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The warm summer months are almost here, and many business owners will be spending some time relaxing away from the office. Before or after that well-deserved summer vacation, however, owners may want to tackle important issues concerning the company’s key agreements that have not kept pace with the growth of the business. Changes in these agreements may be necessary due to the expansion of the company’s intellectual property (IP) assets, the larger size of its workforce, and/or the growth in the appreciated value of the business.

While growth is generally positive in a business, the company’s agreements with its employees and third parties may no longer adequately protect its interests, and the company may need to implement new practices to preserve the confidentiality of its sensitive information. This post focuses on changes the majority owner can make that are designed to (i) provide enhanced protection for the company’s confidential information, (ii) limit the scope of the fiduciary duties that apply to the company’s management team, and (iii) create buy-sell agreements that permit the owner to redeem ownership interests that are held by minority investors in the company.

Protecting the Company’s Confidential Information

The company’s continued success may be due, in part, to the growth of its IP, including its confidential information and trade secrets. The company’s IP may have grown through acquiring new patents, securing exclusive licenses or further developing its own trade secrets. As the company’s IP assets have expanded, the majority owner will want to assess whether the legal agreements that protect the company’s IP have kept pace with its impressive growth.

The specific questions the majority owner will want to consider regarding the growth of the company’s IP are (1) does the company need to bolster its confidentiality agreements with both employees and third parties, (2) do the company’s current employment and/independent contractor agreements sufficiently protect the company’s IP, and (3) should the company create or change the protocols it has in place to protect confidential information? These changes are each discussed below.

To protect the company’s IP from misuse by insiders, the company will want to secure confidentiality agreements with its officers, employees and agents. These agreements should describe the IP in meaningful detail (without revealing any confidential information of course), because courts generally give more weight to specific descriptions of confidential information in a legal proceeding. The training that the company provides to employees regarding its confidential information should also be referenced, because offering this type of training confirms that the company intentionally disclosed its confidential information to its employees to enable them to perform their duties for the company.

The more extensive the company’s IP becomes, the greater the likelihood that it will be shared with third parties. As a result, the company also needs to secure confidentiality agreements or non-disclosure agreements (NDAs) from third parties, including vendors, advisors and clients, if these third parties are provided with access to the company’s confidential information. Once the company’s confidential information has been disclosed to third parties without protections in place, this type of unprotected disclosure waives the company’s claim that the information is confidential.

Disclosing IP to employees also provides the company with a legal basis to require them to be bound by noncompete provisions and similar restrictions in their employment agreements. For current employees who have already worked for the business without any noncompete restrictions in place, however, it may not be possible to bind them to enforceable restrictive covenants on an after-the-fact basis. Instead, the company will need to require these employees to sign confidentiality agreements or NDAs that prevent their unauthorized use of the company’s IP.

Finally, securing NDAs and confidentiality agreements with employees and third parties is just one part of the process that the company needs to undertake to protect its valuable IP. In addition to these agreements, the company will also want to implement specific protocols that are designed to maintain the secrecy of its IP. The process required for a company to maintain the confidentiality of its IP goes beyond the scope of this blog, but these steps include (i) limiting access to confidential information solely to those with a need to be privy to the information, (ii) marking the information as confidential on the actual document so that its protected status is clear, and (iii) regularly training employees on how to protect and maintain the confidentiality of business-sensitive information.

Analyzing the Fiduciary Duties That Apply to Those Governing Private Companies

In a recent post, we discussed the scope of fiduciary duties that apply in Texas to directors, officers, and managers of private companies. As noted in that discussion, the Texas Legislature made important amendments during 2025 to the Texas Business Organizations Code (TBOC), which will potentially have major impacts on the fiduciary duties owed by governing persons (see TBOC Section 101.401).

The owners of existing private Texas companies now have the opportunity to opt into to the changes the legislature made last year to the TBOC, which permit owners to restrict or even eliminate the fiduciary duties that apply to those who run the business, and/or to limit the liability of the members of their management team. Whether or not to accept any of these changes for the protection of the company’s management team is an important analysis that majority owners will want to consider.

