Capital follows rules. Not regulations in the bureaucratic sense but clarity. The kind of structural predictability that allows a board to act with conviction, an investor to model risk with confidence, and a company to plan in decades rather than quarters.

That distinction matters now more than ever. Because while Texas’ rise as an economic power is often told as a story of population growth and corporate relocations, what increasingly sets the state apart is something less visible but more durable: a governance and regulatory framework designed to eliminate ambiguity, which only creates unnecessary risk.

“Texas takes a simple proposition of the importance of legal clarity and builds on it,” says Ed Knight, Executive Vice Chairman of Nasdaq and Chairman of the Nasdaq Texas Advisory Board. ” Texas is saying we do not want to force you to go to court. Here are the rules. We’re going to make them as clear as possible, and we’re going to do it in a way that doesn’t encourage needless litigation.”

That confidence in clarity is beginning to reshape how companies evaluate not just where to operate but where to incorporate, where to resolve disputes, and how to align with capital markets. Jurisdiction is becoming a strategic decision.  Remember: at one time New Jersey was the state where companies incorporated and then Delaware presented a different proposition. Now Texas is stepping up with a better idea.

Codifying Predictability: The Role of SB 29

At the center of this evolution is Texas Senate Bill 29, signed into law in May 2025. It represents one of the most consequential updates to the Texas Business Organizations Code in decades, and its aim is deceptively simple: bring greater clarity to corporate governance and reduce ambiguity in disputes between boards, shareholders, and stakeholders. This benefits all corporate stakeholders not just boards.

“Most executives — CEOs, general counsels, CFOs — all they want is certainty: tell me what the rules are,” Knight explains. “Tell me where the safe harbor is. I’m going to comply. I don’t want to challenge the law. In fact, with the cost of litigation today and the risk associated with it, companies want to avoid the courtroom and rationally manage that risk.”

The practical implications are meaningful. SB 29 codifies the business judgment rule, establishing a statutory presumption under clear conditions that directors and officers act in good faith, on an informed basis, and in the best interests of the company. To challenge board decisions, plaintiffs must now meet a more rational threshold and demonstrate fraud, intentional misconduct, or a knowing violation of law, supported by specific and well-pleaded facts.

This is a clearer standard than exists in Delaware, where courts have discretion to apply additional standards beyond the business judgment rule depending on the facts and allegations of a given case.

SB 29 also introduces a set of governance tools that allow companies to define how they operate:

  • The ability to establish minimum ownership thresholds (up to 3%) for shareholder derivative actions, reducing exposure to low merit claims.
  • Flexibility to define dispute processes in governing documents, including jury trial waivers and forum selection.
  • Expanded latitude for alternative entities to modify or eliminate fiduciary duties contractually.

These provisions shift governance toward a framework where expectations are set clearly at formation. That clarity can shape how capital is allocated, how boards make decisions, and how investors evaluate risk.

The Delaware Contrast

Knight, who served as Nasdaq’s General Counsel before becoming Executive Vice Chairman, frames the competitive dynamic directly: “If you go to Delaware, what they would tell you is, ‘We have great lawyers and judges.’ Well, my board doesn’t really like litigation. So, I don’t want to get in front of your judges or frankly hire any of your lawyers.”

The problem, he argues, is structural. Delaware’s rules are “very dense and hard to apply and often result in shareholder litigation.” The consequence: a company could execute a transaction — complete the process, satisfy its board, close the deal — and still face litigation after the fact over the composition of a special committee or some technical procedural question.

“Owning six shares of stock and then tying a company up in court and creating the risk of an award of hundreds of millions of dollars in damages — that’s not rational and represents a misapplication of risk and capital,” Knight says. “Texas is bringing some common sense to the rules in this area.”

Texas has done something Delaware never did: it created an advance judicial ruling mechanism. When a board forms a special committee to oversee a transaction, it can now go to the Texas Business Court in advance and ask: is this committee properly constituted? The ruling eliminates the post-close litigation trap that has defined M&A practice in Delaware for decades.

