A shareholder who skips the mandatory pre-suit demand required by Texas law cannot rescue a derivative action by arguing that Delaware's more plaintiff-friendly rules should govern — even when the underlying claims arose while the company was still a Delaware corporation. That is the practical bottom line of a recent Texas Business Court decision, Gary Guillaume, derivatively on behalf of Coinbase Global, Inc. v. Armstrong, et al., in the Business Court of Texas, First Division. This decision carries significant implications for companies that have reincorporated in Texas and for shareholders contemplating derivative litigation.

What the Court Decided

In Guillaume v. Armstrong, the Texas Business Court dismissed a derivative suit brought on behalf of Coinbase Global, Inc., a company that reincorporated from Delaware to Texas in December 2025. The plaintiff filed suit in April 2026, alleging director misconduct that occurred between 2021 and 2023 — entirely during Coinbase's time as a Delaware corporation. Rather than making a pre-suit demand on the board, the plaintiff attempted to plead demand futility under Delaware law, which permits that approach as an alternative.

The court held that Texas law governs a shareholder's standing and authority to bring a derivative action on behalf of a Texas corporation, regardless of where the underlying claims arose. Under Texas law, a pre-suit demand is mandatory in all cases. There is no demand futility exception, and failure to comply requires dismissal.

The court applied the internal affairs doctrine to reach this conclusion. Under that doctrine, a shareholder's authority to file suit on the corporation's behalf, like a board's authority to act on the corporation's behalf, is governed by the law of the state of incorporation at the time the shareholder exercises that authority. Because Coinbase was a Texas corporation when the plaintiff commenced the action, Texas law controlled the plaintiff's capacity to assert derivative claims on the corporation's behalf. 

The court also rejected the plaintiff's argument that Coinbase's regulatory disclosures, which stated that reincorporation would not "extinguish or adversely affect" shareholders' ability to bring derivative claims, effectively preserved Delaware procedural rights. The court found that losing the option to plead demand futility, without more, did not constitute an adverse effect on the plaintiff's standing or ability to sue, particularly where the plaintiff never argued that making an actual demand was impossible or harmful.

Key Takeaways

• Reincorporation in Texas resets the rules for derivative litigation. Companies that have moved or are considering moving their incorporation to Texas should understand that Texas's mandatory pre-suit demand requirement will apply to any derivative action filed after the reincorporation date, even if the underlying claims predate the reincorporation or conversion.
• There is no demand futility exception under Texas law. Unlike Delaware and some other states, Texas requires an actual written demand on the board before a shareholder can file a derivative suit. That demand must describe the alleged misconduct with particularity and allow a 91-day response period. This is a threshold that cannot be bypassed.
• Reincorporation disclosures will not preserve Delaware procedural rights. The court declined to treat Coinbase's shareholder communications as a contractual commitment to maintain Delaware standing rules. Companies making similar disclosures should draft them carefully, and shareholders should not rely on such language as a safe harbor.
• Standing is assessed at the time of filing. Because standing is evaluated when the suit is filed, not when the alleged misconduct occurred, the state of incorporation on the filing date controls the derivative standing analysis.
• Dismissal without prejudice may leave the door open. The court dismissed the action without prejudice. If a shareholder can still satisfy the pre-suit demand requirement and meet other procedural requirements, refiling may be possible. Plaintiffs should not assume they will get a second chance to correct this deficiency.

What to Watch

For companies that have reincorporated in Texas — or are evaluating a move — this decision provides a concrete strategic benefit: a mandatory demand requirement that creates a structured buffer between a disgruntled shareholder and a filed lawsuit. For shareholders and their counsel, the lesson is equally clear. Filing a derivative action against a Texas corporation without first making a written pre-suit demand is a path to dismissal. Companies and boards should also revisit the language of any reincorporation disclosures to ensure they do not inadvertently invite future arguments about preserved rights under prior-state law.

This article is for informational purposes only and does not constitute legal advice. Clients with questions about derivative litigation or corporate reincorporation should contact their Hicks Johnson counsel.