On the one hand, limiting the scope of fiduciary duties may provide the company’s directors, officers and managers with more freedom and flexibility in the way that they operate the business. For example, business managers may be able to more freely enter into transactions with affiliated companies that will benefit the company but also provide returns for the managers who have interests in both companies. On the other hand, potential investors may be more reluctant to provide investment capital for the business if these changes are implemented. Understandably, investors may be leery of providing growth capital to the business when they perceive that the members of the management team are no longer subject to the fiduciary duties that had traditionally applied under common law to those charged with running the company. In this situation, sophisticated investors will almost certainly insist that fiduciary duties apply to all company directors, officers and managers before they will agree to make a substantial investment in the company.  

Creating or Revising Buy-Sell Agreements

We have written extensively about buy-sell agreements (BSAs), which serve the interests of both majority owners and minority investors, and they can be created after the fact, even if these provisions were not adopted by the parties at the time the investment was made. For majority owners, BSAs provide them with a redemption right that allows them to acquire the interest of a minority partner if the owner wants to consolidate the interests held by minority partners, or if the minority partner becomes disruptive to the business. For minority investors, the BSA ensures that the investor will have the right to monetize its minority ownership interest in the business at the time that the investor decides to exit from the company. In short, a BSA allows either party to secure a business divorce in the future when it becomes necessary or desired.  

As the company grows, the majority owner will want to review the terms of the BSA to ensure that the formula used in the agreement to determine the value of the minority owner’s interest will continue to accurately reflect its fair market value. This assessment is necessary because, depending on the language that is used in the BSA, the valuation formula may produce a result that varies widely from the actual value of the minority owners’ interest. If the BSA is not updated, there is a risk that the original formula could result in a valuation of the minority interest that is unfavorable for the majority owner, which is not fully consistent with the actual market value of the interest.

Conclusion

Majority owners who have guided their companies to achieve growth deserve to celebrate that success with a relaxing summer getaway. The long days of summer are also a good time for business owners to consider whether they need to upgrade their company agreements to better protect the business in light of substantial growth that has taken place within the business.

Majority owners may want to (i) strengthen agreements that guard the company’s confidential information and create/revamp protocols that provide enhanced protection of this information, (ii) revise their governance documents to limit their exposure and liability to fiduciary duty claims from minority investors, and (iii) adopt or improve their buy-sell agreements to ensure they accurately determine the fair market value of the minority owner’s interests. These changes will better position both the company and the majority owner as the company continues its growth curve, and they also will offer more protection if storms arise in the future.

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People typically enter into business partnerships with the best of intentions. But when things go awry down the road, the minority partner may claim that the majority owner violated a fiduciary duty by failing to act in the best interests of the business or by acting so recklessly that it amounts to gross negligence. Before things go off the rails and the lawyers start firing off nasty letters, it is helpful to develop a basic understanding of the fiduciary duties that apply to those who control the company — officers, directors, managers and general partners. This post focuses on these fundamental questions: What are fiduciary duties and what conduct do they require? 

The First Question: Was There a Duty?

For a disgruntled minority partner, the first step is to determine whether the person who may be the subject of a claim owes a fiduciary duty to the company or its owners. Certain roles are usually subject to fiduciary responsibilities under Texas law — such as business partners, corporate officers and directors, or managers of an LLC — and these individuals are expected to act with loyalty, honesty, and care toward the business and, in some cases, its owners. But, as discussed below, the company’s governance documents may limit, or in some cases, eliminate the fiduciary duties of company officials or remove their monetary liability. As a result, it is critical to check the bylaws (corporations), the company agreement or regulations (LLCs), or partnership agreement (limited partnerships) to determine what limits they may impose on fiduciary duties.

Things can also get murkier in closely held businesses, especially those involving friends or family as co-owners. Many people assume the existence of long-standing personal relationships will impose fiduciary duties on one or both of the parties. In Texas, that’s usually not the case. Parents, siblings and close friends do not automatically become fiduciaries just because they trust each other. Courts typically require specific evidence of a deeper, pre-existing relationship of trust that existed before the business arrangement — not just trust that developed as part of it. That distinction often comes as a surprise, especially in family business disputes.

