeFi
Laird Dilorenzo is a hatchet thrower and wordsmith.
The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organizations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.
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