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Statutory Fiduciary Duties

— June 8, 2015

Statutory law in Texas differs on what fiduciary duties are owed based on the various entities recognized by the BOC. A corporation has extensive statutes directly addressing fiduciary duties of directors while LLC statutes are less clear on what exactly are the default fiduciary duties of managers.



Generally, directors have fiduciary duties owed to the corporation. Directors have three main fiduciary duties under the BOC: (1) the duty of obedience; (2) the duty of loyalty; and (3) the duty of care.

The BOC incorporates and defines the duty of obedience in BOC section 20.002. The duty of obedience means the duty to refrain from committing ultra vires acts. This is rarely used as the actions of directors are rarely considered outside the scope.

The BOC incorporates the duty of loyalty through its interested director transactions in section 21.418. Conceptually, the duty of loyalty means the duty to act in good faith and not allow personal interest to prevail over that of the corporation. This section requires interested directors to follow certain procedures, to obtain approval from disinterested directors or shareholders and disclose material facts when self-dealing.  The BOC defines a director as “disinterested” in a contract or transaction if the person or person’s associate: (1) is not a party to the contract or transaction; and (2) does not have a material financial interest in the outcome. BOC §1.003.

The BOC does not explicitly set a standard for the duty of care. However provision 3.102 makes it clear that the duty of care does apply to directors and gives them certain protections.  It has been interpreted that the duty of care is the duty to act and perform corporate duties in same manner as an ordinarily prudent person would under similar circumstances. But a corporation can change this standard.


The BOC does not expressly impose fiduciary duties on governing managers/members of an LLC; however, many of the provisions imply these duties exist for governing persons of an LLC. The duty of loyalty is implied by the statutory provisions involving interested manager transactions and renunciation of business opportunities. BOC §101.255

Once again, the BOC does not explicitly set a standard for the duty of care. But the safe harbor provisions in 3.102 also apply to an LLC and the BOC provides that the company agreement of an LLC may “expand or restrict any duties, including fiduciary duties, and related liabilities” that a manager, member or officer has to the company.” BOC § 101.401 This section seems to imply that there is the possibility of liability to the company and to third parties.

Partnership Fiduciary Duties

BOC expressly provides that a partner owes the partnership and other partners two duties: (1) duty of loyalty and (2) duty of care. BOC § 152.204(a) The BOC also expressly negates the existence of other fiduciary duties and provides that a partner is not a trustee and is not held to the same standards as a trustee. BOC § 152.204(d)

The BOC duty of loyalty in partnerships has 3 parts: (1) Account to the partnership for any benefit derived by a person from the use of the partnership’s property; (2) Refrain from dealing with the partnership on behalf of a party having an interest adverse to the partnership; and (3) Refrain from competing or dealing with the partnership in a manner adverse to the partnership. BOC § 152.205.

The duty of care in a partnership states that a partner’s duty of care requires the partner to act with the degree of care an ordinarily prudent person would use in similar circumstances. A partner is presumed to have satisfied their duty of care if acted on an informed basis, in good faith, and in a manner he or she believes to be in the best interest of the partnership. BOC § 152.206

Charging Order


The Texas LLC statute employs the concept of the charging order. Under BOC 101.112 a judgment creditor of a member may go to court and obtain a charging order with respect to the membership interest of a member or assignee and the charging order is the judgment creditors exclusive remedy in respect to the membership interest

Section 101.112(f) of the BOC explicitly states the creditor or owner of interest does not have the right to legal or equitable remedies with respect to property of a limited liability company which would seem to say that reverse piercing is precluded. While it may still be possible to use the fraudulent transfer statutes

Limited Partnerships

The charging order provision in BOC section 153.256 for limited partnerships statutes provides that a creditor of a partner or an owner of a partnership interest does not have the right to obtain possession of or otherwise exercise legal or equitable remedies with respect to the property of the limited partnership. This may seem to prelude reverse piercing. Similar to the LLC provisions, a creditor may resort to fraudulent transfer statutes.

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