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November 1, 2017Eric Fryar

Filling in the Gaps: Shareholder Oppression After Ritchie V. Rupe: Part 1

On June 20, 2014, the Texas Supreme Court’s decision in Ritchie v. Rupe1 initiated a seismic shift in Texas law governing the protection of minority shareholders in closely-held corporations and limited liability companies. After almost thirty years of steady appellate court development of a judicial remedy for oppressive conduct against minority shareholders, recognizing the trial court’s power to force an oppressive controlling shareholder to purchase the oppressed minority shareholder’s stock for a fair value, the Texas Supreme Court suddenly announced that no common law cause of action for oppression existed and that Texas courts had no power to order a buy-out under the statutory remedy for oppression. Three dissenting Justices accused the majority of “extinguish[ing] meaningful protections for minority shareholders.” A host of academic articles and continuing legal education papers from practitioners both decried and applauded the demise of the shareholder oppression doctrine. The gloomy assessment: “In the wake of Ritchie, minority shareholders are already having a much tougher time in the courts.”

Model Company Agreements for Simple LLCs

Limited liability companies have become the entity of choice in Texas and other states. However, unlike corporations in which many of the provisions for the ownership and management of the entity are stated in the governing statute, owners are free in many respects to make their own rules regarding the management and financial terms for a limited liability company. They do this by entering into a company agreement. This puts an added burden on the practitioner to be sure that the agreement drafted by the practitioner accurately reflects the terms of the transaction envisioned by the practitioner’s client, comports with the applicable entity and tax laws and establishes a basis for a predicable outcome in the event of disputes regarding the responsibilities, obligations and benefits related to the company. The authors hope that the model agreements included and discussed in this paper will be useful as lawyers strive to accomplish these goals.