It is important to understand, as well, that defendants in a fiduciary duty case will ultimately bear the burden of proof if it is established that they owe a fiduciary duty. The average person typically assumes that the plaintiff always bears the burden of proof, but that is not always the case in fiduciary litigation.

Check the Fine Print

In May 2025, the Texas Legislature amended the Business Organizations Code to allow LLCs and limited partnerships to eliminate the duties of loyalty, care and good faith for managers, officers and general partners(seeTBOC Section 101.401). In addition, while corporations cannot eliminate the duties of loyalty and good faith, TBOC Section 21.418(f) provides that officers and directors are not liable for engaging in interested transactions unless it is established that they engaged in fraud, intentional misconduct or knowing violations of law. In addition, corporations can stipulate in their governance documents that their officers and directors are not liable to the company or its owners for monetary damages resulting from their acts or omissions.

Thus, the company’s governance documents may significantly shape the fiduciary duties that would otherwise apply and include provisions that:

  • Limit liability for certain decisions
  • Allow conflicts of interest if properly disclosed and approved
  • Replace traditional fiduciary duties with contract-based standards

In some LLCs, for example, managers may have reduced duties so long as they act in good faith and follow the agreement. And corporate directors and officers are often protected from liability for simple negligence, though not for conduct amounting to fraud or self-dealing.

The bottom line is that an initial review of the company’s governing documents is critical as it may often determine whether a claim is viable — or not.

Not All Bad Decisions Constitute Breaches of Fiduciary Duty

It is also important to understand that not every poor business decision amounts to a breach of fiduciary duty. Business leaders are generally protected by what’s known as the business judgment rule. This means courts won’t second-guess decisions that were made in good faith, with reasonable care, and in what the decision-maker believed was the company’s best interest — even if those decisions ultimately turned out badly. Problems arise, however, when someone:

  • Puts their personal interests ahead of the business
  • Uses company assets for personal gain
  • Hides important information
  • Engages in unfair or self-interested transactions

The business judgment rule that applies to these claims was codified in the same amendments to the TBOC that the legislature passed in May 2025 (see TBOC 21.419). The new form of rule applies to Texas corporations that are publicly traded and to corporations and LLCs that opt into this new section in their certificates of formation, bylaws, or company agreements.

The statute presumes that officers, directors and managers acted (i) in good faith, (ii) on an informed basis, (iii) to further the corporation’s interests, and (iv) in compliance with applicable law and the corporation’s governing documents. The plaintiff bringing the claim has the burden to rebut these presumptions and must also plead with particularity that the alleged breach constitutes fraud, intentional misconduct, an ultra vires act, or a knowing violation of law.

Who Owns the Claim — the Minority Owner or the Company?

One of the most confusing aspects of fiduciary duty cases is determining who has the right to bring the claim. In many cases, the harm at issue is suffered by the company — when company funds are diverted or its assets are wasted or misused. Those claims for injury to the company typically belong to the company, not to the individual owners. Therefore, to pursue this type of claim, the minority owner will need to bring a derivative claim on behalf of (in the name of) the business. On the other hand, if the individual owner was personally harmed — such as losing voting rights or if the owner’s interest was unfairly diluted — the owner may have a direct claim.

This distinction isn’t just technical. Filing the wrong type of claim can result in dismissal of the case. There are a variety of procedural rules the minority owner will be required to follow to bring a derivative claim, but there are two types of derivative paths in Texas depending on the size of the company. The first type has a host of procedural/statutory requirements, including providing the company with formal written notice and an opportunity to respond within 90 days before filling suit (seeTBOC 21.553). The second category of derivative claims exists when closely held companies are involved (i.e., companies that are not publicly traded and have less than 35 shareholders), and in those instances, the procedural rules are relaxed and no notice is required before a minority owner may bring a direct action in the name of the company(see TBOC 21.563). The rules for recovering damages to the company can also be different in closely held entities.    

