What Fiduciary Duties Do Partners and LLC Managers Owe in Texas?

Three entities, three answers

Owners use 'fiduciary duty' as if it meant one thing. In Texas it means different things for a general partnership, an LLC and a corporation, and the differences decide cases. This article sets out the list for each. The remedies for a breach are covered separately in remedies for breach of fiduciary duty, and the procedure for enforcing the company's claims in suing on behalf of the company.

General partnerships: duties written into the statute

Chapter 152 of the Business Organizations Code is explicit. Under section 152.204(a), a partner owes to the partnership, the other partners, and a transferee of a deceased partner's interest two duties: loyalty and care. Section 152.204(b) adds the obligation of good faith: a partner must discharge his duties and exercise his rights in good faith and in a manner he reasonably believes to be in the best interest of the partnership.

The duty of loyalty (section 152.205)

• Accounting to and holding for the partnership any property, profit or benefit the partner derives in the conduct or winding up of the business or from use of partnership property.
• Refraining from dealing with the partnership on behalf of a person who has an interest adverse to the partnership.
• Refraining from competing or dealing with the partnership in a manner adverse to the partnership.

The duty of care (section 152.206)

A partner must act in the conduct and winding up of the business with the care an ordinarily prudent person would exercise in similar circumstances. An error in judgment is not by itself a breach. A partner is presumed to satisfy the duty if he acts on an informed basis and in good faith in what he reasonably believes is the partnership's best interest.

Two limits the statute states

Section 152.204(c): a partner does not violate a duty merely because his conduct furthers his own interest. Section 152.204(d): a partner, as partner, is not a trustee and is not held to a trustee's standards. Both answer a common accusation. Negotiating hard for your own share, or voting your interest, is not disloyalty; taking the partnership's opportunity or its money is.

What the agreement can and cannot do

Section 152.002(b) sets the floor. A partnership agreement may not eliminate the duty of loyalty, though partners may identify specific types or categories of activities that do not violate it, if not manifestly unreasonable. It may not eliminate the duty of care or the obligation of good faith, though it may set the standards by which performance is measured, again if not manifestly unreasonable. It may not unreasonably restrict access to books and records. A limited partnership agreement, by contrast, may eliminate all three duties if it expressly says so (section 152.002(e)), which is one reason sophisticated investors prefer that form.

LLCs: duties the agreement supplies

Chapter 101 contains no list of duties for members or managers. Instead, section 101.401 provides that the company agreement may expand, restrict or eliminate any duties, including fiduciary duties, and related liabilities that a member, manager, officer or other person has to the company or to a member or manager. The 2025 amendment added the words 'including fiduciary duties,' confirming that an LLC agreement can go further than a partnership agreement in cutting duties back.

So the first source of an LLC manager's duties is the agreement. Where the agreement is silent, Texas courts decide what duties exist from the relationship. In general terms, a manager or managing member who controls the company's business and money is held to duties toward the company comparable to those an agent or corporate officer owes, which include not diverting company assets or opportunities and not dealing with the company on undisclosed adverse terms. Whether a member owes duties to another member, as opposed to the company, is decided case by case and often turns on whether one member relied on the other's control or whether a relationship of trust existed before and apart from the LLC. The Supreme Court of Texas has not announced a general rule for LLC co-members, and this article does not assume one.

Example

Suppose a Dallas logistics LLC is managed by one of its three members. He negotiates a warehouse lease for the company with a landlord entity he secretly half-owns, at rent 30 percent above market. The company agreement is silent on duties. As the person controlling the company's contracting, he owed the company a duty not to deal with it on undisclosed adverse terms; the hidden interest and the above-market rent are the breach, and the excess rent plus his share of the landlord's profit are the measure. If the agreement had required disclosure and approval of related-party transactions by the disinterested members, the analysis would be simpler still: he breached the contract. If instead the agreement had expressly permitted members to transact with the company without disclosure, the claim would be much harder, which is section 101.401 at work.

Corporations: directors and officers owe the corporation

Texas corporate law places duties on officers and directors and runs them to the corporation. In Ritchie v. Rupe (Tex. 2014) the Supreme Court of Texas restated that officers and directors owe the corporation a fiduciary duty that prohibits usurping corporate opportunities for personal gain and requires them to exercise their uncorrupted business judgment for the sole benefit of the corporation. The same opinion noted that the Court has never recognized a formal fiduciary duty between majority and minority shareholders in a closely held corporation as such. Section 21.401 places management of the corporation in the board, and section 21.418 governs transactions between the corporation and an interested director or officer: the transaction is protected if the material facts were disclosed and disinterested directors or shareholders approved it in good faith, or if it was fair to the corporation when approved. Shareholder remedies for these breaches are mostly derivative, with the closely held exception in section 21.563.

Informal fiduciary duties

Outside the statutes, Texas recognizes an informal fiduciary duty arising from a relationship of trust and confidence that existed before, and apart from, the business transaction at issue. Longtime friends who go into business, or a mentor and a protege, may owe each other duties the entity's law would not impose. The relationship must predate the deal; the business relationship alone does not create it. In Ritchie the Court remanded the minority shareholder's informal fiduciary claim rather than deciding it, which shows both that the theory exists and that it is fact-intensive.

Common conduct and how the duties apply

Deadline and forum

A claim for breach of fiduciary duty must be brought within four years under Civil Practice and Remedies Code section 16.004(a)(5); fraud carries the same period. When the period begins depends on the facts and on when the breach was or should have been discovered. Claims alleging that an owner, controlling person or managerial official breached a duty of loyalty or good faith are within the Texas Business Court's concurrent jurisdiction when the amount in controversy exceeds $5 million (Government Code section 25A.004(b)(5)); otherwise they are filed in district court.

When to involve a litigator

Before you call anything a breach, in a letter or a meeting. The accusation changes the relationship permanently, and in an LLC it may be wrong because the agreement allows the conduct. A litigator reads the agreement and the statute for your entity, matches the facts to the specific duty, and tells you whether the claim is the company's or yours. Tina Wysk represents owners who bring these claims and owners who defend them in Dallas state and federal courts. See breach of fiduciary duty for the scope of that work, and who owes a fiduciary duty in a Texas business for roles beyond owners and managers.