For Corporations Reincorporated in Texas, Texas Law Governs Pre-Suit Demand for Derivative Suits Even When the Claims Relate to Pre-Reincorporation Conduct—Coinbase

In Guillaume v. Armstrong (Oct. 2, 2026) ("Coinbase"), the Texas Business Court held that Texas law governs the pre-suit demand requirements for a derivative action brought against a corporation that reincorporated from Delaware to Texas, even though the challenged corporate misconduct took place while the company was a Delaware corporation.

Key Points

• In a decision of first impression, the Texas Business Court established that, once a company has reincorporated to Texas, Texas procedural law will apply with respect to standing and pre-suit demand requirements-even if the alleged misconduct occurred prior to the reincorporation to Texas. We note that it therefore seems likely that Texas courts law will hold that Texas law also applies with respect to other litigation-related procedural requirements.
  
  
• The decision is advantageous to corporations reincorporated in Texas because Texas does not recognize the doctrine of "demand futility." Both Texas and Delaware law require that, before bringing a derivative suit, a plaintiff must make a demand on the corporation's board of directors for the corporation itself to bring the suit instead. Under Texas law, the plaintiff must then wait ninety days before bringing the suit. Under Delaware law, there is no specific waiting period and the plaintiff need not have made a demand if, given the composition of the board, it would have been futile. Texas does not recognize the doctrine of demand futility, however-therefore, demand must be made, and the corporation will have 90 days before the plaintiff can bring suit, even if a majority of the directors are conflicted such that it is clearly futile to make the demand.
  
  
• The new Delaware safe harbors for conflicted transactions may reduce the impact of the decision. One basis for a finding of demand futility in Delaware is that a majority of the directors could not be expected to reach an independent judgment with respect to the demand because they face a substantial likelihood of liability on the claims that would be the subject of the demand. As the new safe harbors are intended to provide greater clarity and certainty with respect to shielding directors, officers and controllers from liability in connection with conflicted transactions, there may be fewer derivative cases in which the Delaware courts find that demand would have been futile-thus narrowing the gap between Delaware and Texas law with respect to demand futility.
  
  
• The opinion may suggest an inclination by the Texas Business Court to establish bright-line rules. The court noted "[t]he benefits of this bright-line rule" for when Texas law on pre-suit demand applies in the context of alleged misconduct occurring before reincorporation to Texas. The benefits are "clarity and certainty," the court stated, which are particularly important "where shareholders may assert claims arising at different points in time (perhaps before and after a reincorporation), putting the laws of more than one state at issue."
  
  
• The decision leaves open whether Delaware law would govern the merits of derivative claims. The court assumed for purposes of a part of its analysis that Delaware law would apply to the merits of the derivative claims regarding Coinbase's pre-reincorporation conduct. However, the court expressly declined to decide this issue, as the plaintiff did not raise it; thus, resolution of this issue awaits further judicial development in future cases before the Texas Business Court.
  
  

Background. From April 2021 through June 2023, Coinbase Global, Inc., then a Delaware corporation, allegedly misrepresented to shareholders the company's regulatory risk and ability to safeguard customer assets. In December 2025, Coinbase, which is a controlled company, reincorporated from Delaware to Texas. In April 2026, the plaintiff-shareholder filed a derivative action in the Texas Business Court against Coinbase and its directors regarding the alleged misrepresentations (which were made while the company was incorporated in Delaware). The plaintiff did not make a demand on the board to bring the derivative action. The plaintiff argued to the Texas court that Delaware law should apply with respect to the pre-suit demand requirement, as the alleged misconduct occurred while Coinbase was a Delaware corporation; and that, under Delaware law, demand should be excused as it would have been futile. The court held that Texas law, not Delaware law, governs a shareholder's standing and authority to bring derivative claims on behalf of a Texas corporation, even if the alleged misconduct occurred when the company was incorporated in another state. The court dismissed the case, as Texas law requires that demand be made on the board, without regard to futility.

Discussion

Texas and Delaware law on the demand requirement for derivative suits. A shareholder derivative suit is a lawsuit brought by a shareholder, on behalf of the corporation, against directors, officers or others whose alleged misconduct has harmed the company. The shareholder-plaintiff enforces rights the corporation has failed to pursue (for example, because the corporation may be controlled by the alleged wrongdoers). Any recovery belongs to the corporation, not the shareholder-plaintiff.

Under Texas Business Organizations Code section 21.553, a shareholder of a Texas corporation, before filing a derivative suit, must make a written demand on the corporation's board requesting that the corporation itself bring the suit instead. The shareholder then must wait 90 days before filing the suit, unless the demand is rejected sooner or waiting would cause irreparable harm. Generally, if demand is not made or the suit is brought before the 91^st day after making the demand, the suit is dismissed.

