Opinion ID: 895120
Heading Depth: 1
Heading Rank: 3

Heading: The Demand Requirement In Texas Derivative Actions

Text: The contours of the demand requirement in Texas law have always been somewhat unclear, in part because shareholder derivative suits have been relatively rare. [15] The original 1941 rules of civil procedure imposed a demand requirement in derivative suits, but that provision was repealed four months after it became effective. [16] It reappeared in 1973 in article 5.14 of the Texas Business Corporation Act, which required that an initial pleading state [w]ith particularity, the efforts of the plaintiff to have suit brought for the corporation by the board of directors, or the reasons for not making any such efforts. [17] In 1997, the Legislature extensively revised the Texas Business Corporation Act to provide Texas with modern and flexible business laws which should make Texas a more attractive jurisdiction in which to incorporate. [18] Included were changes to article 5.14 to conform Texas derivative actions to the Model Business Corporation Act. Article 5.14(C) now provides that [n]o shareholder may commence a derivative proceeding until ... a written demand is filed with the corporation setting forth with particularity the act, omission, or other matter that is the subject of the claim or challenge and requesting that the corporation take suitable action. Unlike Texas law for a century before, the new provision requires presuit demand in all cases; a shareholder can no longer avoid a demand by proving it would have been futile. [19]