Texas LLCs and Fiduciary Duties: What You Need to Know

When it came to setting up your business structure, you opted for a limited liability company. After all, LLCs make plenty of sense for a variety of reasons. It’s not just about personal liability exposure or your company’s tax consequences. Meanwhile, you also need to understand the fiduciary duties of members of Texas LLCs.

For starters, you might want to review the actual section of the Texas Code that deals with limited liability companies. Although some states require that LLC members file an operating agreement with a government entity, Texas is not one of them. In fact, under Texas law, a company agreement may be oral or written.

The law itself is somewhat ambiguous when it comes to the contents of company agreements. Its focus is on what may be included, instead of what is required. Notably, the emphasis is on determining the “rights, powers, and duties” of the LLC’s members.

Fiduciary Duties of LLC Members

Just because Texas law does not specifically outline fiduciary duties of LLC members does not mean they are non-existent. However, Texas businesses are also governed by agency principles. There are implied responsibilities associated with working as the agent of the limited liability company. Therefore, the agency relationship may actually be instrumental in determining fiduciary duties.

First, there could be a duty of care. Simply put, this means that LLC members need to act with reasonable discretion in working on behalf of the company. In too many cases, this is not spelled out in the company agreement.

Next, LLC members could be held to a fiduciary duty of loyalty. Rather than making decisions that may bring personal benefit, members should act in the best interests of the business. Additionally, they should be mindful of any actions that could represent conflicts of interests.

The trouble comes when there is a claim of a breach of fiduciary duties. In the first place, there must be proof that the members had a fiduciary duty to one another. In best case scenarios, the company agreement will act as a tool to outline those responsibilities.

Bringing a claim against other members for a breach of fiduciary duties suggests the retention of an experienced business disputes lawyer. In addition to proving the existence of the fiduciary duty, there must be evidence that a member failed to act in the best interests of the company. Additionally, claims of fraud or misrepresentation could become part of this type of action.

Are You Part of an LLC?

Whether you are a member of an existing LLC or considering forming one, the Law Offices of Manfred Sternberg and Associates can assist you. Contact our office to schedule an appointment.

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