Fiduciary duties in Texas.

Where Delaware's primary fiduciary-duty framework is judge-made — built up over decades of decisions of the Delaware courts articulating and refining the duty of care, the duty of loyalty, the duty of good faith, and their interactions with the business-judgment-rule presumption — Texas's corresponding framework is also principally common-law, and the TBOC supplies statutory architecture around those duties rather than defining them. The Business Organizations Code nowhere sets out or defines the fiduciary duties of corporate directors. Texas case law recognizes three duties, and the Texas Supreme Court now states them in one sentence: “A director's fiduciary status creates three broad duties: duties of obedience, loyalty, and due care.” In re Estate of Poe, 648 S.W.3d 277 (Tex. 2022) (slip op. at 15). The formulation descends from the Fifth Circuit's canvass of a century of Texas authority — “[t]hree broad duties stem from the fiduciary status of corporate directors; namely, the duties of obedience, loyalty, and due care,” Gearhart Industries, Inc. v. Smith International, Inc., 741 F.2d 707, 719 (5th Cir. 1984) — and the duties run to the corporation: a director's duty “includes the dedication of [their] uncorrupted business judgment for the sole benefit of the corporation.” Ritchie v. Rupe, 443 S.W.3d 856, 868 (Tex. 2014). TBOC § 21.401 is not, as it is sometimes characterized, a duty standard at all. It is the management provision — “Management by Board of Directors” — addressing the board’s authority over the business and affairs of the corporation and the considerations directors may weigh. The substantive duty-of-care and duty-of-loyalty standards derive from Texas common law.

The duty of obedience

The duty of obedience forbids ultra vires acts. It is rarely litigated, because modern corporation statutes define corporate powers expansively and permit broad purpose clauses — and because TBOC § 20.002 channels the entire doctrine: an act of the corporation is not invalid merely because it exceeds the corporation’s stated purposes or an officer’s or director’s authority, and lack of power may be asserted only in three proceedings — by shareholders against the corporation to enjoin the act, by the corporation against its own managerial officials, or by the attorney general. Ultra vires conduct re-enters the modern framework at a different door: an “ultra vires act” is one of the four exclusive grounds for rebutting the codified business-judgment presumption under § 21.419(d), treated below.

The duty of care and the Texas business-judgment rule

The “ordinary care” standard — requiring a director to handle corporate duties with the care “an ordinarily prudent man would use under similar circumstances” — dates to McCollum v. Dollar, 213 S.W. 259 (Tex. Comm’n App. 1919, holding approved), as quoted in Gearhart, 741 F.2d at 720. But the standard of care and the standard of liability have never matched. Since Cates v. Sparkman, 73 Tex. 619, 11 S.W. 846, 849 (1889), judicial interference with a board decision has required conduct “characterized by ultra vires, fraudulent and injurious practices, abuse of power, and oppression on the part of the company or its controlling agency clearly subversive of the rights of the minority or of a shareholder” — and on that basis the Fifth Circuit concluded that Texas courts “will not impose liability upon a noninterested corporate director unless the challenged action is ultra vires or is tainted by fraud. Such is the business judgment rule in Texas.” 741 F.2d at 721. Read literally, that protects even grossly negligent conduct — broader protection than Delaware’s gross-negligence articulation — and the Texas Supreme Court restated the rule in materially those terms in Sneed v. Webre, 465 S.W.3d 169, 173 (Tex. 2015). Since May 14, 2025 the operative version of the rule for listed and electing corporations is codified at § 21.419, treated below.

The director can rely in good faith on information, opinions, reports, or statements prepared by officers, committees, or outside professionals; the reliance protection is express at TBOC § 3.102 and operates parallel to (but not identically with) Delaware’s DGCL § 141(e) reliance provision. The reliance protection is one of the most important practical features of the Texas director-duty framework.

What the statute does not codify

§ 21.401 does not codify a duty of loyalty as a distinct fiduciary obligation; the loyalty framework operates through the interested-director / interested-officer transaction rules in § 21.418, the corporate-opportunity doctrine, and judge-made loyalty standards, all treated in the next section. Texas’s loyalty framework is therefore a mix of statutory text and common law, with the statutory text doing more work than in Delaware but less than the duty-of-care framework.

