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November 7, 2025Elizabeth S. Miller

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 has been somewhat unsettled, 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, and the Texas Supreme Court has now expressly acknowledged this principle. 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 the absence of provisions addressing duties in the company agreement. In each type of entity, the governing documents may vary (at least to some extent) the duties and liabilities of governing persons and other managerial officials. The power to define or reduce duties, eliminate liability, and provide for indemnification is addressed somewhat differently in the statutes governing the various forms of business entities.

March 20, 2025Elaine Kao, Katherine Kunz

Anatomy of a Transaction

This articles discusses the mechanics of a business transactions, including letters of, non-disclosure agreements, and the signing & closing.

November 7, 2024Candace Groth

Indemnification in Mergers and Acquisitions

Indemnification as a legal concept takes some getting used to for most business owners and attorneys. But indemnification takes on a whole new meaning when buyers, sellers, and other parties get into discussions regarding “indemnification” for a merger and acquisition (“M&A” or “Acquisition”) transaction. Simply put, Indemnification is one of the most important, but least understood, parts of an equity or asset purchase agreement (the “Purchase Agreement”). This Article provides an overview of the different parts of the indemnification section in an Acquisition purchase agreement (“Indemnification Section”), specifically (1) What is Indemnification?; (2) Procedures; (3) What “Claims” Does Indemnification Cover?; (4) Time Period for Indemnification; (5) Caps, Deductibles, and Baskets; and (6) Materiality Scrapes. Practice pointers or general trends related to these areas are also discussed, including buyer and seller friendly terms. We will begin with indemnification definitions and procedures.

March 4, 2023Lindsey A. Reighard

Post-Closing Covenants in M&A Transactions

Following the acquisition of all or a significant part of the business and properties or equity interests of a target company, whether by merger, consolidation, purchase of stock or other equity or otherwise (an “M&A transaction”), the parties often make contractual promises to each other to take, or to not take, certain actions after the closing of such transaction. These promises, commonly known as post-closing covenants, are typically contained in a definitive agreement between the seller and the buyer with respect to the M&A transaction (an “M&A agreement”). Such post-closing covenants may relate to transitioning the acquired business from the seller to the buyer, continuing arrangements between the parties or allocating responsibilities among the parties, among other things. They play an important role in completing the M&A transaction and carrying out the intent of the parties.

March 3, 2022Chelsea Belote Leitch

Drafting & Negotiating Complex Commercial Agreements

Supply chain disruptions have taken center stage in the news cycle in the wake of the COVID-19 pandemic, bringing commercial agreements into the international spotlight. In this volatile commercial environment, attorneys have a unique opportunity to bring order to chaos by providing valuable legal insight into their clients’ procurement and supply chain relationships. This article identifies several key considerations for drafting and negotiating complex commercial agreements specifically through the lens of potential supply chain issues. For simplicity’s sake, this article focuses primarily on customers and suppliers, but attorneys should also pay close attention to the various other parties in the overall supply chain network, such as raw materials providers, distributors, resellers, and logistics and warehousing providers. Generally, the party purchasing goods or services is referred to as the “customer” and the party providing goods or services is referred to as the “supplier” throughout this article, but other defined terms may be a better fit for different types of agreements (e.g., “Client” or “Purchaser” may be used for the party purchasing goods or services, and “Service Provider” or “Seller” may be used for the party providing goods or services). This article does not contain an exhaustive list of provisions that should be included in a commercial agreement. Complex commercial agreements are just that – complex! – and should be specifically tailored to the business arrangement between the parties. However, the standard elements addressed in this article should generally apply across a variety of types of agreements.

November 6, 202014071200, Robert Ford

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.

March 14, 2019Elizabeth S. Miller

Drafting Limited Liability Company Agreements

It is often stated that one of the benefits of organizing an entity as a limited liability company is that this form of entity offers the owners and governing authority of the entity the flexibility to agree to provisions for the economic terms and governance that are more flexible than available with respect to a corporation. This is true, and indeed limited liability companies are sometimes used to create highly complex structures with multiple classes of ownership interests and highly customized provisions regarding management and governance of the entity, including complicated provisions for voting and management succession. However, given the large number of entities now being created as limited liability companies in Texas and other states, it is likely that many of these new entities are not entities with complex structures with multiple classes of ownership and complex bureaucracies for governance.The purpose of this paper is to present and discuss models for governing agreements for limited liability companies when a simple structure is needed.

