By the Interested Director Provision in the Texas Business Organizations Code
By LaCrecia Perkins and Ladd Hirsch

“The only way to get rid of temptation is to yield to it.” -Oscar Wilde

“I generally avoid temptation unless I can’t resist it.”  -Mae West

“That which is hateful to you, do not do unto your neighbor.”  -Hillel the Elder

Temptation is powerful.  We all know this well, which is why these quotes by author and bon vivant Oscar Wilde, and actress and legendary sex symbol Mae West evoke nods of agreement.  But giving into temptation can result in significant harm to ourselves and others.  That is why more than 2000 years ago, the revered Jewish religious leader and biblical sage, Rabbi Hillel, implored his followers to treat others as they would want to be treated.

In the modern business world, temptation wins out when managers and majority members of Texas limited liability companies (“LLCs”) exploit their controlling power for their own benefit to the detriment of the company’s minority investors.  These self-serving actions by governing persons may result in breach of fiduciary duty claims being filed against them, causing these governing managers or members to turn to the Texas Business Organizations Code (“TBOC” or the “Code”) in search of a legal defense.  The TBOC does not provide governing persons with a “get out of jail free card,” but the Code does contain an “Interested Director” provision that may be helpful to LLC majority owners and managers who have to defend against breach of fiduciary duty claims.  See TBOC § 101.255.  This post evaluates the scope and the limits of the TBOC’s Interested Director provision.
Continue Reading When Temptation Trumps Restraint: Limits of the Statutory Protection for Texas LLC Managers