The Texas loyalty standard is severe and old. The Texas Supreme Court holds corporate fiduciaries “to the extreme measure of candor, unselfishness, and good faith.” International Bankers Life Insurance Co. v. Holloway, 368 S.W.2d 567, 577 (Tex. 1963). Loyalty is implicated by self-dealing, by competition with the corporation, and by the corporate-opportunity doctrine — “[a] corporate fiduciary is under obligation not to usurp corporate opportunities for personal gain.” Ritchie v. Rupe, 443 S.W.3d 856, 887 (Tex. 2014). The TBOC adds a planning tool Delaware pioneered by statute: under § 2.101(21) a Texas entity may “renounce, in its certificate of formation or by action of its governing authority,” any interest or expectancy in specified business opportunities or classes of opportunities — the Texas analog of DGCL § 122(17).

TBOC § 21.418 establishes the safe-harbor framework for contracts and transactions between the corporation and one or more of its directors or officers, or their affiliates and associates, or entities in which they hold a managerial or financial interest (§ 21.418(a)). The framework operates parallel to (but with substantial drafting differences from) Delaware's DGCL § 144 safe harbors. An otherwise valid contract or transaction is valid notwithstanding the relationship or interest if any one of three statutory conditions is satisfied: (1) the material facts as to the relationship or interest are disclosed to or known by the board or committee, and the board or committee in good faith authorizes the transaction by the vote of disinterested directors or committee members; (2) the material facts are disclosed to or known by the shareholders entitled to vote, and they in good faith and with knowledge specifically approve it; or (3) the contract or transaction “is fair to the corporation when the contract or transaction is authorized, approved, or ratified.” § 21.418(b). Note: Delaware SB 21 (effective March 25, 2025) substantially amended DGCL § 144 to add controlling-stockholder safe harbors (§ 144(b)–(c)) and to eliminate duty-of-care liability for controlling stockholders in their capacity as such (§ 144(d)(5)); the Texas-Delaware comparison should be read against the post-SB 21 Delaware landscape.

Post-SB-29, § 21.418(f) goes further for a listed or § 21.419-electing corporation: regardless of whether the subsection (b) conditions are satisfied, neither the corporation nor its shareholders has a cause of action against any director or officer for breach of duty with respect to the making, authorization, or performance of the interested-party contract or transaction unless § 21.419 permits it. The statutory gate — rebut a presumption, then prove a breach involving one of the four § 21.419(d) grounds — is the Texas formulation; it displaces, rather than borrows, the Delaware fairness vocabulary for covered corporations.

The procedural protections in operation

The most important practical question is which of the three procedural protections the corporation chooses to invoke. Disinterested-director approval is the most common route, but requires the board to be confident that the director-disinterestedness analysis will hold up on post-closing scrutiny. Disinterested-stockholder approval is more procedurally demanding (it requires a stockholder vote with appropriate disclosure) but provides stronger doctrinal protection. Proof of fairness operates as a fallback when neither procedural route is available or when the board prefers to litigate the substantive merits rather than the procedural prerequisites. On fairness, the Texas Supreme Court has settled who carries the weight: “The burden of proving that a transaction falls within this safe harbor rests on the interested director.” In re Estate of Poe, 648 S.W.3d 277, 289 (Tex. 2022).

The Texas Supreme Court's 2014 decision in Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014), a 6–3 decision, is the foundational modern Texas decision on shareholder-to-shareholder fiduciary duties in closely-held corporations. From 1988 forward, Texas courts of appeals — following Davis v. Sheerin, 754 S.W.2d 375, 381–82 (Tex. App.—Houston [1st Dist.] 1988, writ denied) — had granted equitable relief, including court-ordered buyouts, to minority shareholders who proved “oppressive” conduct under “reasonable expectations” or “fair dealing” tests. Ritchie dismantled that edifice in three moves: it rejected both tests; it held that the only statutory remedy for oppression is appointment of a rehabilitative receiver under TBOC § 11.404 (the “illegal, oppressive, or fraudulent” ground, § 11.404(a)(1)(C)); and it declined to create a common-law cause of action — “We thus decline to recognize a common-law cause of action for ‘shareholder oppression.’” 443 S.W.3d 856.

