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Texas has long held a reputation as one of the most welcoming states in the country for business. From its absence of a personal or corporate income tax to its increasingly modern statutory framework, the state consistently draws companies looking to grow, reorganize, or combine operations through mergers and acquisitions. But what exactly about the Texas legal environment makes it such an attractive place to structure an M&A deal? And more importantly, how do those laws impact the real-world decisions that business owners face when they’re sitting across the table from a potential partner, buyer, or target?
The backbone of M&A activity in Texas is the Texas Business Organizations Code, commonly referred to by practitioners as the TBOC. Enacted by the 78th Texas Legislature in 2003 and effective January 1, 2006, the TBOC consolidated what had previously been a scattered collection of entity-specific statutes into a single, unified code. Before the TBOC existed, Texas business owners had to navigate the Texas Business Corporation Act, the Texas Revised Limited Partnership Act, the Texas Limited Liability Company Act, and several other laws—each with its own quirks and inconsistencies.
Chapter 10 of the TBOC is the primary statutory chapter governing mergers, interest exchanges, conversions, and sales of assets. It applies broadly across entity types, covering for-profit corporations, limited liability companies, limited partnerships, and even nonprofit entities in certain circumstances.
What makes the TBOC particularly useful for M&A practitioners is its flexibility. Texas law permits mergers between different types of entities—a corporation can merge with a limited liability company, for example—and even allows mergers involving entities organized under the laws of other states. The code lays out the process: the entities involved must adopt a plan of merger, obtain whatever approvals are required by their governing documents and the TBOC, and then file a certificate of merger with the Texas Secretary of State.
One practical advantage worth noting: the TBOC does not require that a plan of merger be filed as a public record. Only the certificate of merger itself must be filed. This gives the parties room to negotiate the detailed terms of their deal—price adjustments, indemnification provisions, earn-out structures—without those specifics becoming part of the public record.
No Corporate Income Tax and the M&A Calculus
One of the most frequently cited advantages of doing business in Texas is the state’s tax structure. Texas imposes no personal income tax—a protection that was written directly into the Texas Constitution through a voter-approved amendment in November 2019. The state also does not levy a traditional corporate income tax.
Instead of an income tax, Texas imposes a franchise tax—sometimes called a “margin tax”—which is calculated on a business’s total revenue minus certain allowable deductions such as cost of goods sold or employee compensation. For many small and mid-sized companies, this tax burden is modest. Businesses with total revenue below $2.47 million owe no franchise tax at all, and businesses earning under $20 million can elect a simplified “EZ Computation” method. Filing obligations are managed through the Texas Comptroller of Public Accounts, whose office also issues the certificates of account status required before a merger or conversion can be processed by the Secretary of State.
How does this affect M&A? Consider a scenario where a California-based company is evaluating whether to acquire a Texas target or a similar company located in a state with a high corporate tax rate. The Texas target may present a more favorable post-acquisition cost structure simply because of the ongoing tax savings. On the flip side, a Texas company looking to acquire out-of-state assets will want to carefully evaluate whether bringing those operations into Texas creates franchise tax obligations or, alternatively, reduces the combined entity’s overall state tax exposure. These are the kinds of real financial calculations that drive deal structure, and they are often at the center of pre-acquisition due diligence.
In May 2025, Governor Greg Abbott signed Senate Bill 29 into law, marking one of the most significant overhauls of Texas corporate governance rules in recent memory. The bill took effect immediately upon signing and introduced changes that are directly relevant to M&A transactions and the disputes that can follow them.
One of the most important provisions of SB 29 is the codification of the business judgment rule in new Section 21.419 of the TBOC. Under this rule, directors and officers of Texas corporations are presumed to have acted in good faith, on an informed basis, and in the honest belief that their actions were in the best interests of the corporation. Courts reviewing board decisions—including decisions to approve or reject a merger or acquisition—must give deference to those decisions unless a plaintiff can overcome the presumption.
This matters enormously in the M&A context. When a board of directors approves a sale of the company, dissenting shareholders sometimes file suit alleging that the board breached its fiduciary duties by accepting too low a price or by failing to shop the deal adequately. With a codified business judgment rule on the books, Texas corporations now have a statutory basis for defending board decisions against these kinds of challenges. Prior to SB 29, Texas courts had recognized the business judgment rule through case law, but it lacked the clarity and uniformity of a statutory provision.
