SB 2411

relating to business organizations.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1.  Subchapter B, Chapter 1, Business Organizations
Code, is amended by adding Sections 1.056 and 1.057 to read as
Sec. 1.056.  REFERENCES IN CODE TO CERTAIN DISTRICT COURTS
INCLUDES BUSINESS COURTS.  Notwithstanding any other law, a
reference or grant of jurisdiction in this code, including a grant
of exclusive jurisdiction, to a district court constitutes a
reference or grant of concurrent jurisdiction to a business court
established under Chapter 25A, Government Code, if the business
court has authority and jurisdiction under Chapter 25A, Government
Code, to adjudicate the action or claim.  This section does not
expand the authority of the business court under Chapter 25A,
Sec. 1.057.  LAWS GOVERNING FORMATION, INTERNAL AFFAIRS, AND
GOVERNANCE OF DOMESTIC ENTITY.  (a)  The plain meaning of the laws
enacted by the legislature in this code must not be supplanted,
contravened, or modified by the laws or judicial decisions of any
(b)  The managerial officials of a domestic entity, in
exercising their powers with respect to the domestic entity, may
consider the laws and judicial decisions of other states and the
practices observed by entities formed in those other states.  The
failure or refusal of a managerial official to consider, or to
conform the exercise of the managerial official's powers to, the
laws, judicial decisions, or practices of another state does not
constitute or imply a breach of this code or of any duty existing
SECTION 2.  Section 2.115(b), Business Organizations Code,
(b)  The governing documents of a domestic entity [may
require], consistent with applicable state and federal
jurisdictional requirements, may require that:
(1)  any internal entity claims shall be brought only
(2)  one or more courts in this state having
jurisdiction shall serve as the exclusive forum and venue for any or
SECTION 3.  Section 3.007(a), Business Organizations Code,
(a)  In addition to the information required by Section
3.005, the certificate of formation of a for-profit or professional
(1)  the aggregate number of shares the corporation is
(2)  if the shares the corporation is authorized to
issue consist of one class of shares only, the par value of each
share or a statement that each share is without par value;
(3)  if the corporation is to be managed by a board of
directors, the number of directors constituting the initial board
of directors and the name and address of each individual [person]
who will serve as director until the first annual meeting of
shareholders and until a successor is elected and qualified; and
(4)  if the corporation is to be managed pursuant to a
shareholders' agreement in a manner other than by a board of
directors, the name and address of each person who will perform the
functions required by this code to be performed by the initial board
SECTION 4.  Section 3.015(a), Business Organizations Code,
(a)  In addition to containing the information required
under Sections 3.005 and 3.014, the certificate of formation of a
(1)  be signed by each member of the association; and
(A)  the name and address of each original member
(B)  whether the association is to be governed by
a board of directors or by an executive committee; and
(C)  the name and address of each individual
[person] serving as an initial member of the board of directors or
executive committee of the association.
SECTION 5.  Section 3.060, Business Organizations Code, is
amended by amending Subsection (a) and adding Subsection (c) to
(a)  In addition to the provisions authorized or required by
Section 3.059, a restated certificate of formation for a for-profit
corporation or professional corporation may omit:
(1)  any prior statements regarding the number of
directors and the names and addresses of the individuals [persons]
serving as directors and, at the corporation's election, may insert
a statement regarding the current number of directors and the names
and addresses of the individuals [persons] currently serving as
(2)  any provisions that were necessary to effect a
change, exchange, reclassification, subdivision, combination, or
cancellation of shares, if the change, exchange, reclassification,
subdivision, combination, or cancellation has become effective.
(c)  Any omission or insertion under Subsection (a) or
omission under Section 3.059(b) is not considered an amendment that
SECTION 6.  Section 3.061, Business Organizations Code, is
amended by amending Subsection (a) and adding Subsection (c) to
(a)  In addition to the provisions authorized or required by
Section 3.059, a restated certificate of formation for a nonprofit
corporation may omit any prior statements regarding the number of
directors and the names and addresses of the individuals [persons]
serving as directors and, at the corporation's election, may insert
a statement regarding the current number of directors and the names
and addresses of the individuals [persons] currently serving as
(c)  Any omission or insertion under Subsection (a) or
omission under Section 3.059(b) is not considered an amendment that
SECTION 7.  Section 3.0611, Business Organizations Code, is
Sec. 3.0611.  SUPPLEMENTAL PROVISIONS FOR RESTATED
CERTIFICATE OF FORMATION FOR LIMITED LIABILITY COMPANY.  (a)  In
addition to the provisions authorized or required by Section 3.059,
a restated certificate of formation for a limited liability company
may omit any prior statements regarding whether the company has or
does not have managers and the names and addresses of managers or
members and, at the company's election, may insert a statement:
(1)  regarding whether the company currently has or
(2)  that the company currently has managers and the
names and addresses of the persons currently serving as managers;
(3)  that the company currently does not have managers
and the names and addresses of the current members of the company.