“[A] corporation's directors or managers engage in ‘oppressive’ actions under former article 7.05 and section 11.404 when they abuse their authority over the corporation with the intent to harm the interests of one or more of the shareholders, in a manner that does not comport with the honest exercise of their business judgment, and by doing so create a serious risk of harm to the corporation.” Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014) · the statutory-oppression definition, verbatim

What Ritchie does and does not do

Does: Eliminates the common-law minority-shareholder oppression cause of action. Narrows the scope of fiduciary duties between shareholders in closely-held corporations. Limits the equitable remedies a minority shareholder can pursue against majority owners — the rehabilitative receivership of § 11.404 is the statute's only oppression remedy, and § 11.405 converts it to liquidation only if no feasible rehabilitation plan appears within one year.

Does not: Eliminate director and officer fiduciary duties to the corporation. Eliminate the § 21.418 interested-transaction safe-harbor framework. Affect the rights of minority shareholders in publicly-traded Texas corporations to bring derivative actions on behalf of the corporation (those rights derive from director-duty doctrine, not from inter-shareholder duty). Affect the post-SB-29 BJR codification or the § 21.552(a)(3) derivative-standing framework, both of which operate independently of the Ritchie closely-held framework. And it does not close the derivative channel for the classic squeeze-out fact patterns: the conduct that used to be pleaded as “oppression” — withheld dividends, diverted funds, usurped opportunities — is re-pleaded after Ritchie as breach of fiduciary duty to the corporation, and for a closely-held corporation TBOC § 21.563 strips away §§ 21.552–21.560's procedural gates and lets a court, “if justice requires,” treat the derivative claim as a direct action and pay recovery straight to the plaintiff shareholder (§ 21.563(b), (c)).

Practical implications for publicly-traded firms

The Ritchie doctrine applies primarily in closely-held contexts. For publicly-traded Texas corporations (the principal subject of the SMU CGI Reincorporation Tracker), Ritchie's direct doctrinal reach is limited — minority shareholders in publicly-traded firms typically pursue claims through derivative-action and securities-law channels rather than through inter-shareholder fiduciary doctrine. But Ritchie's narrative framing — the Texas Supreme Court's stated reluctance to expand fiduciary doctrine beyond its statutory text — informs how lower Texas courts interpret the rest of the fiduciary-duty framework.

No formal duty between shareholders

Texas has never imposed a general fiduciary duty between shareholders — not even in closely-held corporations. The Texas Supreme Court sidestepped the question in Willis v. Donnelly, 199 S.W.3d 262 (Tex. 2006) (“Assuming without deciding that such a relationship can give rise to a general fiduciary duty, we decline to recognize the existence of such a duty on this record.”), and Ritchie then made the negative explicit for director-to-shareholder claims: “We have not previously recognized a formal fiduciary duty to individual shareholders,” and the court saw no reason to start. Ritchie, 443 S.W.3d 856.

The informal-duty residue

What survives is the informal fiduciary relationship — a confidential relationship arising from a moral, social, domestic, or purely personal relationship of trust and confidence, acknowledged in Ritchie itself. Its limits are strict: the relationship must predate and stand apart from the disputed transaction — “the special relationship of trust and confidence must exist prior to, and apart from, the agreement made the basis of the suit” — and “[m]ere subjective trust does not… transform arm's-length dealing into a fiduciary relationship.” Meyer v. Cathey, 167 S.W.3d 327, 331 (Tex. 2005) (per curiam). In Ritchie itself the jury found an informal fiduciary relationship, and the supreme court left open on remand whether a court-ordered buyout could remedy a breach of an informal duty — but Estate of Poe has since barred the informal-duty theory whenever the complained-of conduct is the defendant's management of the corporation. The claim survives only where the trust relationship, and the betrayal, live outside the boardroom.

Collective, not individual: In re UMTH General Services

The Texas Supreme Court extended the Poe logic in November 2025: “Absent an express undertaking to an individual shareholder, fiduciary duties generally flow to the corporation and its shareholders collectively, not to any particular shareholder.” In re UMTH General Services, L.P., No. 24-0024 (Tex. Nov. 14, 2025) (slip op. at 10). Parties can contract for a duty to an individual shareholder; the court will not infer one without an express undertaking. Scope caveat: the case arose from a Maryland real estate investment trust's advisory-agreement relationship with its external manager, so its holding travels with those contractual and entity-specific facts.

