Texas Sweetens Pitch to CEOs, Boards With New State Protections
Texas is trying to entice more companies to ditch Delaware and incorporate in the state, just like Tesla Inc. and Space Exploration Technologies Corp. did last year at the behest of Elon Musk.
Governor Greg Abbott is poised to sign legislation Wednesday to clarify rules around corporate decision-making and shareholder resolutions. Backers say the measures will help bolster the state’s new business courts, which are designed to challenge the supremacy of Delaware Chancery Court as a venue for corporate disputes.
The bills underscore Texas’ effort to step into the void as companies from Meta Platforms Inc. to Bill Ackman’s Pershing Square Capital Management question Delaware’s status as the gold standard for incorporations and business litigation. Musk received shareholder approval last year to move Tesla’s incorporation to Texas after a Delaware judge voided his record-setting pay package.
The legislation “will establish Texas as a meaningful alternative to legal incorporation in Delaware, whose law has ceased to be predictable and clear in light of growing activism by the Delaware courts and legal community,” said a consortium of companies and business groups including the Texas Stock Exchange and Texans for Lawsuit Reform.
Read more: Proposed Texas Legislation Aims to Accelerate Delaware Exit
One bill formalizes a common legal principle known as the business judgment rule, which assumes corporate leaders are making informed, well intentioned decisions for their companies. Under the new measure in Texas, investors seeking to challenge board decisions will now need to prove otherwise.
The measures also toughen the requirements for shareholders who want to investigate corporate books or pursue derivative suits. The updated rule enables companies to require a shareholder or group of investors to own as much as 3% of voting shares to take such actions.
Abbott also is expected to promote a ballot measure voters will consider in November that would ban financial transaction taxes. Illinois and New York have weighed levies on security transfers in the past, only to roll them back after outcry from exchanges.
Texas is strengthening corporate protections as public equity markets converge on the state. The New York Stock Exchange announced plans earlier this year to start an equities exchange in Texas. Nasdaq Inc. said it will open a new regional headquarters in Dallas to serve as a hub for clients in Texas.
The upstart Texas Stock Exchange – with backing from BlackRock Inc., Citadel Securities and Dallas pipeline billionaire Kelcy Warren – plans to start trading next year.
Photo: Greg Abbott Photographer: Greg Nash/The Hill/Bloomberg