If you own shares in a Texas corporation and you believe the people running it have hurt the company, your instinct is to sue. A ruling signed on October 2, 2026 is a reminder that in Texas, suing is the second step. The first step is a letter, and skipping it ends the case.
The Business Court of Texas, First Division, dismissed a shareholder derivative action in Guillaume v. Armstrong, No. 26-BC01A-0052, 2026 Tex. Bus. 70, because the shareholder never made a pre-suit demand on the board. The shareholder argued that a demand would have been pointless. Under Delaware law, that argument has a name and a body of case law behind it. Under Texas law, the court held, it is not an argument at all.
What happened in the Business Court
The shareholder sued former leadership of Coinbase over conduct alleged to have occurred between 2021 and 2023. At that time Coinbase was a Delaware corporation. In 2025 it reincorporated in Texas. In 2026 the shareholder filed suit in Dallas County and did not send the board a demand first, taking the position that demand would be futile. The case moved into the Business Court, where the defendants argued that Texas law required the demand and that the absence of one was fatal.
Judge Bouressa agreed. The court assumed for purposes of the ruling that Delaware law governed the merits of the underlying claims, but held that Texas law governed the shareholder’s standing to bring the suit at all. Because the shareholder conceded that no pre-suit demand had been made, the court sustained the defendants’ special exceptions and dismissed the action without prejudice.
Dismissed without prejudice is not the same as dismissed forever. The shareholder can send a demand and start over. But a year of litigation and a year of legal fees bought nothing, and in a case where limitations is running, starting over is not always possible.
Why Texas law decided the question and not Delaware law
The reasoning turns on the internal affairs doctrine, the rule that a corporation’s internal governance is controlled by the law of the state where it is incorporated. The twist here is timing. The conduct complained of happened under Delaware incorporation. The lawsuit was filed under Texas incorporation.
The court held that a shareholder’s authority to bring a derivative suit is determined by the law of the state of incorporation at the time the shareholder acts. The shareholder acted in 2026. In 2026 the company was Texan. So Texas rules on standing applied, even though the alleged wrongdoing predated the move.
The shareholder also pointed to Coinbase’s own disclosures about the reincorporation, arguing they preserved Delaware law or at least preserved the ability to plead futility. The court rejected that on three grounds: the statements did not say Delaware law would govern standing, the shareholder had not shown any adverse effect from losing the futility option, and no authority permitted the Texas demand requirement to be waived by contract.
What Section 21.553 actually requires
The requirement itself is short and specific. Section 21.553(a) of the Texas Business Organizations Code provides that a shareholder may not institute a derivative proceeding until the 91st day after the date a written demand is filed. The demand has to state the matter with particularity and request that the corporation take suitable action.
Three pieces of that sentence do real work.
Written. A phone call to a fellow owner is not a demand. Neither is a heated exchange at a board meeting that someone later characterizes as putting the board on notice.
With particularity. A demand that the company “investigate mismanagement” is not likely to satisfy a statute that asks for the matter to be stated with particularity. The demand should identify the transactions, the people, and the harm.
The 91st day. This is a waiting period, not a notice period. The clock has to run before the suit is filed. Section 21.553(b) sets out the circumstances that shorten or remove the wait: the shareholder has been notified that the corporation rejected the demand, the corporation is suffering irreparable injury, or waiting out the period would itself cause the corporation irreparable injury. Those are narrow and they are the shareholder’s burden to establish, not a general escape hatch.
The section has been on the books since the Business Organizations Code took effect on January 1, 2006, and it was amended by House Bill 3603 in 2019, effective September 1, 2019. It is not new. What is new is how often it is now being enforced, by a court built specifically to handle this kind of dispute.
Demand futility is a Delaware concept, and Texas does not import it
In Delaware, a shareholder who can plead that a majority of the board is incapable of making an impartial decision may be excused from making a demand at all. Decades of Delaware case law define how to plead it. Lawyers who have practiced in that system treat futility as a standard tool.