The duties that were always there: dividends and disgorgement

Two mid-century holdings do post-Ritchie work. Patton v. Nicholas, 279 S.W.2d 848 (Tex. 1955), holds that “the malicious suppression of dividends is a wrong akin to breach of trust, for which the courts will afford a remedy” — there, a mandatory injunction ordering the corporation to declare a reasonable dividend. Ritchie reaffirmed Patton as a breach of fiduciary duty to the corporation, 443 S.W.3d at 884, which is exactly what makes it usable in a derivative posture today. And Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509, 514 (Tex. 1942), supplies the disgorgement principle: a fiduciary who takes any “gift, gratuity, or benefit” in violation of the duty must account for it — “[i]t would be a dangerous precedent” to require the beneficiary to show affirmative loss. Breach-plus-benefit suffices; injury is not an element of the equitable remedy.

Books and records: the 2025 tightening

The shareholder's classic self-help tool — the inspection demand — was narrowed by the same act that codified the business-judgment rule. As amended by S.B. 29 (eff. May 14, 2025), TBOC § 21.218 excludes emails, text messages, and social-media communications from the inspectable records unless they effectuate corporate action, and — for listed and § 21.419-electing corporations — deems a demand not for a proper purpose where the corporation reasonably determines it is connected to an active or expected derivative proceeding or adversarial civil suit involving the holder (§ 21.218(b), (b-2)). Discovery in the eventual lawsuit is preserved; pre-suit investigation is the casualty, and it is the pre-suit record that § 21.419(f)'s particularity pleading demands. That tension is the practical squeeze of post-2025 Texas fiduciary litigation.

Texas's veil-piercing doctrine has moved through three structural moments, each operating today as a distinct doctrinal channel:

• Moment 1 · Pre-1989 common law (Castleberry). Castleberry v. Branscum, 721 S.W.2d 270 (Tex. 1986), articulated a relatively expansive equitable framework permitting veil-piercing on sham-to-perpetrate-fraud, alter-ego (mere tool or business conduit), evasion-of-legal-obligation, perpetration-of-monopoly, circumvention-of-statute, and protection-of-crime / justification-of-wrong theories (six enumerated bases plus inadequate-capitalization in footnote 3).
• Moment 2 · 1989 statutory response (now TBOC § 21.223). The Texas Legislature responded to the perceived breadth of Castleberry by enacting Article 2.21 of the TBCA in 1989 (Act of May 16, 1989, 71st Leg., R.S., ch. 217, § 1, 1989 Tex. Gen. Laws 974), now codified at TBOC § 21.223, which adopted a narrower statutory veil-piercing framework for contract creditor claims that requires actual-fraud-for-direct-personal-benefit.
• Moment 3 · SSP Partners and the abuse requirement. SSP Partners v. Gladstrong Investments (USA) Corp., 275 S.W.3d 444 (Tex. 2008), rejected the “single business enterprise” theory — “We have never held corporations liable for each other's obligations merely because of centralized control, mutual purposes, and shared finances” — and demanded more than relatedness before separateness is disregarded: “There must also be evidence of abuse.”

The current operational framework

Under the current framework, Texas veil-piercing doctrine operates in two principal channels — a divide drawn by the statute's own scope, since § 21.223(a)(2) reaches only the corporation's contractual obligations and matters relating to or arising from them. For contract claims, § 21.223 controls as to the persons it names (holders of shares, beneficial owners, subscribers, and their or the corporation's affiliates): under § 21.223(b), the obligee must demonstrate that the holder “caused the corporation to be used for the purpose of perpetrating and did perpetrate an actual fraud on the obligee primarily for the direct personal benefit” of the holder, beneficial owner, subscriber, or affiliate — and § 21.224 makes that regime “exclusive” and preemptive of any other liability “for an obligation that is limited by Section 21.223.” That standard is meaningfully harder to satisfy than the pre-statute Castleberry equitable theories. The statute also forecloses two whole argument families outright: § 21.223(a)(2) bars contract-channel liability on alter-ego, constructive-fraud, sham-to-perpetrate-a-fraud, “or other similar theory,” and § 21.223(a)(3) bars liability predicated on the corporation's failure to observe corporate formalities — the informality evidence that powers veil-piercing in most other states is statutorily off the table in Texas. For tort claims and other non-contract claims, the common-law framework continues to apply, with Castleberry's equitable theories still available subject to subsequent refinement.

