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Editorial 7 MIN READ

Texas v. Delaware: the business court question

Texas has built a chancery-style court of its own, and the test is whether founders actually move

The Editors
Staff, Incorporator.org
7 min read Updated
Contents 6 sections
  1. What HB 19 actually did
  2. The Delaware baseline
  3. The $5 million floor is the whole design
  4. What it does for a founder deciding where to form
  5. What remains unclear
  6. Sources

exas is now the only state besides Delaware with a dedicated, specialized court for commercial disputes. Governor Greg Abbott signed HB 19 on September 9, 2021, and the Texas Business Court opens for filings on September 1, 2024. The Texas business court question, for founders, is whether that statute is enough to shift a default that has held for a century.

Probably not yet. Possibly later. The interesting part is the architecture Texas chose, and what it tells you about what a modern competitor to Delaware looks like.

What HB 19 actually did

HB 19 passed in the 87th Legislature's second special session and added Chapter 25A to the Texas Government Code. It creates a statewide Business Court with eleven divisions mapped to the state's administrative judicial regions, staffed by judges the governor appoints to two-year terms (with Senate advice and consent). Judges must have at least ten years of experience in complex civil business litigation or as a judge of a civil court.

The subject-matter jurisdiction is where the drafting got deliberate. The Business Court hears disputes involving a publicly traded company regardless of amount, and most other qualifying commercial disputes only above an amount-in-controversy threshold. As enacted, that threshold is $5 million for most commercial actions and $10 million for certain contract and commercial transaction claims, with a supplemental derivative/internal-governance basket that sits lower. The legislature left itself explicit room to adjust the thresholds, so expect the floor to move.

Appeals go to a new Fifteenth Court of Appeals, also created by companion legislation, with statewide jurisdiction over Business Court decisions and certain state-agency appeals. That is the piece most people miss. Specialization at the trial level without specialization on appeal produces inconsistent doctrine; Texas built both floors at once.

The operative date is September 1, 2024. Everything between now and then is rule-making, judicial selection, and the slow work of persuading the Texas bar that a new venue is worth filing into.

The Delaware baseline

Delaware's Court of Chancery is the benchmark because it has been doing this since 1792. Its equity jurisdiction, laid out across Title 10 of the Delaware Code and reinforced by the corporate-internal-affairs plumbing of 8 Del. C. § 111, gives it authority over fiduciary suits, appraisal actions, merger disputes, advancement and indemnification fights, books-and-records proceedings, and the bulk of the case law that U.S. corporate practice runs on. There are no juries. There are written opinions on almost everything. The bench is five judges (one Chancellor, four Vice Chancellors), confirmed by the Delaware Senate, serving twelve-year terms.

Volume is the other half of the Delaware story. Chancery takes in roughly 1,900 new matters in a typical year, which is the reason its doctrine is thick and predictive. When a Delaware founder asks her lawyer what a board can and cannot do during a sale process, the answer is a case, not a hunch. That is what Texas is trying to build in a decade.

The comparison cuts both ways. Texas has more commercial activity than Delaware by any measure, and much of the litigation around that activity currently gets filed in Travis or Harris County district courts, in front of generalist judges on elected four-year terms. HB 19's premise is that Texas should keep that litigation at home and in front of specialists, and that the existence of the court will, over time, pull formations along with it.

The $5 million floor is the whole design

A lot of the early commentary on HB 19 treated the threshold as a bureaucratic footnote. It is the policy. A $5 million floor means the Business Court is, on day one, a forum for middle-market and large commercial disputes, not a small-claims specialty. It keeps dockets clean and signals to out-of-state counsel that the court will not be clogged with routine shareholder noise.

Compare the design choice with Delaware, where Chancery hears a $25,000 books-and-records demand and a $20 billion merger challenge in the same building. Delaware can do that because its bench has been calibrated over generations. Texas is starting fresh and has sensibly chosen to limit early dockets to matters worth the cost of specialization.

The $5 million threshold also reveals what Texas is really competing for: not the rental-property LLC that forms in Wyoming, not the solo consultancy that forms at home, but the holding companies, the private-equity-sponsored portfolio entities, the family offices, and the late-stage private companies that currently default to Delaware because that is where their lawyers trained. Those are the formations worth poaching.

What it does for a founder deciding where to form

For an ordinary founder forming in late 2022, the honest answer is that nothing has changed yet. The Business Court has not opened. No Texas Business Court opinions exist. No appellate doctrine from the Fifteenth Court of Appeals exists. Choosing Texas for a holding entity today on the strength of HB 19 is a bet on a court that will not take filings for almost two years, staffed by judges who have not been named.

Three cases where Texas becomes worth a second look, once the court is live:

A company whose operations, employees, vendors, and key contracts already sit in Texas. Right now, those companies often form in Delaware and then litigate disputes about Texas-based operations in Delaware, which is expensive and occasionally slow. A Texas Business Court with a competent bench reduces that friction.

A family-office or private-equity structure that has historically defaulted to Delaware out of inertia and where the principals are in Dallas or Houston. The Chancery premium was always small in dollars and large in mindshare; when the mindshare equalizes, the default slips.

A company anticipating Texas-specific regulatory exposure, where being in a Texas forum with a Texas appellate track (and Texas rules of civil procedure) is substantively useful, not just patriotic.

For every other case, the Delaware answer has not moved. Institutional investors still want Delaware. Their law firms still want Delaware. Acquirers still want Delaware. Starting in Delaware still saves the conversion later. Nothing HB 19 did changes that this quarter.

What remains unclear

Several questions the statute does not resolve.

The choice-of-law question is the biggest. Texas can build a beautiful courtroom, but if a dispute turns on the internal affairs of a Delaware entity, the substantive law applied will still be Delaware's. HB 19 does not touch the internal-affairs doctrine, and it cannot; that is a conflicts-of-law rule rooted in Restatement (Second) of Conflict of Laws § 302 and a long line of U.S. Supreme Court cases. A Texas Business Court hearing a Delaware-corporate fiduciary claim is still a Texas judge reading Delaware cases. To win formations, Texas also needs Texas entity law sophisticated enough that sophisticated parties choose it. The Texas Business Organizations Code is modern, but its case-law depth is a generation behind.

Judicial selection is the second unknown. Two-year gubernatorial appointments, even with Senate confirmation, are a shorter leash than Delaware's twelve-year term. The incentives that produce a good Chancellor are long-tenure and low-political-visibility. Whether Texas can replicate those incentives in a gubernatorial appointment model is an empirical question that will not be answered for a decade.

Appellate doctrine is the third. A specialized trial court with a generalist appeals court above it tends to produce drift. The Fifteenth Court of Appeals is supposed to prevent that, but it too is new, and its judges will be working on a clean slate with no docket backlog to calibrate against. The early decisions out of that court will set more than they ordinarily would.

None of that means Texas is wrong to try. The country has needed a credible second forum for business litigation for thirty years, and Delaware's dominance has always been partly an artifact of inertia. HB 19 is a serious bid. Whether it works is a question for 2028, not 2022. For a founder forming a holding entity this quarter, the answer is still Delaware. Its $90 filing fee and $300 annual tax remain the price of entry to the deepest body of corporate case law in the world.

The interesting question is whether, by the time the Business Court has five years of opinions on the books, the next founder writing a check to Delaware pauses long enough to ask why.

Sources

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