March 10, 2017David P. Dunning, Douglas K. Moll

Differences in Drafting for Majority, Minority and 50/50 Owners in an LLC

Drafting the organizational documents for a business entity with multiple owners with differing interests is rarely “simple and straightforward”. Careful consideration needs to be given to the specific nature of the business arrangement, the ownership level of each owner, and what talents and resources each owner is bringing to the table in order to put together organizational documents that protect the key areas of concern for a client.

March 4, 2016Austin Champion

Drafting Effective Intellectual Property Indemnity Provisions

A well-drafted intellectual property indemnity provision is an excellent tool to allocate the risk of litigation arising out of the alleged infringement of intellectual property rights. By addressing issues unique to intellectual property law during contract negotiations, both parties can minimize uncertainty and avoid the potential for conflicts should litigation arise.

March 4, 2016D. Hull Youngblood, Jr., Seth E. Meisel

7 Deadly Sins of Boilerplate: How Cut-and-Paste Can Get You Sued

Those “standard” sections at the end of a contract may look like the same provisions you have seen in hundreds of contracts. But those tried and true, cut and pasted, provisions can often create, rather than resolve, problems. The fallout from improperly drafted (and typically neglected) boilerplate provisions can determine the enforceability of a contract, the value to be received by a party, and the remedies available to the parties.

March 4, 2016Aaron A. Scow

General Contract Provisions

This article provides an overview of certain general contract provisions typically included in a purchase agreement entered into in connection with an acquisition or disposition transaction. First, it will discuss the indemnification obligations of the parties in such a transaction. Next, it will address the choice of law and choice of jurisdiction provisions that the parties can include in the purchase agreement and the implications of each such provision. After that, the article will analyze the dispute resolution alternatives that the parties can choose to include in the purchase agreement. Finally, the article will provide an overview of representation and warranty insurance, which can be purchased by a party to the transaction.

March 4, 2016Jeffrey Michael Goldfarb

Serving Your Clients After the Deal: Drafting Tips from a Litigator to Transactional Lawyers

Complex transactions are documented as a transaction is set to begin, when the parties are optimistic and cooperative. Almost all complex transactions will include clauses that relate to dispute resolution, a concept that may be obscured by the wave of optimism. Often, these kinds of clauses are an afterthought to the dealmakers (your client and the counter-parties). And after you have spent countless hours drafting the “real” substance of the transaction documents, you may be inclined to use boilerplate language to round out the documents. But thoughtful and careful drafting of language related to dispute resolution will save your clients time, money, and anxiety if the deal goes awry, which will enhance the likelihood that the client returns to you to advise on the next transaction. In this article, I will discuss how you can serve your clients’ interests by giving sound advice regarding arbitration, jurisdiction, choice of law, attorney’s fees, and other issues that are sure to arise if a once-promising transaction gives rise to actionable legal disputes.

May 17, 2015Elizabeth 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 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 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.

March 7, 2014Elizabeth S. Miller

Governing Persons in Action: Overview of Fiduciary Duties, Excupation, and Indemnification in Texas Business Organizations Code

March 7, 2014Carol Bavousett Mattick, Manuel G. Berrelez

What to Do When Your Client Gets Sued or Sues Someone Else

Terry Trevino served 10 years in the U.S. Army as a medic. When he got out of the service, he started ProStaff, a health care staffing company that focused on the federal government. Over the course of a decade, he built a business that was creating $35 million in revenues each year, resulting in gross profits of approximately $4.5 million per year. Terry started and built his business without any outside equity financing – by saving profits and a succession of conventional financing from factoring of accounts receivable to a bank line of credit. The company was also beginning to achieve the size that would be of interest to an acquirer. Terry faced a difficult choice because his company was near the end of the time frame in which it could claim preferential status in bidding for federal contracts. Any acquirer would be concerned about the company’s continued ability to maintain or improve on its performance. On the other hand, many similar companies fail to survive the post-preference era. Not only is the preference gone, but post-preference companies tend to team with companies that still have the preference and are therefore only eligible to perform a maximum of 49% of a contract. That fact alone reduces the revenue opportunities for such a company. At the same time, Terry’s company was solid financially, having audited financial statements, a line of credit with a major bank and a top notch executive team including a CFO, General Counsel, and Business Development VP. Given all of the considerations, Terry decided he wanted to sell now. Terry held 67% of the issued and outstanding stock and two other individuals held the remaining 33%. These were early employees who worked for reduced or no pay in the early days of the company.