(b)  Any omission or insertion under Subsection (a) or
omission under Section 3.059(b) is not considered an amendment that
SECTION 8.  Section 3.062, Business Organizations Code, is
Sec. 3.062.  SUPPLEMENTAL PROVISIONS FOR RESTATED
CERTIFICATE OF FORMATION FOR REAL ESTATE INVESTMENT TRUST.  (a)  In
addition to the provisions authorized or required by Section 3.059,
a restated certificate of formation for a real estate investment
trust may update the current number of trust managers and the names
and addresses of the individuals [persons] serving as trust
(b)  Any update under Subsection (a) or Section 3.059(b) is
not considered an amendment that requires shareholder approval.
SECTION 9.  Subchapter C, Chapter 3, Business Organizations
Code, is amended by adding Section 3.106 to read as follows:
Sec. 3.106.  AUTHORIZATION OF PLANS, AGREEMENTS,
INSTRUMENTS, AND OTHER DOCUMENTS.  (a)  If this code expressly
requires the governing authority to approve or take other action
with respect to any plan, agreement, instrument, or other document,
the plan, agreement, instrument, or other document may be approved
by the governing authority in final form or in substantially final
(b)  If the governing authority has acted to approve or take
other action with respect to a plan, agreement, instrument, or
other document that is required by this code to be filed with the
secretary of state or referenced in any certificate to be filed with
the secretary of state, the governing authority may, at any time
after acting to approve or taking that other action and before the
effectiveness of the filing with the secretary of state, act to
ratify the plan, agreement, instrument, or other document.  That
(1)  to be effective as of the time of the original act
to approve or the original taking of other action by the governing
(2)  to satisfy any requirement under this code that
the governing authority approve or take other action with respect
to the plan, agreement, instrument, or other document in a specific
SECTION 10.  Section 4.152, Business Organizations Code, is
Sec. 4.152.  FILING FEES: FOR-PROFIT CORPORATIONS.  For a
filing by or for a for-profit corporation, the secretary of state
shall impose the following fees:
(1)  for filing a certificate of formation, $300;
(2)  for filing a certificate of amendment, $150;
(3)  for filing an application of a foreign corporation
for registration to transact business in this state, $750;
(4)  for filing an application of a foreign corporation
for an amended registration to transact business in this state,
(5)  for filing a restated certificate of formation and
(6)  for filing a statement of change of registered
office, registered agent, or both, $15;
(7)  for filing a statement of change of name or address
of a registered agent, $15, except that the maximum fee for
simultaneous filings by a registered agent for more than one
corporation may not exceed $750;
(8)  for filing a statement of resolution establishing
one or more series of shares, $15;
(9)  for filing a certificate of termination, $40;
(10)  for filing a certificate of withdrawal of a
(11)  for filing a certificate from the home state of a
foreign corporation that the corporation no longer exists in that
(12)  for filing a bylaw or agreement restricting
transfer of shares or securities other than as an amendment to the
(13)  for filing an application for reinstatement of a
certificate of formation or registration as a foreign corporation
following forfeiture under the Tax Code, $75;
(14)  for filing an application for reinstatement of a
corporation or registration as a foreign corporation after
involuntary termination or revocation, $75;
(15)  for filing a certificate of validation, $15, plus
the filing fee imposed for filing each new filing instrument that is
attached as an exhibit to the certificate of validation under
Section 21.908(b)(3)(B) [21.908(b)(3)(C)]; and
(16)  for filing any instrument as provided by this
code for which this section does not expressly provide a fee, $15.
SECTION 11.  Section 4.153, Business Organizations Code, is
Sec. 4.153.  FILING FEES: NONPROFIT CORPORATIONS.  For a
filing by or for a nonprofit corporation, the secretary of state
shall impose the following fees:
(1)  for filing a certificate of formation, $25;
(2)  for filing a certificate of amendment, $25;
(3)  for filing a certificate of merger, conversion, or
consolidation, without regard to whether the surviving or new
corporation is a domestic or foreign corporation, $50;
(4)  for filing a statement of change of a registered
office, registered agent, or both, $5;
(5)  for filing a certificate of termination, $5;
(6)  for filing an application of a foreign corporation
for registration to conduct affairs in this state, $25;
(7)  for filing an application of a foreign corporation
for an amended registration to conduct affairs in this state, $25;
(8)  for filing a certificate of withdrawal of a
(9)  for filing a restated certificate of formation and
(10)  for filing a statement of change of name or
address of a registered agent, $15, except that the maximum fee for
simultaneous filings by a registered agent for more than one
corporation may not exceed $250;
(11)  for filing a report under Chapter 22, $5;
(12)  for filing a report under Chapter 22 to reinstate
a corporation's right to conduct affairs in this state, $5, plus a
late fee in the amount of $5 or in the amount of $1 for each month or
part of a month that the report remains unfiled, whichever amount is
greater, except that the late fee may not exceed $25;
(13)  for filing a report under Chapter 22 to reinstate
a corporation or registration following involuntary termination or
(14)  for filing a certificate of validation, $5, plus
the filing fee imposed for filing each new filing instrument that is
attached as an exhibit to the certificate of validation under
Section 22.508(c)(3)(B) [22.508(c)(3)(C)]; and
(15)  for filing any instrument of a domestic or
foreign corporation as provided by this code for which this section
does not expressly provide a fee, $5.