SB 29 also raised the bar for shareholders who want to bring derivative lawsuits or shareholder proposals. The legislation increased ownership thresholds and imposed new procedural requirements aimed at discouraging what proponents of the law described as opportunistic or frivolous litigation—particularly the type of single-plaintiff securities claims that had been growing in Texas courts. For companies contemplating a major transaction, the reduced litigation risk may be a meaningful advantage of being organized under Texas law.
Another noteworthy provision allows Texas corporations to include forum selection clauses and jury trial waivers in their certificates of formation or bylaws for internal entity claims. This means a company can require that any lawsuit involving corporate governance—including disputes that arise from mergers—be heard in a specific Texas court, and can waive the right to a jury trial for those claims. The practical effect is greater predictability: parties know in advance where and how their disputes will be resolved.
SB 29 further modified the default rules around shareholder voting. Texas corporations may now waive class-by-class voting requirements in their certificates of formation for approving fundamental business transactions, including mergers. This change is particularly relevant for venture capital-backed companies that often have multiple series of preferred stock with different economic incentives. Rather than requiring a separate class vote for each series in a merger, the company can tailor the approval rights to match what was negotiated between the investors and the founders at the time of investment.
In 2023, the Texas Legislature passed House Bill 19, which created the Texas Business Court—a trial-level court designed to hear complex commercial disputes, including those arising out of M&A transactions. The court began accepting cases on September 1, 2024, with five operational divisions located in Dallas, Fort Worth, Houston, Austin, and San Antonio. Each division is staffed by judges appointed by the Governor who must have at least ten years of experience in complex commercial litigation or business transaction law. The court maintains its own website and published procedural information through the state judiciary system.
The Business Court has original jurisdiction over corporate governance disputes and disputes involving “qualified transactions.” Initially, the amount-in-controversy threshold for qualified transactions was set at $10 million. However, the Legislature passed House Bill 40 in June 2025, lowering that threshold to $5 million and expanding the court’s jurisdiction to include intellectual property disputes involving trade secrets and licensing. HB 40 took effect on September 1, 2025.
Why does this matter for M&A? Before the Business Court existed, an M&A dispute in Texas would land in a general-jurisdiction district court. These courts handle everything from family law to criminal cases, and a complicated post-acquisition indemnification dispute or a shareholder challenge to a merger might sit on a docket alongside hundreds of unrelated matters. The Business Court was created in part to address that problem. With judges whose backgrounds are in commercial law and whose dockets are focused on business disputes, the expectation is that cases will be resolved more efficiently and with greater consistency.
The Business Court also has a dedicated appellate track. Appeals from the Business Court go exclusively to the Fifteenth Court of Appeals in Austin, which was established by Senate Bill 1045 and also began operations on September 1, 2024. This means that parties to M&A disputes in the Business Court have access to a streamlined appellate process that does not require navigating the broader regional appellate court system.
The Delaware Comparison and the “Dexit” Trend
For decades, Delaware has been the default state of incorporation for publicly traded companies and many private ones. The Delaware Court of Chancery—a court of equity that hears corporate governance disputes without juries—has developed an extensive body of case law that gives corporate practitioners a high degree of predictability. But recent years have seen growing frustration in some quarters with Delaware’s judicial outcomes.
The most prominent example involves the Tesla compensation dispute, in which the Delaware Court of Chancery invalidated a compensation package valued at over $55 billion and later awarded plaintiff’s attorneys’ fees of $345 million. That decision, along with other perceived inconsistencies in Delaware rulings, prompted a number of publicly traded companies to consider reincorporating in Texas—a phenomenon sometimes referred to in legal circles as “Dexit.”
Texas’s 2025 legislative reforms were designed in part to accelerate this trend. The combination of the codified business judgment rule under SB 29, the new Business Court, the Fifteenth Court of Appeals, and the option to include jury waivers and forum selection provisions creates a legal ecosystem that proponents argue rivals Delaware’s—and in some ways may be more favorable to directors and officers. Whether this potential reincorporation wave materializes in significant numbers remains to be seen, but the legal infrastructure is now in place.
Texas law offers a range of entity types that each carry different implications for M&A transactions. The TBOC governs for-profit corporations (Chapter 21), limited liability companies (Chapter 101), limited partnerships (Chapter 153), and several other entity forms. The choice of entity affects everything from how a deal is structured to what approvals are required and what tax consequences flow from the transaction.
For example, in a merger involving a Texas for-profit corporation, the TBOC requires the board of directors to approve the plan of merger and, in most cases, submit it to a shareholder vote. Shareholders who dissent from a merger and meet certain requirements may have the right to seek appraisal of their shares and receive their fair value in cash—a right set forth in the TBOC’s provisions on dissenters’ rights. Mergers involving LLCs, on the other hand, are governed by the company’s company agreement and the applicable provisions of the TBOC, which often allow for greater flexibility in structuring the approval process.