“You have transparency and certainty,” Knight says. “And I think the fact that Exxon — which is led by some of the best business executives in the world and advised by a great legal team— would not have made the move to incorporate in Texas unless it was in the interest of its shareholders and represented good legal public policy. I know they care deeply about their shareholders.”

SB 1057 and the Mechanics of Governance

While SB 29 establishes the foundation, Texas Senate Bill 1057 builds on it by addressing how governance operates in practice, particularly around shareholder proposals.  It restores common sense to the proxy proposal process.

Under SB 1057, companies incorporated in Texas that are also headquartered in the state or listed on a Texas-based exchange can modify their governing documents so that only shareholders holding at least $1 million in market value or 3% of voting shares may submit proposals. That threshold is significantly higher than the SEC’s current rule, which requires a combination of market value and holding duration, allowing a shareholder owning as little as $2,000 in market value held for at least 3 years, to place a matter on the proxy.

The legislation also requires that shareholders actively solicit other shareholders representing at least 67% of the voting power entitled to vote on a proposal or it can be excluded.

The combined effect is cumulative. Together, SB 29 and SB 1057 create a governance model where statutory standards and internal processes are more closely aligned — giving companies greater control over the conduct of their corporate affairs.

The Proxy Advisory Problem

Among the most consequential (and least understood) governance issues facing public companies is the role of proxy advisory firms. And it is here that Nasdaq’s track record becomes most relevant to the Texas story. 

Proxy advisory firms (such as ISS and Glass Lewis) issue voting recommendations that can influence key corporate matters, yet they are not subject to the same regulatory requirements as stock exchanges, broker-dealers, or public companies.

“Stock exchanges — regulated. Broker-dealers — regulated. Public companies — regulated. The people who do the underwriting — regulated. The people who do the credit evaluation — regulated,” says Terry Campbell, Senior Vice President of Governmental Affairs at Nasdaq. “The only participant in our ecosystem that’s not regulated is the proxy advisors. And they control in some cases 30 to 40 percent of the votes.”

For more than a decade, Nasdaq has expressed concern with the lack of meaningful regulation governing proxy advisory firms and advocated for greater transparency, including requiring proxy advisors to disclose their methodologies, open their processes to public comment, and be subject to oversight comparable to other market participants. 

In 2013, Ed Knight wrote a Wall Street Journal op-ed calling out the lack of transparency in the proxy advisory model — one of the first times a public company executive had publicly challenged the system.

“We had companies that, when there were mistakes on their proxy voting recommendations, would call the proxy advisors, and the proxy advisors would say: if you’re not an S&P 500 company, we don’t talk to you,” Campbell explains. “We won’t even respond. We won’t even take your call.”

The issue is one of influence and of process. When a public company wants to change a corporate governance standard, it must file with the SEC, open a public comment period, respond to every letter, and receive a formal vote. Proxy advisory firms face none of those requirements.

“The incongruity of it makes no sense,” Campbell says. “What we’re talking about is frankly transparency, what they’re doing and how they come up with their conclusions, and allowing the public to participate.”

Texas has now moved where Washington has stalled. The state has the sovereign authority under the Constitution to pass laws regulating these firms at the state level, and Nasdaq intends to bring a comprehensive agenda to the Texas legislature.

A Supporting Layer: Business Courts and Legal Infrastructure

Alongside these statutory changes, Texas has introduced a dedicated forum for resolving complex business disputes. The Texas Business Court (TBC), established in 2023 and operational since 2024, was designed to handle corporate governance matters, commercial contracts, and other high-stakes business litigation.

Subsequent legislation has expanded its jurisdiction and lowered thresholds for eligible cases, increasing accessibility for a broader range of companies.

Early TBC decisions have generally emphasized contract clarity and adherence to governing documents reinforcing the direction set by recent legislative reforms.

