BILL ANALYSIS
| Senate Research Center | S.B. 1057 |
| 89R11822 TYPED | By: Parker |
| | Business & Commerce |
| | 3/4/2025 |
| | As Filed |
AUTHOR'S / SPONSOR'S STATEMENT OF INTENT
Securities and Exchange Commission (SEC) Rule 14a-8 has made it too easy for small shareholders with special interests to force public companies to include proposals in proxy materials, requiring all shareholders to consider and fund them. This rule mandates that public companies present shareholder proposals�such as calls for ESG reporting�alongside management's proposals, even when those proposals originate from shareholders with minimal financial stakes. The rule is a federal overlay on state laws governing shareholder meetings, but its thresholds for shareholder eligibility are strikingly low: $25,000 in stock if held for one year, $15,000 for two years, or just $2,000 for three years. These minimal requirements enable activist shareholders to advance their agendas at the expense of companies and the broader shareholder base.
S.B. 1057 addresses this issue by raising ownership requirements for shareholders seeking to introduce proposals at Texas-based public companies. Under the bill, shareholders must hold at least $1 million in voting securities or three percent of the corporation's voting stock for a minimum of six months prior to and through the shareholder meeting. If these thresholds are not met, the proposal will not be eligible for a vote under Texas law, and the company will not be required to include it in proxy materials under SEC Rule 14a-8. These higher requirements ensure that only shareholders with a significant financial stake in a company can introduce proposals, preventing the misuse of corporate resources on issues that do not reflect the priorities of most shareholders.
The bill applies to corporations formed under Texas law with SEC-registered equity securities listed on a national exchange. These companies must either have their principal office in Texas or be listed on a Texas-based exchange approved by the State Securities Commissioner. Beyond ownership thresholds, S.B. 1057 introduces a procedural requirement: shareholders proposing resolutions must solicit proxies from at least 67 percent of shares entitled to vote. This ensures that any shareholder advancing a proposal bears the cost of outreach rather than relying on the company's proxy materials.
Compared to the market capitalization of companies in the S&P 500 Index, the current SEC thresholds represent an almost negligible ownership percentage�just 0.000002 percent at the lowest level. By contrast, S.B. 1057's $1 million requirement is 500 times higher for one-year holders and 40 times higher for three-year holders. The need for reform is especially evident among the largest corporations, which receive a disproportionate number of proposals under current SEC rules. Raising the ownership requirement would better align proposal privileges with financial investment, reducing frivolous submissions while maintaining access for legitimate shareholder activists and potential hostile bidders.
S.B. 1057 allows shareholders to aggregate holdings to meet the $1 million threshold, ensuring smaller investors can still submit proposals while filtering out those with minimal stakes and self-serving agendas. Encouraging shareholder coordination could lead to more thoughtful and widely supported proposals. By implementing these reforms, Texas corporations could achieve significant cost savings while management and shareholders focus on issues that matter to the majority. The bill could also serve as an incentive for more corporations to incorporate in Texas, reinforcing the state's pro-business environment.
As proposed, S.B. 1057 amends current law relating to shareholder proposals submitted to certain domestic corporations.
RULEMAKING AUTHORITY
This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Subchapter H, Chapter 21, Business Organizations Code, by adding Section 21.373, as follows:
Sec. 21.373. SHAREHOLDER PROPOSALS. (a) Provides that this section applies only to a corporation that:
(1) is formed under the laws of this state;
(2) has a class of equity securities registered under Section 12(b) of the Securities Exchange Act of 1934;
(3) is admitted to listing on a national securities exchange;
(4) either has its principal office in this state or is admitted to listing on a stock exchange that has its principal office in this state and has received approval by the state pursuant to Subchapter C (Procedures for Approval of Stock Exchange), Chapter 4005 (Exemptions), Government Code; and
(5) opts into this section by amending its governing documents and providing notice to shareholders in its proxy statement.
(b) Provides that, except as otherwise provided by a corporation's governing documents, to submit a matter to the shareholders for approval at a shareholder meeting, a shareholder, or group of shareholders, is required to:
(1) hold no less than the lesser of $1,000,000 in market value of the corporation's securities entitled to vote on the proposal, measured at the date of submission of the proposal or three percent of the corporation's securities entitled to vote on the proposal;
(2) continuously maintain ownership in the shares required by Subdivision (1) for at least six months leading up to and through the shareholder meeting; and
(3) solicit the holders of shares representing at least 67% of the voting power of shares entitled to vote on the proposal.
(c) Provides that Subsection (b) does not apply to director nominations and procedural resolutions that are ancillary to the conduct of the meeting.
(d) Provides that if this section applies to a corporation, it is prohibited from being legally permissible for the shareholders of the corporation to vote on any matter submitted to a meeting of shareholders by a shareholder unless that proposal has been submitted in compliance with Subsection (b) or that proposal is exempt under Subsection (c).
SECTION 2. Effective date: September 1, 2025.