Under Delaware Chancery Rule 23.1, a shareholder of a Delaware corporation, before filing a derivative suit, must make a written demand on the corporation's board requesting that the corporation itself bring the suit instead. However, in contrast with Texas, Delaware and most other jurisdictions recognize the doctrine of demand futility. Under this doctrine, demand is excused (thus the derivative suit can be brought directly by the shareholder on behalf of the corporation) if a majority of the directors were conflicted because they (i) received a material personal benefit from the alleged misconduct; (ii) face a substantial likelihood of liability on any of the claims that would be the subject of the litigation demand; or (iii) lack independence from a person who meets either (i) or (ii).

Texas law on the demand requirement is advantageous to corporations. The 90-day waiting period irrespective of demand futility makes it easier for a company to obtain early dismissal of a shareholder derivative suit. The waiting period gives the company (even a company with a conflicted board) an opportunity to investigate the claims and to take actions (for example, to try to remedy, mitigate, or settle the situation)-without the expense and procedural constraints involved with operating in the context of currently-pending litigation.

The application of Texas law rather than Delaware law resulted in the suit being dismissed. The critical issue was whether Texas law or Delaware law governs with respect to a shareholder's standing and authority to bring a derivative lawsuit in Texas, against a company that reincorporated from Delaware to Texas, for alleged misconduct that occurred in Delaware prior to the reincorporation. The court stated that "the importance of choice of laws in the circumstances facing the court [could] not be overstated: Plaintiff's suit must be dismissed if Texas law [on demand] governs, but not if Delaware law [on demand] governs."

The court looked to Texas' "internal affairs" doctrine to resolve the conflict of laws issue. Texas courts apply Texas's statutory "internal affairs" doctrine to resolve conflict of laws issues. This doctrine provides that the formation and internal affairs of a Texas corporation are governed substantively by the laws of Texas, while the formation and internal affairs of a foreign corporation are governed substantively by the laws of the state where the foreign corporation is incorporated. The plaintiff contended that his claims were subject to Delaware law because they arose while Coinbase was incorporated in Delaware. The court did not "reach a contrary conclusion and assume[d]-without deciding-that Plaintiff is correct" that Delaware law would apply with respect to the merits of his derivative claims.

However, the court stated, there was still a conflict of laws issue relating to the procedural requirements for bringing the derivative claims. On that issue, the court acknowledged uncertainty as to whether, under Texas law, Texas' demand requirement "is considered a component of standing (and therefore jurisdictional) or not." However, the court stated that, in any event, "the internal affairs doctrine supports only one conclusion regarding governing law as to the pre-suit demand requirement…." The internal affairs doctrine generally subjects various acts to review according to the law of the state of incorporation as of the date they occur, the court stated. For example, "whether an officer or director had authority to engage in a particular act will be adjudicated according to the law of the state of incorporation at the time the officer or director engaged in that act." The court concluded: "By that same reasoning, a shareholder's authority to engage in a particular act-namely, the institution of a suit to assert rights belonging to the corporation-presents an indistinguishable circumstance, which this Court finds should be governed by the law of the state of incorporation at the time the shareholder engages in that act."

The court rejected the plaintiff's argument that Coinbase's representations to regulators and shareholders were binding with respect to the effect of the reincorporation. Coinbase had represented to regulators, and stated in its proxy statement to shareholders, that reincorporating to Texas would not "extinguish or adversely affect" shareholders' ability to bring derivative suits with respect to pre-reincorporation conduct. The court stated that Coinbase's assertions could not bind the Texas court to apply Delaware law to determine standing or authority of a shareholder to bring a derivative action. Also, the court stated, in any event, the plaintiff did not establish that applying Texas law created any adverse effect on his ability to bring the derivative suit. The court wrote: "Plaintiff did not argue that making a pre-suit demand would be impossible, irreparably harmful to Plaintiff or to the corporation, or even prejudicial, or that the option of pleading demand futility provided Plaintiff any particular advantage or benefit. The record is devoid of any adverse effect on Plaintiff as a result of the change in Coinbase's governing law from Delaware to Texas. Plaintiff's suggestion that application of Texas law would be inherently adverse to shareholder derivative standing is conclusory and unavailing" (emphasis in original).

Practice Points

• Corporations considering reincorporation to Texas should be prepared for pre-reincorporation derivative lawsuits. Coinbase is likely to encourage shareholders of Delaware corporations (or corporations in other states that recognize demand futility) to bring derivative suits- before the reincorporation-regarding alleged pre-reincorporation misconduct.
  
  
• Corporations reincorporating to another state should carefully consider their disclosure regarding the effect of the reincorporation on shareholders' ability to bring derivative suits. It should be clear when the disclosure relates to the company's expectations as to what law will apply and what the effect will be. Also, disclosure like Coinbase's, even if not binding on courts or others, may limit the ability of the company itself to take action that seeks to limit shareholders' ability to bring derivative suits regarding pre-reincorporation conduct.
  
  
• Corporations considering reincorporation to Texas should carefully consider all of the potential advantages and disadvantages. A decision whether or not to reincorporate involves a multitude of considerations. The procedural advantage presented by the Coinbase ruling is but one of the many factors that should be evaluated and weighed. We note that reincorporation of Delaware corporations to other states still involves relatively few companies (20 in 2026; 18 in 2025) and, most commonly, they are controlled or semi-controlled companies.