SECTION 12.  Section 4.162(b), Business Organizations Code,
(b)  For a filing by or for a registered series of a domestic
limited liability company when no other fee has been provided, the
secretary of state shall impose the same fee as the filing fee for a
similar instrument under Section 4.151 or 4.154.
SECTION 13.  Section 6.051, Business Organizations Code, is
amended by adding Subsection (c) to read as follows:
(c)  When a notice is required or permitted by this code or
the governing documents of a domestic entity to be given to an
owner, member, or governing person of the domestic entity, a
document enclosed with, or annexed or appended to, the notice is
considered part of the notice for the purpose of determining
whether notice was given under this code and the governing
SECTION 14.  Section 6.202(d), Business Organizations Code,
(d)  The entity shall promptly provide written notice to
[notify] each person who is an owner or member as of the record date
for the action, as determined by Section 6.102, who did not sign a
consent described by Subsection (b) of the action that is the
subject of the consent.  The notice required by this subsection:
(1)  in addition to other information required by
applicable law, must contain a reasonable description of the action
that is the subject of the consent; and
(2)  may, instead of containing the complete notice in
writing, include information directing the owner or member to a
publicly available electronic resource at which a reasonable
description of the action that is the subject of the consent and any
other information required by applicable law may be accessed by the
owner or member without subscription or cost.
SECTION 15.  Section 7.001, Business Organizations Code, is
Sec. 7.001.  LIMITATION OF LIABILITY OF MANAGERIAL OFFICIAL
[GOVERNING PERSON].  (a)  Subsections (b) and (c) apply to:
(1)  a domestic entity other than a partnership or
(2)  another organization incorporated or organized
under another law of this state; and
(3)  to the extent permitted by federal law, a
federally chartered bank, savings and loan association, or credit
(b)  The certificate of formation or similar instrument of an
organization to which this section applies may provide that a
managerial official [governing person] of the organization is not
liable, or is liable only to the extent provided by the certificate
of formation or similar instrument, to the organization or its
owners or members for monetary damages for an act or omission by the
managerial official [person] in the managerial official's
[person's] capacity as a managerial official [governing person].
(c)  Subsection (b) does not authorize the elimination or
limitation of the liability of a managerial official [governing
person] to the extent the managerial official [person] is found
liable under applicable law for:
(1)  a breach of the managerial official's [person's]
duty of loyalty, if any, to the organization or its owners or
(2)  an act or omission not in good faith that:
(A)  constitutes a breach of duty of the
managerial official [person] to the organization; or
(B)  involves intentional misconduct or a knowing
(3)  a transaction from which the managerial official
[person] received an improper benefit, regardless of whether the
benefit resulted from an action taken within the scope of the
managerial official's [person's] duties; or
(4)  an act or omission for which the liability of a
managerial official [governing person] is expressly provided by an
(d)  The liability of a managerial official [governing
person] may be limited or eliminated:
(1)  in a general partnership by its partnership
agreement to the same extent Subsections (b) and (c) permit the
limitation or elimination of liability of a managerial official
[governing person] of an organization to which those subsections
apply and to the additional extent permitted under Chapter 152;
(2)  in a limited partnership by its partnership
agreement to the same extent Subsections (b) and (c) permit the
limitation or elimination of liability of a managerial official
[governing person] of an organization to which those subsections
apply and to the additional extent permitted under Chapter 153 and,
to the extent applicable to limited partnerships, Chapter 152; and
(3)  in a limited liability company by its certificate
of formation or company agreement to the same extent Subsections
(b) and (c) permit the limitation or elimination of liability of a
managerial official [governing person] of an organization to which
those subsections apply and to the additional extent permitted
SECTION 16.  Section 10.002, Business Organizations Code, is
amended by adding Subsection (e) to read as follows:
(e)  Unless otherwise expressly provided by the plan of
merger, a disclosure letter, disclosure schedules, or similar
documents or instruments delivered in connection with the plan of
merger is not considered part of the plan of merger for purposes of
this chapter, but those documents or instructions have the effects
provided in the plan of merger.
SECTION 17.  Section 10.004, Business Organizations Code, is
Sec. 10.004.  PLAN OF MERGER: PERMISSIVE PROVISIONS.  (a)  A
(1)  amendments to, restatements of, or amendments and
restatements of the governing documents of any surviving
organization, including a certificate of amendment, a restated
certificate of formation without amendment, or a restated
certificate of formation containing amendments;
(2)  provisions relating to an interest exchange,
including a plan of exchange; [and]
(3)  provisions for the appointment, at or after the
time at which the plan of merger is adopted by the owners or members
of a party to the merger, of one or more persons, which may include
an entity surviving or resulting from the merger or any managerial
official, representative, or agent of a party to the merger or of a
surviving or resulting organization, as representative of the
owners or members of a party to the merger, including those whose
ownership interests or membership interests are cancelled,
converted, or exchanged in the merger; and
(4)  any other provisions relating to the merger that
are not required by this chapter.
