How Texas’s 2025 Corporate Governance Reforms Could Reshape Entity Selection Decisions
For decades, limited liability companies (LLCs) have been the go-to entity for Texas businesses thanks to their flexible structure, simplified management, and favorable tax treatment. But recent legislative developments suggest that Texas lawmakers may be signaling a shift, encouraging businesses to take a closer look at the corporate entity structure instead.
As a transactional attorney advising Texas businesses, I’ve watched countless startups
instinctively choose LLC structures because of simplicity and flexibility. However, recent
conversations with clients have been focused more on whether an LLC is the proper
vessel to conduct their business. This shift suggests a genuine recalibration happening
right before our eyes
Is Texas turning the tide on LLCs? And could corporations become the new preferred entity for business owners in 2025 and beyond?
Why Texas Businesses Are Rethinking Entity Selection
As a transactional attorney advising Texas businesses, I’ve watched countless startups instinctively choose the LLC structure for its simplicity. But recently, more clients are asking whether an LLC is still the best option, or if a Texas corporation might offer stronger long-term benefits. This shift reflects a broader trend worth paying attention to.
Texas’s 2025 Legislative Changes: Strengthening Corporate Advantages
In 2025, the 88th Texas Legislature introduced several important updates to the Texas Business Organizations Code (TBOC), primarily targeting corporations (under Chapter 21), rather than LLCs (under Chapter 101).
Here are some keyways in which Texas has strengthened the corporate form:
Explicit Business Judgment Rule Protection (SB 29)
Texas now clearly protects corporate directors who make informed, good-faith business decisions. This protection, once only established by courts, now gives directors more predictable
safeguards against claims.
(See TBOC § 21.563)
Higher Thresholds for Shareholder Lawsuits (SB 1057)
Shareholders must now hold at least 3% ownership or $3 million in shares to bring a derivative lawsuit. This significantly reduces lawsuits form minority shareholders holding smaller stakes.
(See TBOC §§ 21.556, 21.563)
Easier Access to the Texas Business Court
Corporations can now designate the Texas Business Court as their exclusive venue for internal disputes without meeting the monetary thresholds that LLCs must satisfy.
(See TBOC § 21.5631; Tex. Gov’t Code § 25A.004)
Clear Jury Trial Waivers
Corporations can explicitly include enforceable jury-trial waiver provisions in their governance documents, creating greater certainty in litigation.
Stronger Director & Committee Protections
Clear statutory rules now protect independent committee actions and director decisions-making, advantages not automatically available to LLCs.
From personal experience working with company directors navigating tricky decisions,
I’ve observed firsthand the anxiety and hesitation directors faced when trying to
determine whether a court would see a particular decision the same way they do. The
explicit codification of the Business Judgment Rule is reducing this anxiety around
boardroom tables.
LLCs: Still Relying on Customized Agreements
Interestingly, lawmakers chose not to provide similar statutory upgrades to LLCs in 2025. As a result, LLCs still must use carefully drafted company agreements to achieve protections now automatically available to corporations. Without these statutory protections, LLCs face potentially greater litigation risks.
Here’sFor example, while LLCs can also select the Texas Business Court for disputes, they must meet a higher monetary threshold ($5 million) that corporations don’t face. Similarly, LLCs that wish to limit derivative suits or clarify fiduciary duties must rely on explicit, precise drafting in their company agreements.
I’ve spent numerous hours revising LLC operating agreements to explicitly define fiduciary duties and protect managers. It underscores the point that, for LLCs, robust governance protections still depend heavily on precise legal drafting. In contrast, had those same clients chosen a corporation under the updated TBOC, many of those protections would have come ready-made.
Why the Legislative Shift?
There are a few likely reasons Texas lawmakers are shifting toward stronger corporate protections:
- Attracting Business: Texas wants to compete with states like Delaware by offering robust legal protections that corporations typically prefer.
- Reducing Court Congestion Redirecting corporate disputes to the specialized Texas Business Court alleviates the burden on general courts and streamlines litigation.
- Boosting Investor Confidence: Clearer governance rules and greater director protections can attract outside investment, stimulating economic growth.
It’s no secret that Texas legislators are eyeing Delaware’s dominance as a corporate haven and want a piece of that pie. It seems that Texas legislators have finally figured out Delaware’s secret sauce: predictability. These changes clearly demonstrate a deliberate move in this direction.
When Choosing a Corporation in Texas Makes Sense
Given these 2025 changes, a Texas corporation may now be the better choice if your business is:
- Attracting Investors: If your business plans to bring in venture capital or private equity investors.
- Complex Governance Needs: If you require formal board structures and clearly defined fiduciary protections not available in a company agreement.
- Litigation Concerns: Businesses that anticipate governance-related disputes or minority shareholder challenges.
- Planning for Growth: Companies preparing for mergers, acquisitions, or potential public offerings.
When an LLC Remains a Great Option
Despite the legislative shift, LLCs remain advantageous for:
- Closely held businesses with straightforward governance needs.
- Entities prioritizing pass-through taxation and maximum tax flexibility.
- Single-member or family-owned businesses with minimal litigation exposure.
Many of my small-business clients, such as family owned-restaurants, professional service firms, or closely held startups, still strongly prefer LLCs for their simplicity and flexibility. For such clients, the LLC structure remains a comfortable fit.
Time to Revisit Your Entity Selection?
Given the 2025 updates to Texas corporate law, now is an ideal time to revisit your business’s legal structure. If you formed an LLC years ago, your needs, and the legal landscape, may have changed. LLCs still offer valuable flexibility, but the strengthened corporate form may now be a better choice for certain businesses.
Just like you update your business plan or financials, your entity selection deserves a fresh look. Clients who take time to assess their structure regularly are better equipped to adapt to new laws and opportunities.
I recommend taking a moment to reassess your business’s current form. Just as you regularly revisit marketing strategies or financial forecasts, it’s wise to periodically reevaluate entity choices as legal landscapes shift. Personally, I’ve found that clients who regularly “check-in” on their entity structures and governance adapt far more effectively to legislative changes.
How Our Firm Can Help
Considering a new business entity or wondering if your existing governance setup needs updating? We understand each company’s nuances and unique challenges. Our team is ready to help you navigate these important decisions. Contact us today to set up a consultation and stay ahead in Texas’s evolving business landscape.
As advisors to business owners, we understand that your business is your story, we want to help you make the appropriate revisions and structure changes so that you are empowered, clear-eyed, and ready for growth.