The dual-track structure (statute for contract; common law for tort) is unusual relative to other states' veil-piercing doctrines and is one of the more distinctive features of the Texas limited-liability framework. Practitioners advising on entity choice and transaction structure must be sensitive to which channel the most likely future claims will arrive through.

Limited liability companies · § 101.401

The LLC statute does not codify a general set of default fiduciary duties; Texas courts work from the actor's role (manager, managing member, officer, agent), the beneficiary (the company or a fellow member), and the company agreement. What the statute does say — loudly, since S.B. 29 § 18 (eff. May 14, 2025) — is that the parties control: TBOC § 101.401 now provides that the company agreement “may expand, restrict, or eliminate any duties, including fiduciary duties, and related liabilities” owed to the company or to a member or manager. That is a full elimination power — a lever Texas corporate law does not offer (§ 7.001 permits exculpation from monetary damages, never elimination of the loyalty duty itself) and a direct answer to Delaware's LLC-freedom-of-contract model. § 101.402 separately authorizes indemnification, advancement, and insurance.

Partnerships · §§ 152.204–152.206

Partnership is the one Texas form where the code states the duties outright. Under TBOC § 152.204, a partner owes the partnership and the other partners a duty of loyalty and a duty of care, must discharge duties in good faith and in a manner the partner reasonably believes to be in the partnership's best interest — and yet “does not violate a duty or obligation… merely because the partner's conduct furthers the partner's own interest,” and “is not a trustee and is not held to the standards of a trustee” (§ 152.204(c), (d)). Sections 152.205 and 152.206 then specify the loyalty categories and an ordinary-prudence care standard. The corporate-law reader should resist importing corporate doctrine here; the statute is the text, and it was drafted to displace trust-law rhetoric.

1. How will Texas courts interpret § 21.419's pleading-with-particularity standard?

The pleading-with-particularity requirement is the most procedurally consequential feature of the post-SB-29 framework for derivative practice. The first wave of post-SB-29 motions to dismiss under Texas Rule 91a will set the operative threshold; no reported decision has yet done so. What allegations suffice to connect an asserted breach to one of § 21.419(d)(2)(B)'s four grounds is a research question, not a current holding.

2. Does Ritchie's framing influence the BJR pleading standard?

The Ritchie court's stated reluctance to expand fiduciary doctrine beyond statutory text may inform how Texas courts read § 21.419's rebuttal cause. A literalist reading would require strict pleading of fraud, intentional misconduct, ultra-vires acts, or knowing violations of law; a more flexible reading would permit pleading based on reasonable inferences from particularized facts. Which reading dominates over the first decade of post-SB-29 jurisprudence will substantially affect the practical reach of the codified BJR.

3. How does the dual veil-piercing framework hold up post-SB-29?

The contract-tort distinction in Texas veil-piercing doctrine (statute for contract; common law for tort) is the dominant structural feature. SB-29's BJR codification does not directly affect veil-piercing doctrine, but the broader doctrinal posture of post-SB-29 Texas courts — more deferential to corporate decision-making, less willing to permit equitable workarounds — may affect tort-channel veil-piercing claims that were already operating under the surviving Castleberry framework.

4. How will officer-personal-liability statutes interact with the codified BJR?

Texas tax, environmental, and securities statutes that impose officer personal liability operate independently of the corporate-law fiduciary framework. SB-29's BJR codification does not affect these regimes. But the broader narrative of the 2025 Texas reform cycle — statutory codification of defendant-favorable corporate-law positions — may inform how Texas courts approach officer-personal-liability claims at the margins of the regulatory statutes' literal coverage. The first decade of caseload data will define the doctrinal interaction.

5. Does Texas's fiduciary framework deliver competitive advantage over Delaware?

The empirical question. The SMU CGI Reincorporation Tracker dataset documents the post-Tornetta redomiciliation wave. Whether the firms that chose Texas over Delaware experience measurable governance, litigation-cost, or equity-value differences attributable to the Texas fiduciary framework (as distinct from the § 21.552 derivative-standing threshold, the § 21.4161 and § 21.554 procedural accelerators, or the HB-40-expanded Business Court venue) is the central empirical question of the post-SB-29 first decade.