(b)  Provisions for the appointment of a representative in a
plan of merger under Subsection (a)(3) may:
(1)  delegate to the representative the sole and
exclusive authority to take action on behalf of the owners or
members under the plan of merger, including the authority to take
any action the representative determines is necessary or
appropriate to enforce or settle the rights of the owners or members
under the plan of merger, subject to the terms and conditions
prescribed by the plan of merger;
(2)  prescribe the irrevocable nature and binding
effect of the appointment as to all owners or members to be bound by
the appointment from and after the approval of the plan of merger by
those owners or members in accordance with this subchapter; and
(3)  provide that any of the provisions:
(A)  may not be amended after the merger has
(B)  may be amended only with the consent or
approval of persons specified in the plan of merger.
SECTION 18.  Section 10.006(e), Business Organizations
Code, is amended to read as follows:
(e)  Sections 10.001(c)-(e), 10.002(c), 10.003, 10.004, and
10.007-10.010 apply to a merger approved under Subsection (d),
except that the resolution approving the merger should be
considered the plan of merger for purposes of those sections.
SECTION 19.  Section 10.052, Business Organizations Code, is
amended by adding Subsection (d) to read as follows:
(d)  Unless otherwise expressly provided by the plan of
exchange, a disclosure letter, disclosure schedules, or similar
documents or instruments delivered in connection with the plan of
exchange is not considered part of the plan of exchange for purposes
of this chapter, but the documents or instruments have the effect
provided in the plan of exchange.
SECTION 20.  Section 10.053, Business Organizations Code, is
Sec. 10.053.  PLAN OF EXCHANGE: PERMISSIVE PROVISIONS.  (a)
A plan of exchange may include:
(1)  provisions for the appointment, at or after the
time at which the plan of exchange is adopted by the owners or
members whose ownership or membership interests are being acquired
in the interest exchange, of one or more persons, which may include
an entity that is a party to the interest exchange or any managerial
official, representative, or agent of a party to the interest
exchange, as representative of those owners or members; and
(2)  any other provisions not required by Section
10.052 relating to the interest exchange.
(b)  Provisions for the appointment of a representative in a
plan of exchange under Subsection (a)(1) may:
(1)  delegate to the representative the sole and
exclusive authority to take action on behalf of the owners or
members under the plan of exchange, including the authority to take
actions the representative determines necessary or appropriate to
enforce or settle the rights of the owners or members under the plan
of exchange, subject to the terms and conditions as prescribed by
(2)  prescribe the irrevocable nature and binding
effect of the appointment as to all owners or members to be bound by
the appointment from and after the approval of the plan of exchange
by those owners or members in accordance with this subchapter; and
(3)  provide that any of the provisions:
(A)  may not be amended after the interest
exchange has become effective; or
(B)  may be amended only with the consent or
approval of persons specified in the plan of exchange.
SECTION 21.  Section 10.104, Business Organizations Code, is
Sec. 10.104.  PLAN OF CONVERSION: PERMISSIVE PROVISIONS.
(a)  A plan of conversion may include other provisions relating to
the conversion that are not inconsistent with law.
(b)  An action to be taken by the converted entity in
connection with the conversion of the converting entity that is
provided by the plan of conversion adopted in the manner required by
Section 10.101 or 10.102, as applicable, and that is within the
power of the converted entity under the law of its jurisdiction of
(1)  is considered authorized, adopted, and approved,
(B)  the governing authority and owners or members
of the converted entity, as applicable; and
(2)  may not require any further action of the
governing authority, owners, or members of the converted entity for
SECTION 22.  Section 21.053, Business Organizations Code, is
amended by amending Subsection (c) and adding Subsections (d), (e),
(f), and (g) to read as follows:
(c)  Notwithstanding Section 21.054 and except as otherwise
provided by the certificate of formation, the board of directors of
a corporation that has outstanding shares:
(1)  may, without shareholder approval, adopt an
amendment to the corporation's certificate of formation to:
(A)  change the word or abbreviation in its
corporate name as required by Section 5.054(a) to be a different
word or abbreviation required by that section;
(B)  omit any provision that specifies the name
and address of each organizer or director; or
(C)  omit any provisions that were necessary to
effect a change, exchange, reclassification, subdivision,
combination, or cancellation of shares, if the change, exchange,
reclassification, subdivision, combination, or cancellation has
(2)  if the corporation has only one class of
outstanding stock that is not divided into series and in which no
change is made in any par value of shares of that class, may,
without shareholder approval, adopt an amendment to the
corporation's certificate of formation to:
(A)  reclassify by subdividing the issued shares
of the class into a greater number of issued shares of the class;
(B)  if the reclassification is primarily for the
purpose of maintaining the listing eligibility of the class on any
applicable national securities exchange, reclassify by combining
the issued shares of the class into a lesser number of issued shares
(d)  An amendment described by Subsection (c)(2)(A) may also
increase the number of authorized shares of the class up to an
amount determined by multiplying the existing number of authorized
shares of the class by the same multiple by which the issued shares
of the class are subdivided in the reclassification and rounding up
any resulting fractional number of shares to a whole number of
(e)  An amendment described by Subsection (c)(2)(B) may also
decrease the number of authorized shares of the class to an amount
determined by dividing the existing number of authorized shares of
the class by the same multiple by which the issued shares of the
class are combined in the reclassification and rounding up any
resulting fractional number of shares to a whole number of shares.