Evidence Can Make or Break the Case

Fiduciary duty disputes are rarely decided based on who tells the better story. They’re usually decided based on documents and, in many cases, on the testimony and analysis of financial or valuation experts. Financial records, emails, text messages, contracts, and internal communications often provide the clearest picture of what actually happened to cause a dispute. In many cases, early access to these materials can quickly reveal whether a claim is strong or whether it’s likely to fall apart under scrutiny. One of the first things to consider is what evidence exists to support the claim and how readily it can be obtained. Gathering this evidence before the first meeting with an attorney is advisable.

What Recovery Is Permitted?

If a fiduciary duty was breached, the law offers several potential remedies, but remember that under the amendments to TBOC, the standard of proof has been heightened. The plaintiff is going to have to establish that the governance person engaged in fraud, intentional misconduct or knowing violations of law in order to recover. As noted above, however, this is where burden shifting rules get tricky. If that hurdle can be met, however, the minority owner may be able to recover financial losses, such as lost profits or diminished business value, and in some cases, courts can require the wrongdoer to return profits they gained from their misconduct — even if the plaintiff cannot prove traditional (actual) damages suffered.

When fraud or intentional wrongdoing is established, additional damages and legal or equitable remedies may be available, including temporary and permanent injunctive relief and the imposition of a receivership or constructive trust. Courts can also step in to unwind improper transactions or impose other remedies to protect the business.

Conclusion — Making the Right Call Early

Fiduciary duty cases are complex because they sit at the intersection of business relationships, legal obligations of the parties, and written agreements, and therefore, the minority owner may be able to assert claims for breach of contract, as well as claims for breach of fiduciary duties, or sometimes only breach of contract. At their core, these cases revolve around a few key questions:

  • Did the defendant owe a fiduciary duty?
  • Was that duty limited by some agreement?
  • Was the duty actually breached?
  • Who was harmed by the breach and how?
  • Is there enough evidence to prove the breach?
  • Is emergency relief necessary?
  • Is the heavy cost worth the requested relief?

Answering those questions early — and objectively — can save significant time, expense, and frustration down the road.

In sum, when a minority owner has a potential claim for breach of trust against a business partner, it requires a realistic evaluation of the claim, the evidence and the desired relief. This analysis is necessary as the first step to decide whether to pursue the claim, negotiate a resolution, or take a different path forward. Similarly, if a majority owner is faced with this type of allegation, an objective evaluation of the law, the evidence supporting the claim and damages sought is essential to assess whether to gear up to battle the claim head on or seek an early resolution.

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Majority owners and minority investors act wisely when they negotiate and adopt a buy-sell agreement (BSA) at the time the private company investment is made because the BSA helps to avoid future conflicts between them. Signing a BSA, however, and deciding when to trigger it to require the purchase/sale of the minority interest are different things. The question remains after signing the BSA: When is the right time for partners to say goodbye?

This post focuses on that “trigger decision” and reviews key factors for partners to consider based on their business goals, the nature of their relationship and the company’s status. When a potential exit arises, each partner needs to decide whether to exercise the BSA or to keep the powder dry to trigger it at a better time in the future.

The Look-Back Provision

Before the partners exercise the BSA, an important point needs to be made about a key provision relating to the timing of the redemption of the investor’s minority ownership interest. When a majority owner has the right to trigger a BSA, the owner can decide to redeem the minoirty interest before a sale of the business to a third party. That could result in a situation where the minority investor’s interest is redeemed, and a short time later, the business is sold at a much higher value than the investor received.

To address this situation, in addition to securing a BSA, the investor will also want to obtain a look-back provision in the bylaws, the LLC company agreement, or in a separate shareholder or members agreement. This provision protects the minority investor if there is a sale of the business or an investment in the business that takes place shortly after the investor’s interest is redeemed. The length of the look-back provision is negotiable, but it is often in place for at least a year. This provision then comes into play when the business is sold within a year at a higher value or there is another investment made in the company at a value higher than the investor received. At that point, the investor will receive a true-up payment to equate to the higher value that is established in the later transaction. 

