In response to recent controversial Delaware court decisions and increasing litigation risk, a growing number of companies are reincorporating in Texas or considering Texas as their jurisdiction of formation. To encourage such transitions, on May 14, 2025, Texas enacted Senate Bill 29 (SB 29), amending the Texas Business Organizations Code (TBOC) to permit limited liability companies (LLCs) and limited partnerships (LPs) to eliminate fiduciary duties—including duties of loyalty, care, and good faith—through their governing agreements.[1] Texas’s enactment of SB 29, along with other reforms, such as the recent creation of the Texas Business Court, demonstrates the State’s efforts to position itself as a business-friendly alternative to Delaware.[2]
Summary of SB 29 and Comparison to Delaware Law
SB 29 authorizes broad contractual freedom to eliminate fiduciary obligations traditionally owed by managers, managing members, and general partners. For limited partnerships, the statute provides that a limited partnership agreement (LPA) may eliminate any or all of (i) the duty of loyalty, (ii) the duty of care, and (iii) the obligation of good faith, to the extent the LPA expressly provides so.[1] Similarly, a limited liability company agreement (LLCA) may expand, restrict, or eliminate any duties, including fiduciary duties.[1]
Given that Texas is competing with Delaware to be a preferred corporate jurisdiction, SB 29 should be compared to Delaware’s Uniform Commercial Code (the DE Code) with respect to fiduciary duties to determine if one jurisdiction is more permissive than the other. From reviewing the DE Code, SB 29 and the DE Code are quite similar, with the DE Code also allowing the expansion, restriction or elimination of fiduciary duties in an LPA or an LLCA.[3] However, the key difference between the DE Code and SB 29 is that the DE Code explicitly states that the implied covenant of good faith and fair dealing (the Covenant) cannot be waived.[3] The DE Code’s intent is for the Covenant to fill contractual gaps and protect parties from conduct that undermines the reasonable expectations of the agreement. Without such explicit preservation of the Covenant in SB 29, Texas courts may interpret waivers more broadly.
For example, in Tall v. Vanderhoef, the Texas Business Court upheld an LLCA’s provision that eliminates all fiduciary duties and liability, except for those arising from gross negligence, fraud, or intentional misconduct.[4] Accordingly, the Texas Business Court allowed the elimination of the Covenant. By not explicitly protecting the Covenant, SB 29 creates a greater risk of unchecked discretion in Texas entities as compared to Delaware, where the Covenant serves as a residual safeguard. As a result, Texas may now be more attractive than Delaware to general partners, managers, and managing members, regardless of Delaware’s legacy and entrenched dominance in the corporate space.
Risks for Institutional Investors
The enactment of SB 29, via the ability to abolish all fiduciary duties, will significantly impact investments in Texas-based entities. Institutional investors need to consider the following risks:
- Erosion of Governance Protections
The elimination of fiduciary duties removes a key safeguard against self-dealing and mismanagement. In the event of such acts, institutional investors may face limited recourse unless they can prove fraud or illegality, provided such actions are expressly carved out in an LPA or an LLCA.
- Disclosure and Monitoring Challenges
Without fiduciary obligations or a preserved implied covenant, managers may not be required to disclose material information, unless explicitly required by contract. This creates information asymmetry and complicates due diligence.
- Minority Investor Vulnerability
In closely held entities, dominant members may exploit fiduciary waivers to pursue self-interested transactions, leaving minority investors with limited legal remedies.
Strategic Considerations
Institutional investors should continue to monitor developments in Texas law and litigation trends in the Texas Business Court. In the meantime, institutional investors should:
- Review governing documents for fiduciary duty waivers and implied covenant disclaimers;
- Negotiate enhanced contractual protections, including information rights, exculpation carveouts and indemnification carveouts; and
- Reassess jurisdictional risk for Texas-based investments.
Endnotes
[1]: Reiffert, Ryan. “Texas Business Court Upholds Fiduciary Duty Waiver in LLC Dispute.” Web log. Law Offices of Ryan Reiffert, PLLC. (blog), June 12, 2025. https://ryanreiffert.com/blog/tx-bus-ct-upholds-fiduciary-waiver/.
[2]: Bell, David, Dean Kristy, and Ran Ben-Tzur. “Texas Corporate Law Changes Challenge Delaware’s Dominance.” The Harvard Law School Forum on Corporate Governance, May 21, 2025. https://corpgov.law.harvard.edu/2025/05/21/texas-corporate-law-changes-challenge-delawares-dominance/.
[3]: 6 DE Code, § § 17-1101(d) (2024), 6 DE Code §18-1101(c) (2024).
[4]: Tall v. Vanderhoef, Texas Courts (Business Court of Texas, Eighth Division 2025).