The practical result is that Texas-based businesses and their advisors have meaningful choices when it comes to deal structure. An acquisition might be accomplished as a direct merger, an interest exchange (where one entity acquires the ownership interests of another), a conversion (where an entity changes its form—from an LLC to a corporation, for instance), or a sale of substantially all assets. Each of these paths is addressed in Chapter 10 of the TBOC, and each carries its own set of requirements for approval, filing, and post-closing integration.
The Secretary of State’s office provides merger and conversion filing forms. Use of these forms is optional, but they reflect the minimum statutory filing requirements and can be a useful reference point for understanding what the state requires.
Federal Considerations That Intersect with Texas M&A
While much of the legal framework for M&A transactions in Texas is governed by state law, federal regulations also play a significant role. The Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires parties to certain mergers and acquisitions to file a premerger notification with the Federal Trade Commission (FTC) and the U.S. Department of Justice’s Antitrust Division before completing the transaction. For the 2025 reporting year, the minimum size-of-transaction threshold was adjusted based on changes in the gross national product, as it is each year.
Securities laws present another layer of federal regulation. If any party to the transaction is a publicly traded company, the transaction may trigger disclosure obligations under the Securities Exchange Act of 1934, potentially including proxy statement requirements, tender offer rules, and reporting obligations with the U.S. Securities and Exchange Commission.
Additionally, the Corporate Transparency Act—a federal law effective January 1, 2024—imposed new beneficial ownership reporting requirements on many domestic entities, including Texas LLCs and corporations. Business owners involved in M&A transactions should be aware of how a change in ownership structure may trigger new or updated reporting obligations under this law. The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, oversees these filings.
Senate Bill 2411: Streamlining the Deal Process
Alongside SB 29, the Texas Legislature also passed Senate Bill 2411, which introduced a number of procedural refinements that directly affect how M&A deals are documented and closed in Texas. One of the more practical changes allows boards of directors to approve transaction plans, agreements, and related documents in “substantially final” form—rather than requiring the board to review and approve every final-version document. This is a meaningful procedural improvement. In practice, deal documents are often being negotiated right up to the moment of closing, and requiring a board to approve only a final version sometimes meant scheduling additional board meetings at the eleventh hour.
SB 2411 also expressly authorizes the appointment of shareholder representatives in mergers and interest exchanges. A shareholder representative is a person or entity authorized to act on behalf of shareholders after the closing of a transaction—handling post-closing adjustments, indemnification claims, escrow releases, and similar matters. While the use of shareholder representatives was already common in practice, having express statutory authorization adds a layer of certainty and reduces the risk of disputes about the representative’s authority.
Another notable change: SB 2411 provides that disclosure schedules and similar ancillary documents are not considered part of a merger plan unless the plan explicitly states otherwise. This reduces documentation complexity and limits the scope of potential disputes about what was and was not part of the parties’ binding agreement.
The legal landscape in Texas is evolving quickly, and the changes enacted in 2024 and 2025 represent a deliberate effort by the state to position itself as a premier jurisdiction for corporate law. For business owners—whether they are looking to sell a company, acquire a competitor, merge with a strategic partner, or restructure existing operations—the Texas legal framework offers meaningful advantages.
The unified structure of the TBOC, the absence of a traditional corporate income tax, the codified business judgment rule, the establishment of the Texas Business Court, and the streamlined procedural reforms of SB 2411 all contribute to an environment where transactions can be structured with greater flexibility, documented with greater efficiency, and—when disputes do arise—litigated before courts that are equipped to handle the complexity of commercial law.
That said, every transaction carries its own set of risks and variables. The structure of the deal, the entity types involved, the applicable federal regulations, the terms of existing contracts and governing documents, and a host of other factors will all influence how a particular transaction plays out. An experienced Texas M&A attorney can help identify issues early, navigate the regulatory requirements, and position a client for the strongest possible outcome when disputes arise.
At the Law Offices of Alan Abergel, our practice regularly involves disputes that emerge from business transactions, including those related to mergers and acquisitions. If you are involved in a Texas business dispute arising from an M&A transaction or corporate restructuring, we welcome the opportunity to discuss how we may be able to assist.
Disclaimer:
This article is provided for informational purposes only and does not constitute legal advice. Reading this article does not create an attorney-client relationship. Every legal situation is unique, and results depend on the specific facts and circumstances involved. If you have questions about a particular legal matter, you should consult with a qualified attorney.
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