Majority Owner: When to Trigger a Redemption

Once the majority owner obtains an investment from a minority partner, the owner can continue using the investor’s capital to grow the business without ever exercising the right to redeem the investor’s ownership interest. But for the business reasons discussed below, the majority owner may decide to trigger the BSA and acquire the interest in the company that is held by the minority partner.

First, if the majority owner believes the minority partner has become disruptive to the business, the owner may trigger the BSA’s call right and redeem the minority investor’s interest. A thoughtful owner will appreciate that differences in views held by other partners are healthy because the opportunity to consider alternative approaches helps prevent the business from becoming stagnant. But an investor who consistently opposes or interferes with the majority owner’s vision for the business may negatively impact the culture and detract from the company’s success. When the investor’s opposition reaches a point of dysfunction, the majority owner can trigger the BSA and redeem the minority interest.

Another scenario warranting a redemption of the minority interest can arise when the majority owner has a sizable number of investors who all hold small ownership stakes in the business. The owner may want to redeem those interests in a rollup transaction. This is often the case when the majority owner identifies a single investor who has experience and helpful connections in the industry, and who can replace the capital investment held by a group of smaller investors.

One additional instance in which the majority owner may decide to trigger the BSA results from long-term planning when the owner becomes concerned that a minority investor may disrupt a future sale of the business. This type of minority partner regularly attempts to assume a more active role in the business than the majority owner prefers. The owner may tolerate intrusive conduct from a minority partner for a time, but if the minority partner is present when a sale process begins, it could derail the sale. Engaging in forward thinking, the majority owner may trigger the BSA, buy the minority partner’s interest, and streamline the company for a potential sale years before embarking on an effort to sell the business.

Minority Investor: When to Trigger a Sale of the Ownership Interest

When the business is thriving, the minority investor will likely be content to hold on and watch the value of the investment appreciate. There are several situations, however, that may make it advisable for the investor to consider triggering the BSA to require a sale of the minority interest, which are reviewed below.

First, after years of growth in the business, the investor may trigger the BSA as part of the investor’s asset allocation strategy. More simply stated, the investor may decide to diversify its holdings due to the increase in the total value of the investment, i.e., to avoid having too many eggs in the same basket. Most BSAs require an all or nothing approach and when the BSA is triggered, the investor’s entire holding in the business must be sold at that point. If the relationship between the partners is strong, however, the majority owner may agree voluntarily to allow the minority partner to conduct a partial sale of its interest, which permits the investor to take some chips off the table. 

Second, there are various red flags that may lead the investor to trigger the BSA that arise when the investor loses confidence in the majority owner and/or in the management or the business. This can take place when the company’s management changes over time, when management makes decisions that change the company’s fundamental direction, expose the company to new risks or fail to respond to challenges in a way that inspires confidence. When these things happen, the investor can make the decision to prevent future loss and require a sale of the minority interest before things go further south.     

Third, even when management is executing well, the savvy investor may decide that the market conditions that apply to the company’s industry or to the market make it a good time to exit from the investment. The investor may have already enjoyed a favorable return on its investment in the company before exercising the BSA. This is another example where the investor’s monitoring of its investment leads to a business decision to exercise the BSA and lock in the gain the investor has already secured from its investment.

Conclusion

Saying goodbye to a business partner is not an easy decision, but having a BSA in place provides majority owners and minority investors with the option to decide when the time is optimal for them to redeem or sell the minority interest in the business. When the majority owner has a BSA available, the owner is not “stuck” and has the flexibility to decide to replace the investor with a different business partner. On the other side, a minority investor who has become disenchanted with the majority owner or the management of the business can monetize its investment by triggering the BSA. 

As part of entering into a BSA, the minority investor will also want to make sure to secure a look-back provision when the BSA is adopted. This provision prevents the majority owner from redeeming the investor’s minority interest for a below-market price and then promptly selling the business a short time later in another transaction for a much higher value than the investor received at the time of the redemption.