Texas took a different route. The statute gives specific, enumerated conditions that relieve a shareholder of the waiting period. Rejection and irreparable injury are on the list. “The board will never agree to sue itself” is not. The practical effect, as this ruling illustrates, is that a Texas shareholder sends the letter and waits, even when everyone involved expects the answer to be no.
It is worth being precise about the weight of this ruling. It is one order, from one division of a trial level court, and the dismissal was without prejudice. It is not appellate authority, and how Texas courts handle standing for conduct that predates a move from another state is a question that will be litigated again before it is settled. Treat it as a strong signal about how the Business Court is reading the statute, not as the last word.
Why this matters more than it used to
For most of the last century, a company that wanted predictable corporate law incorporated in Delaware. That has started to change, and Texas has worked to make it change. Senate Bill 29, signed on May 14, 2025 and effective immediately, rewrote parts of the Business Organizations Code with the stated aim of making Texas a more attractive state of incorporation.
Every company that makes that move inherits the Texas rules on who may sue and when. The owners inherit them too. If your company reincorporated in Texas, or is considering it, the demand requirement is now part of your dispute landscape whether or not anyone mentioned it during the conversion.
That cuts both ways, and it is worth saying plainly. If you are a minority owner, the demand requirement is a hurdle you have to clear. If you are on the board, it is a procedure that gives the company a real opportunity to look at a claim before it becomes a lawsuit. Neither position is improved by learning about the statute after a petition is filed.
The second standing trap: ownership thresholds
Demand is not the only place a derivative claim can die on standing. Senate Bill 29 amended Section 21.552(a) to let an eligible corporation adopt, in its certificate of formation or bylaws, a minimum ownership threshold for derivative standing of up to three percent of outstanding shares.
That provision has already been enforced. In Gusinsky v. Southwest Airlines Co., 2026 WL 747179 (N.D. Tex. Mar. 17, 2026), the United States District Court for the Northern District of Texas dismissed a derivative action with prejudice because the shareholder held well under the three percent threshold Southwest’s board had adopted by bylaw. The court treated the certificate and bylaws as a contract between the shareholder and the corporation, rejected the argument that the bylaw was unenforceable, and rejected a challenge under the Texas Constitution’s restriction on retroactive laws.
Two details from that case are worth noting. The bylaw was adopted after the shareholder’s demand letter but before the lawsuit was filed, and the court held that the timing that matters is adoption before suit. And the dismissal was with prejudice, not without. A standing defect that cannot be cured by sending a letter is a different kind of problem.
Whether a particular company is eligible to adopt such a threshold, and how the provision applies to a closely held business rather than a public one, is not a settled question and turns on the statute’s eligibility criteria. If you are weighing it either as a board or as a minority owner, that is the analysis to run before anything is adopted.
What to do before any of this is live
None of this is useful in the middle of a fight. It is useful now.
If you sit on a board or manage a Texas entity, know what your governing documents say about derivative standing, and know whether anyone has adopted an ownership threshold. If you are a minority owner in a Texas corporation, read those same documents before you believe you have a claim you can file.
And if you think you have a derivative claim, write the demand first. Date it, state the transactions with particularity, say what you want the company to do, and calendar the 91st day. The letter is cheap. The dismissal is not.
If you are facing an ownership dispute, a derivative claim, or a fight over who controls a Texas company, our partnership disputes attorneys in Frisco can walk through where your governing documents and the Business Organizations Code leave you before you commit to a filing.
Related reading
- Does Your Texas Business Dispute Belong in the Business Court?
- When Can a Texas Business Owner Be Held Personally Liable?
- What Should Be in a Texas LLC Company Agreement?
About the author: Hastings L. Hanshaw is a founding partner of Hanshaw Kennedy Hafen in Frisco, Texas. He is a business litigation and trial lawyer who has tried cases in state and federal courts across Texas.