(f)  When a reclassification of issued shares with par value
is made by a corporation under:
(1)  Subsection (c)(2)(A), an amount of surplus
designated by the corporation's board of directors that is not less
than the aggregate par value of the shares issued as a result of the
reclassification shall be transferred to stated capital; or
(2)  Subsection (c)(2)(B), an amount of surplus equal
to an aggregate value with respect to the shares issued as a result
of the reclassification, as set by the board of directors when the
reclassification is authorized, shall be transferred to stated
(g)  A corporation may not effect a reclassification under
Subsection (c)(2)(A) if the surplus of the corporation is less than
the amount required by Subsection (f)(1) or (f)(2), as applicable,
to be transferred to stated capital at the time the
reclassification becomes effective.
SECTION 23.  Section 21.160(c), Business Organizations
Code, is amended to read as follows:
(c)  A corporation may dispose of treasury shares for
consideration that may be determined by the board of directors.  The
consideration received for treasury shares may:
(1)  have a value greater or less than, or equal to, the
par value, if any, of the shares; and
(2)  consist of the types of consideration described by
SECTION 24.  Section 21.168(e), Business Organizations
Code, is amended to read as follows:
(e)  An authorization of the board of directors may delegate
to a person or persons, in addition to the board of directors, the
authority to enter into one or more transactions to issue rights or
options.  For a transaction entered into by a person or persons to
whom authority was delegated under this subsection, the rights or
options may be issued in the number, at the time, and for the
consideration, and under the other terms on which shares may be
issued on the exercise of those rights and options, as the person or
persons may determine if that authorization of the board of
(A)  the maximum number of [rights or options, and
the maximum number of] shares issuable on exercise of those rights
or options, that may be issued under the authorization;
(B)  the period of time during which the rights or
options[,] and the period of time during which the shares issuable
on exercise of those rights or options, may be issued; and
(C)  the minimum amount of consideration:
(i)  if any, for which the rights or options
(ii)  for the shares issuable on exercise of
(2)  does not permit the person or persons to whom
authority was delegated to issue rights, options, or shares to that
SECTION 25.  Section 21.218, Business Organizations Code, is
amended by amending Subsection (b) and adding Subsection (b-2) to
(b)  On written demand stating a proper purpose, a holder of
shares of a corporation for at least six months immediately
preceding the holder's demand, or a holder of at least five percent
of all of the outstanding shares of a corporation, is entitled to
examine and copy, at a reasonable time at the corporation's
principal place of business or other location approved by the
corporation and the holder, the corporation's books, records of
account, minutes, share transfer records, and other records,
whether in written or other tangible form, if the records are
[record is] reasonably related to and appropriate to examine and
(b-2)  If the corporation reasonably determines that the
written demand is in connection with a pending derivative
proceeding in the right of the corporation under Subchapter L that
is instituted or maintained by the holder or the holder's
affiliate, or a pending civil lawsuit to which the corporation, or
its affiliate, and the holder, or the holder's affiliate, are
adversarial named parties, the demand is not a proper purpose under
Subsection (b).  This subsection does not impair any rights of:
(1)  the holder or the holder's affiliate to obtain
discovery of records from the corporation:
(B)  subject to Section 21.556, in the derivative
(2)  the holder to obtain a court order to compel
production of records of the corporation for examination by the
SECTION 26.  Section 21.402, Business Organizations Code, is
Sec. 21.402.  BOARD MEMBER ELIGIBILITY REQUIREMENTS.  Unless
the certificate of formation or bylaws of a corporation provide
otherwise, a director [person] is not required to be a resident of
this state or a shareholder of the corporation [to serve as a
director].  The certificate of formation or bylaws may prescribe
other qualifications for directors.
SECTION 27.  Section 21.404, Business Organizations Code, is
Sec. 21.404.  DESIGNATION OF INITIAL BOARD OF DIRECTORS.  If
the corporation is to be managed by a board of directors, the
certificate of formation of a corporation must state the name and
address [names and addresses] of each individual who will serve as
director until the first annual meeting of shareholders and until a
successor is elected and qualified [the persons constituting the
initial board of directors of the corporation].
SECTION 28.  Section 21.416, Business Organizations Code, is
amended by adding Subsections (g), (h), (i), (j), and (k) to read as
(g)  Subject to Subsection (c), the board of directors may
adopt resolutions that authorize formation of a committee of
independent and disinterested directors to review and approve
transactions, whether or not contemplated at the time of the
committee's formation or the filing of a petition under Subsection
(h) that involves the corporation or any of its subsidiaries and the
persons described in the resolutions, including a controlling
shareholder, director, or officer.
(h)  The corporation may petition a court having
jurisdiction to hold an evidentiary hearing to determine whether
the directors appointed to a committee under Subsection (g) are
independent and disinterested with respect to any transactions
involving the corporation or any of its subsidiaries and the
persons described in the resolution.  In the petition, the
corporation shall designate legal counsel to act on behalf of the
corporation and its shareholders, other than the persons described
in the resolution, and shall give notice to the shareholders of the
designated counsel and the petition.  If the corporation has a class
of shares listed on a national securities exchange, the required
notice may be provided through the filing of a current report with
the Securities and Exchange Commission in accordance with the
requirements of the Securities Exchange Act of 1934 (15 U.S.C.
