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May 1, 2020Elizabeth S. Miller

Overview of Fiduciary Duties, Exculpation, and Indemnification in Texas Business Organizations

Statutory developments beginning in the 1990s have impacted the analysis of fiduciary duties in the Texas business organizations context. The duties of general partners are now defined by statutory provisions that delineate the duties without referring to them as “fiduciary” duties and specifically provide that partners shall not be held to the standard of a trustee. Whether limited partners in a limited partnership have fiduciary duties is not well-settled, but the Texas Business Organizations Code (BOC) clarifies that a limited partner does not owe the duties of a general partner solely by reason of being a limited partner. While the fiduciary duties of directors are still principally defined by common law, various provisions of the corporate statutes are relevant to the application of fiduciary-duty concepts in the corporate context. Because limited liability companies (LLCs) are a relatively recent phenomenon and the Texas LLC statutes do not specify duties of managers and members, there is some uncertainty with regard to the duties in this area, but the LLC statutes allude to or imply the existence of duties, and managers in a manager-managed LLC and members in a member-managed LLC should expect to be held to fiduciary duties similar to the duties of corporate directors or general partners. In each type of entity, the governing documents may vary (at least to some extent) the duties and liabilities of managerial or governing persons. The power to define duties, eliminate liability, and provide for indemnification is addressed somewhat differently in the statutes governing the various forms of business entities.
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November 7, 2019Byron F. Egan

Derivative Actions Under the Texas Business Organizations Code

The fiduciary duties of directors or other governing persons of an entity and its officers are generally owed to the corporation, limited liability company (“LLC”) or limited partnership (“LP”) entity they serve and not to any individual owners. Thus, a cause of action against a director or other governing persons of an entity and its officers for breach of fiduciary duty would be vested in, and brought by or in the right of, the entity. Statutes in both Texas6 and Delaware authorize an action brought in the right of the entity by a stakeholder against its Board for breach of fiduciary duty.8 Such an action is called a “derivative action.” The TBOC was amended in the 2019 Legislative Session to make consistent derivative proceedings provisions governing for profit corporations with those governing LLCs and LPs by House Bill No. 3603, which became effective on September 1, 2019.
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July 11, 2019Ladd A. Hirsch

Entities and Marital Property Law: Interrelated Claims and Assets

Valuing assets is part art and part science. In a litigation context, it becomes even harder. In a divorce case, the difficulty again multiplies. Preparing a valuation with the hypothetical assumptions required by Texas case law further complicates the process. There is no simple “cookbook” approach to valuing assets. The appraiser must be intuitive in his or her approach. One challenging the appraiser, in Court or otherwise, must be prepared to not only have a complete understanding of the asset itself, but also a complete understanding of the approach chosen by the appraiser, the approaches discarded as inappropriate, and why one was deemed better than another in this case. There is no substitute for hard work, thorough attention to detail, and that spark of imagination and creativity necessary to achieve results that stand the test of time.
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November 17, 2016ronc

Divisive Mergers: How To Divide An Entity Into Two or More Entities Under A Merger Authorized By The Texas Business Organizations Code

The common conception of a merger is the combination of two entities into one surviving entity. However, the Texas Business Organizations Code (the“TBOC”) provides that through the use of the merger provisions of the code, a Texas domestic entity (an organization formed under or the internal affairs of which are governed by the TBOC) may be divided into two or more new domestic entities or other organizations or into a surviving domestic entity and one or more new domestic or foreign entities or non-code organizations. This division through use of the merger statutes is sometimes called a divisive merger or a divisional merger. These provisions remain unique to Texas, although Pennsylvania provides for a statutory division but does not deal with division in its merger statutes. Through an illustrative, fictitious case study, this paper will consider the possibilities presented by the Texas divisional merger provisions as a tool to accomplish client goals and will provide a checklist of steps required to accomplish a divisional merger of a Texas limited liability company or limited partnership(including presenting a form plan of merger). This paper will not examine the federal income tax implications of a divisional merger.
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May 26, 2012Charles Henry Still

Director and Officer and Controlling Shareholder Duties and Liabilities Under Texas Law - Fiduciary Duties and Shareholder Oppression

The prior corporation laws and other entity statutes were codified in the Texas Business Organizations Code, which became effective for all Texas corporations on January 1, 2010. The Texas Business Corporation Act (“TBCA”) provisions referred to herein have been carried forward substantially in the Texas Business Organizations Code, which is referred to throughout as the “BOC” or the “Texas BOC”.
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