May 24, 2014Elizabeth 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 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 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.

May 11, 2012Richard E. Brophy Jr., Jennifer Campbell Lindsey

Analyzing the Puchase and Sales Agreement

The purpose of this article is to address select components of Purchase and Sale Agreements and related issues in the negotiation of Purchase and Sale Agreements in the context of private acquisitions of the stock or assets of private companies. This article begins by describing potential pitfalls associated with entering into what the parties to a future Purchase and Sale Agreement believe is a nonbinding letter of intent. A typical Purchase and Sale Agreement would address the following general components: (1) deal points, (2) closing and closing deliverables, (3) representations and warranties of buyer and seller, ( 4) pre-closing covenants, (5) post-closing covenants, (6) conditions to closing, (7) termination provisions, (8) indemnities, and (9) miscellaneous prov1s10ns including venue, governing law, expenses, notices, damages and dispute resolution provisions. As time does not permit a discussion of each of these components, this article and the presentation for which it is written will focus on key provisions that are customarily the subject of significant negotiation between the parties. The article includes examples of these provisions setting forth alternate provisions favoring buyers and sellers, where appropriate. The reader is cautioned that the sample provisions provided are included to serve as examples of hypothetical provisions. Careful attention should be paid to the drafting of any provision to be included in a specific transaction contemplated by the reader.

April 30, 2010Elizabeth S. Miller

Fiduciary Duties, Exculpation, and Indemnification in Texas Business Organizations

Statutory developments beginning in the 1990's have impacted the analysis of fiduciary duties in the 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 wellsettled, but the new 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.

May 22, 2009Adrienne Randle Bond

Duties, Exculpation From Duties and Indemnification of Governing Persons in Limited Liability Companies

Indemnification provisions under the limited liability company statutes, including the Texas Business Organizations Code (the “TBOC”), are likely to be under significant judicial scrutiny in the next few years, as the economic downturn causes claims and controversies against members and managers to arise. This article will focus on best practices to protect persons serving as members, managers and officers of an LLC, with an analysis of statutory foundations, current and evolving case law and suggested drafting solutions. As we all understand the basics of corporate law, which serves as the foundation of the TBOC statutory indemnification provisions, indemnification only is available if the accused is able to establish that there was no “misconduct.” Stated in the converse, indemnification payments, if successful, will only consist of advancement of defense costs. Once this fundamental premise is clear, indemnification rests on two topics: (A) definition of, and appropriate exculpation for, the duties applicable to the proposed indemnities, and (B) terms and conditions of advancement of expenses. Indemnification insurance also needs to be a part of the indemnification process. An explanation of terms is also in order. Under the TBOC, the generic term for a person operating in a fiduciary duty capacity is “governing person.” The term “governing person” includes directors, members of a member managed LLC and managers of a manager managed LLC. The main provision on exculpation and indemnity are in Section 7 and 8 of the “HUB” of the TBOC, and are drafted in terms of “governing persons,” and I will use the LLC specific terms of members and managers, and include a discussion of officers because of the specific statutory structure in place for LLCs. A cautionary note on ethics is also in order at the beginning of this analysis. Who you are representing as you are exculpating is quite important. This is an area that ALWAYS has a conflict of interest because you are considering the relationship of the agent to the principal, and is a question that is usually resolved in the formation stage, where there is usually only one lawyer. As a result, it is an area where you should take time to explain to the client, whoever that client is, the nature of fiduciary duties, their exculpation and indemnification, because they cannot begin to waive any conflicts until they have had a complete disclosure, which I believe requires the client to actually understand what they are waiving. I personally find this quite difficult to do, but I soldier on.