Section 78a et seq.), including related regulations.
(i)  Promptly after receiving the petition, and not later
than the 10th day after the date of the notice described by
Subsection (h) has been given, the court shall hold a preliminary
hearing to determine the appropriate legal counsel to represent the
corporation and its shareholders, other than the persons described
in the resolution, whether or not the same as the legal counsel
identified in the petition.  Any other legal counsel representing a
shareholder, other than the persons described in the resolution,
may participate in the hearing to request designation by the court
as the appropriate legal counsel.
(j)  Promptly after the determination of the appropriate
legal counsel by the court, the court shall hold an evidentiary
hearing as to whether the directors on the committee are
independent and disinterested with respect to transactions
involving the corporation or any of its subsidiaries and the
persons described in the resolution.  The appropriate legal counsel
determined by Subsection (i) and legal counsel for the corporation
may participate in the hearing.  After hearing and reviewing the
evidence presented, the court will make its determination as to
whether the directors are independent and disinterested.
(k)  The court's determination that the directors are
independent and disinterested under Subsection (j) is
presumptively dispositive and binding in any subsequent lawsuit or
other legal proceeding involving the issue of whether those
directors are independent and disinterested with respect to a
particular transaction involving the corporation or any of its
subsidiaries and any of the persons described in the resolution.  To
overcome that presumption, any person asserting in the subsequent
lawsuit or other legal proceeding that the directors are not
(1)  must provide evidence of material facts not
presented in the proceedings in which the court made that
(2)  has the burden to establish that one or more of
those directors is not independent and disinterested with respect
to the particular transaction involving the corporation or any of
its subsidiaries and any of the persons described in the
SECTION 29.  Section 21.551(2), Business Organizations
Code, is amended to read as follows:
(A)  a shareholder as defined by Section 1.002;
(B)  [or] a beneficial owner whose shares are held
in a voting trust or by a nominee on the beneficial owner's behalf;
(C)  except for Section 21.563(a)(1), two or more
persons described by Paragraph (A) or (B) acting together, under
any agreement, arrangement, or understanding, with respect to a
SECTION 30.  Section 21.554, Business Organizations Code, is
Sec. 21.554.  DETERMINATION BY DIRECTORS OR INDEPENDENT
PERSONS.  (a)  A determination of how to proceed on allegations made
in a demand or petition relating to a derivative proceeding must be
made by an affirmative vote of the majority of:
(1)  all independent and disinterested directors of the
corporation, regardless of whether the independent and
disinterested directors constitute a quorum of the board of
(2)  a committee consisting of one or more independent
and disinterested directors appointed by an affirmative vote of the
majority of one or more independent and disinterested directors,
regardless of whether the independent and disinterested directors
constitute a quorum of the board of directors; or
(3)  a panel of one or more independent and
disinterested individuals appointed by the court on a motion by the
corporation listing the names of the individuals, who may be
directors, to be appointed and stating that, to the best of the
corporation's knowledge, the individuals to be appointed are
disinterested and qualified to make the determinations
contemplated by Section 21.558.
(b)  The court shall appoint a panel under Subsection (a)(3)
if the court determines [finds] that the individuals recommended by
the corporation are independent and disinterested and are otherwise
qualified with respect to expertise, experience, independent
judgment, and other factors considered appropriate by the court
under the circumstances to make the determinations.  An individual
appointed by the court to a panel under this section may not be held
liable to the corporation or the corporation's shareholders for an
action taken or omission made by the individual in that capacity,
except for an act or omission constituting fraud or wilful
(c)  Before the corporation's determination of how to
proceed on the allegations under Subsection (a), the corporation
may petition the court in which the derivative proceeding has been
instituted, or a court having jurisdiction if no derivative
proceeding has been instituted, to request a determination as to
whether the directors identified or appointed under Subsection
(a)(1) or (2) are independent and disinterested with respect to the
allegations made in the demand.
(d)  For purposes of Subsection (c), if a derivative
proceeding has been instituted, the corporation must promptly
deliver a copy of the petition to the shareholder making the demand
who will have the right, if promptly exercised, to challenge the
petition before the court makes its determination.
(e)  After hearing and reviewing the evidence presented, the
court will make its determination as to whether the directors are
(f)  The court's determination that the directors or
individuals are independent and disinterested under this section is
presumptively dispositive and binding in the derivative
proceeding, if it has been instituted, or in any subsequent lawsuit
or other legal proceeding involving the issue of whether those
directors or individuals were independent and disinterested when
they made the determination on how to proceed with respect to the
(g)  To overcome the presumption under Subsection (f), any
person asserting in the derivative proceeding or the subsequent
lawsuit or other legal proceeding that the directors or individuals
are not independent and disinterested:
(1)  must provide evidence of material facts not
presented in the proceedings in which the court made that
(2)  has the burden to establish that one or more of
those directors or individuals was not independent and
disinterested when the director or individuals made the
determination on how to proceed with respect to the allegations
SECTION 31.  Section 21.561, Business Organizations Code, is
amended by adding Subsection (c) to read as follows:
(c)  For purposes of Subsection (b)(1), substantial benefit
to the corporation does not include additional or amended
disclosures made to the shareholders, regardless of materiality.