Where Governance and Market Access Converge

For companies, decisions around incorporation and governance are increasingly connected to how they access capital markets, and Nasdaq Texas was built at that intersection. Launched in 2026, Nasdaq Texas extends Nasdaq’s platform into the state, giving companies a capital markets presence in Texas backed by the same global liquidity, investor base, and market infrastructure that have always defined Nasdaq.

That reach recently expanded further. Nasdaq Texas was approved by the Texas State Securities Board as a recognized and responsible stock exchange, a designation that exempts securities fully listed on Nasdaq Texas from separate Texas state securities registration, regardless of whether the listing company is incorporated or headquartered in Texas.

This is a distinct benefit from Texas’ governance framework under SB 29 and SB 1057, which applies based on a company’s state of incorporation, not where its securities are listed. Companies that are Texas-incorporated can draw on that statutory governance clarity, while any company (Texas-domiciled or not) that lists on Nasdaq Texas gains the added advantage of streamlined state securities compliance. 

Together, these create a compelling proposition: for Texas-incorporated companies, alignment with a growing economic and legal center, paired with a reduced regulatory burden; and for all listed companies, the backing of Nasdaq’s technology and global market structure.

A Framework Still Evolving

The impact of SB 29 and SB 1057 will continue to take shape as companies adopt these tools and as legal interpretation evolves. The Business Court will build precedent over time, further clarifying how the statutes are applied in practice.

That ongoing development is part of what makes this moment meaningful. Texas is increasingly positioned to support modern capital formation through governance clarity, legal infrastructure, and market access working in concert — and Nasdaq Texas’ expanded platform only reinforces that trajectory.

“Capital flows where the rules are understood,” Knight says. “These markets are evolving, and what the markets need today won’t be the same thing they need in five years. We’re trying to stay ahead of that.”

Frequently Asked Questions

1. How does Texas’ business judgment rule differ from Delaware’s?

Texas’ SB 29 codifies the business judgment rule as a statutory presumption, meaning directors and officers are presumed to act in good faith, on an informed basis, and in the company’s best interest. To challenge board decisions, plaintiffs must demonstrate fraud, intentional misconduct, or a knowing violation of law with specific, well-pleaded facts. In Delaware, courts apply additional judicial standards beyond the business judgment rule depending on the transaction type and allegations, which can create broader litigation exposure even when a board has acted reasonably.

2. What is the advance judicial ruling mechanism for special committees?

Texas has created a process through the Texas Business Court that allows a board to seek a ruling before a transaction closes, confirming that a special committee overseeing a deal is properly constituted. This eliminates the post-close litigation risk that has long plagued M&A transactions in Delaware, where companies could complete a deal and still face lawsuits over the composition or conduct of the oversight committee.

3. Why are proxy advisory firms a governance concern?

Proxy advisory firms (such as ISS and Glass Lewis) issue voting recommendations that can influence 30 –40% of shareholder votes on key corporate matters yet they are not subject to the same regulatory requirements as stock exchanges, broker-dealers, or public companies. Nasdaq has advocated for over a decade for greater transparency, including requiring proxy advisors to disclose their methodologies, open their processes to public comment, and be subject to oversight comparable to other market participants.

4. What is SB 1057 and how does it affect shareholder proposals?

SB 1057 allows companies incorporated and headquartered in Texas (or listed on a Texas-based exchange) to set ownership thresholds of $1 million in market value or 3% of voting shares for shareholders seeking to submit a proposal. This is significantly higher than the SEC’s federal requirement of as little as $2,000 over a minimum holding period. The law also requires proponents to actively solicit support from other shareholders, or the proposal may be excluded.

5. Does incorporating in Texas or dual listing on Nasdaq Texas change how a company’s shares trade?

No. Dual listing on Nasdaq Texas does not alter a company’s trading mechanics, execution quality, liquidity, or price discovery. Shares continue to trade across Nasdaq’s integrated exchange platform. The dual listing is additive. It signals alignment with Texas’ governance and economic environment without changing the company’s primary market structure or regulatory obligations.