SECTION 32.  Section 21.562(a), Business Organizations
Code, is amended to read as follows:
(a)  In a derivative proceeding brought in the right of a
foreign corporation, the matters covered by this subchapter are
governed by the laws of the jurisdiction of formation of the foreign
corporation, except for Sections 21.555, 21.560, and 21.561, which
with respect to foreign corporations are procedural provisions and
do not relate to the internal affairs of the foreign corporation,
unless applying the laws of the jurisdiction of formation of the
foreign corporation requires otherwise with respect to Section
SECTION 33.  Section 21.563(b), Business Organizations
Code, is amended to read as follows:
(b)  Sections 21.552-21.560 do not apply to [a claim or] a
derivative proceeding by a shareholder of a closely held
corporation against a present or former director, officer, or
shareholder of the corporation.  In the event the shareholder also
asserts a claim in the [or] derivative proceeding [is also made]
against a person who is not a present or former [that] director,
officer, or shareholder, this subsection applies only to a [the]
claim in the [or] derivative proceeding against a present or former
[the] director, officer, or shareholder.
SECTION 34.  Sections 21.901(2) and (4), Business
Organizations Code, are amended to read as follows:
(2)  "Defective corporate act" means:
(B)  an election or appointment of directors that
is void or voidable due to a failure of authorization; or
(C)  any act or transaction purportedly taken by
or on behalf of the corporation that is, and at the time the act or
transaction was purportedly taken would have been, within the power
of a corporation to take under the corporate statute, without
regard to the failure of authorization identified in Section
21.903(a)(4), but is ineffective, void, or voidable due to a
failure of authorization, including a failure to file with the
filing officer a filing instrument that was required under the
corporate statute to complete the effectiveness of the act or
(4)  "Failure of authorization" means:
(A)  the failure to authorize or effect an act or
transaction in compliance with the provisions of the corporate
statute, the governing documents of the corporation, any plan or
agreement to which the corporation is a party, or the disclosure set
forth in any proxy or consent solicitation statement, if and to the
extent the failure would render the act or transaction ineffective,
(B)  the failure of the board of directors or an
officer of the corporation to authorize or approve an act or
transaction taken by or on behalf of the corporation that required
the prior authorization or approval of the board of directors or the
SECTION 35.  Section 21.902, Business Organizations Code, is
Sec. 21.902.  RATIFICATION OF DEFECTIVE CORPORATE ACT AND
PUTATIVE SHARES.  (a)  Except as provided by Subsection (b) and
subject [Subject] to Section 21.909 or 21.910, a defective
corporate act or putative shares are not ineffective, void, or
voidable solely as a result of a failure of authorization if the act
(1)  ratified in accordance with this subchapter; or
(2)  validated by the district court in a proceeding
(b)  A corporation may not ratify with retroactive effect in
accordance with this subchapter a defective corporate act resulting
from a failure of authorization that is attributable to the failure
to file with the filing officer the following filing instrument:
(1)  a statement of change of registered agent or a
statement of change of registered office under Subchapter E,
(2)  a certificate of amendment or restated certificate
of formation that amends the registered agent or registered office
(3)  a certificate of formation under Subchapter A,
(4)  a certificate of termination under Subchapter C,
(5)  a certificate of merger or certificate of
conversion under Subchapter D, Chapter 10; or
(6)  a report under Subchapter E, Chapter 171, Tax
SECTION 36.  Sections 21.908(a), (b), and (c), Business
Organizations Code, are amended to read as follows:
(a)  The [If a defective corporate act ratified under this
subchapter would have required under any other provision of the
corporate statute the filing of a filing instrument or other
document with the filing officer, the] corporation shall file a
certificate of validation with respect to the defective corporate
act in accordance with Chapter 4, if:
(1)  a defective corporate act ratified under this
subchapter would have required under any other provision of the
corporate statute the filing of a filing instrument or other
document with the filing officer; and
(2)  the filing instrument or other document:
(A)  previously filed with the filing officer
requires any change to give effect to the defective corporate act in
accordance with this subchapter, including a change to the date and
time of the effectiveness of the filed filing instrument or other
(B)  was not previously filed with the filing
officer under any other provision of the corporate statute [,
regardless of whether a filing instrument or other document was
previously filed] with respect to the defective corporate act.
(b)  The certificate of validation must include:
(1)  a statement that the corporation has ratified one
or more defective corporate acts that would have required the
filing of a filing instrument or other document with the filing
officer under any provision of the corporate statute [each
defective corporate act that is a subject of the certificate of
[(A)  for a defective corporate act involving the
issuance of putative shares, the number and type of putative shares
issued and the date or dates on which the putative shares were
[(B)  the date of the defective corporate act; and
[(C)  the nature of the failure of authorization
with respect to the defective corporate act];
(2)  a statement that each defective corporate act has
been [was] ratified in accordance with this subchapter [,
[(A)  the date on which the board of directors
ratified each defective corporate act; and
[(B)  the date, if any, on which the shareholders
approved the ratification of each defective corporate act]; and
(A)  if a filing instrument was previously filed
with a filing officer under the corporate statute with respect to
the defective corporate act and [no change to the filing instrument
is required to give effect to the defective corporate act as
ratified in accordance with this subchapter:
[(i)  the name, title, and filing date of the
previously filed filing instrument and of any certificate of
correction to the filing instrument; and
[(ii)  a statement that a copy of the
previously filed filing instrument, together with any certificate
of correction to the filing instrument, is attached as an exhibit to
[(B)  if a filing instrument was previously filed
with a filing officer under the corporate statute with respect to
the defective corporate act and] the filing instrument requires any
change to give effect to the defective corporate act as ratified in
accordance with this subchapter, including a change to the date and
time of the effectiveness of the filing instrument:
(i)  the name, title, and filing date of the
previously filed filing instrument and of any certificate of
correction to the filing instrument;
(ii)  a statement that a filing instrument
containing all the information required to be included under the
applicable provisions of this code to give effect to the ratified
defective corporate act is attached as an exhibit to the
(iii)  the date and time that the attached
filing instrument is considered to have become effective under this
(B) [(C)]  if a filing instrument was not
previously filed with a filing officer under the corporate statute
with respect to the defective corporate act and the defective
corporate act as ratified under this subchapter would have required
under the other applicable provisions of this code the filing of a
filing instrument in accordance with Chapter 4, if the defective
corporate act had occurred when this code was in effect:
(i)  a statement that a filing instrument
containing all the information required to be included under the
applicable provisions of this code to give effect to the defective
corporate act, as if the defective corporate act had occurred when
this code was in effect, is attached as an exhibit to the
(ii)  the date and time that the attached
filing instrument is considered to have become effective under this
(c)  A filing instrument attached to a certificate of
validation under this section [Subsection (b)(3)(B) or (C)] does
not need to be executed separately and does not need to include any
statement required by any other provision of this code that the
instrument has been approved and adopted in accordance with that
SECTION 37.  Section 21.909, Business Organizations Code, is
Sec. 21.909.  ADOPTION OF RESOLUTIONS; EFFECT ON DEFECTIVE
CORPORATE ACT.  On or after the validation effective time, unless
determined otherwise in an action brought under Section 21.914 and
subject to Sections 21.902(b) and [Section] 21.907(e), each
defective corporate act ratified in accordance with this subchapter
may not be considered ineffective, void, or voidable as a result of
the failure of authorization described by the resolutions adopted
under Sections 21.903 and 21.904, and the effect shall be
retroactive to the time of the defective corporate act.
SECTION 38.  Section 21.910, Business Organizations Code, is
Sec. 21.910.  ADOPTION OF RESOLUTIONS; EFFECT ON PUTATIVE
SHARES.  On or after the validation effective time, unless
determined otherwise in an action brought under Section 21.914 and
subject to Sections 21.902(b) and [Section] 21.907(e), each
putative share or fraction of a putative share issued or
purportedly issued pursuant to a defective corporate act ratified
in accordance with this subchapter and described by the resolutions
adopted under Sections 21.903 and 21.904 may not be considered
ineffective, void, or voidable and is considered to be an identical
share or fraction of a share outstanding as of the time it was
SECTION 39.  Section 21.913(b), Business Organizations
Code, is amended to read as follows:
(b)  The absence or failure of ratification of an act or
transaction in accordance with this subchapter or of validation of
an act or transaction as provided by Sections 21.914 through 21.917
does not, of itself, affect the validity or effectiveness of any act
or transaction or the issuance of any shares properly ratified
under common law or otherwise, nor does it create a presumption that
any such act or transaction is or was a defective corporate act or
that those shares are ineffective, void, or voidable.
SECTION 40.  Section 21.915, Business Organizations Code, is
Sec. 21.915.  EXCLUSIVE JURISDICTION.  Subject to Section
1.056, the [The] district court has exclusive jurisdiction to hear
and determine any action brought under Section 21.914.
SECTION 41.  Section 21.917(b), Business Organizations
Code, is amended to read as follows:
(b)  Notwithstanding any other provision of this subchapter:
(1)  an action claiming that a defective corporate act
or putative shares are ineffective, void, or voidable due to a
failure of authorization identified in the resolutions adopted in
accordance with Section 21.903 may not be filed in or must be
dismissed by any court after the applicable validation effective
(2)  an action claiming that a court of appropriate
jurisdiction, in its discretion, should declare that a ratification
in accordance with this subchapter not take effect or that the
ratification take effect only on certain conditions may not be
filed with the court after the expiration of the 120th day after the
later of the validation effective time or the time that any notice
required to be given under Section 21.911 is given with respect to
SECTION 42.  Sections 22.001(1) and (3-a), Business
Organizations Code, are amended to read as follows:
(1)  "Board of directors" means the group of
individuals [persons] vested with the management of the affairs o