Business partnerships run on trust. When you go into business with a partner, an LLC co-member, or a fellow shareholder, you are not just combining capital and skills. You are entering a legal relationship that imposes serious obligations on both sides. These are called fiduciary duties, and they represent some of the highest legal obligations recognized in Texas business law. When a partner violates those duties, the consequences can be devastating: assets disappear, business opportunities are stolen, financial records are hidden, and the company suffers while one person profits at everyone else’s expense.
If you are a business owner in Houston, Sugar Land, Katy, The Woodlands, Spring, Cypress, Pearland, Richmond, or Missouri City and you believe a partner has acted in bad faith or against the interests of the business, understanding your legal options under Texas law is the first step toward protecting what you have built.
What Are Fiduciary Duties in a Texas Business Context?
A fiduciary duty is a legal obligation to act in the best interests of another party. In the business context, partners, LLC managers and members, and corporate officers and directors owe fiduciary duties to the business entity and in some circumstances to each other.
Texas law recognizes three core fiduciary obligations in business relationships. The duty of loyalty requires a partner to act in the best interests of the partnership and to avoid placing personal interests above the interests of the business. The duty of care requires a partner to manage business affairs with reasonable diligence and competence. The duty of good faith and fair dealing requires honest conduct in all partnership transactions.
These duties apply across different types of business entities, but the specific rules vary depending on whether you are in a general partnership, a limited partnership, an LLC, or a corporation. Texas Business Organizations Code Chapter 152 governs general partnerships, Chapter 101 governs LLCs, and Chapters 21 and 22 govern corporations. If you want to understand how these disputes typically develop, our article on common causes of partnership disputes describes the patterns that most often lead to fiduciary duty claims.
Common Examples of Fiduciary Duty Breaches in Texas
Fiduciary duty breaches in business partnerships take many forms. The following are the most common scenarios our Houston business litigation clients encounter.
Self-dealing is one of the most frequently litigated forms of breach. It occurs when a partner enters into a transaction with the partnership for their own personal benefit without disclosing the conflict and obtaining proper approval. Examples include a partner who awards a construction contract to a company they secretly own, a partner who sells real estate to the partnership at an inflated price, or a partner who hires a family member at an above-market salary without disclosure.
Usurpation of business opportunities is another common claim. Partners owe the partnership the right to first consider any business opportunity that falls within the company’s line of business or that the company could reasonably pursue. A partner who takes that opportunity for themselves without offering it to the partnership first has violated their duty of loyalty. For example, if a real estate LLC is considering purchasing a commercial property and one member purchases that property personally instead, that is a textbook usurpation claim.
Misappropriation of company assets covers a broad range of conduct, including using company funds for personal expenses, transferring company property to oneself or a related party without authorization, diverting company revenue into a personal account, and liquidating company assets without proper authority or distribution to the other owners.
Failure to disclose material information is also a recognized breach. Partners are required to share information that affects the business and the other partners’ interests. Hiding a financial problem, concealing a potential claim against the company, or withholding information about a conflict of interest can all give rise to a fiduciary duty claim.
Competition against the partnership while still a member is another serious breach. A partner who operates a competing business or solicits the partnership’s clients and employees without authorization is diverting value from the company they are obligated to serve.
What You Must Prove
To succeed on a breach of fiduciary duty claim in Texas, you must establish that a fiduciary relationship existed between the parties, that the defendant partner owed specific duties as a result of that relationship, that the partner breached those duties through specific acts or omissions, and that the breach caused damages to the business or to you personally.
Proving causation and damages can be the most challenging part. Courts will require evidence of the specific harm the breach caused, including lost profits, diminished business value, or other quantifiable losses. This often requires forensic accounting, business valuation analysis, and detailed documentary evidence drawn from company records.
Available Remedies
Texas law provides several remedies for breach of fiduciary duty in a business context. Compensatory damages are the most common, designed to restore the injured party to the position they would have been in had the breach not occurred. In cases involving especially egregious conduct, courts may also award disgorgement, requiring the breaching partner to give up any profits they gained from the breach. Injunctive relief is available to stop ongoing harmful conduct, such as competition against the company or continued unauthorized asset transfers. In some cases, a court may impose a constructive trust on assets that were wrongfully obtained. For a full overview of when litigation becomes the appropriate response, see our article on when you can sue a business partner.
Derivative Versus Direct Claims
An important distinction in fiduciary duty litigation is whether a claim is direct or derivative. A direct claim is one where the fiduciary breach harmed you individually, independent of any harm to the company. A derivative claim is one brought on behalf of the company to recover for harm the company suffered. This distinction matters because it affects who has standing to sue, how any recovery is distributed, and what procedural rules apply. Texas Business Organizations Code Sections 21.563 and 101.463 make it somewhat easier for minority owners in closely held Texas companies to bring derivative claims than in many other states. See our article on minority shareholder rights and remedies for a deeper look at how derivative suits work in Texas.
Statute of Limitations
Timing matters in fiduciary duty cases. In Texas, the statute of limitations for breach of fiduciary duty claims is generally four years from the date the breach occurred or was discovered. However, the discovery rule and the fraudulent concealment doctrine can affect when the limitations period begins to run, particularly in cases where a partner actively concealed the breach. Waiting too long to act can cost you your right to pursue a claim, which is why speaking with a Houston business attorney as soon as you suspect misconduct is important.
What to Do If You Suspect a Breach
If you believe a partner has breached their fiduciary duty, the first thing to do is preserve evidence. Do not delete communications, remove documents from the business, or take any action that could be characterized as retaliatory. Gather financial records, communications, and any documentation of the conduct you believe was improper. Then consult a Houston business litigation attorney before you take any formal action.
Many fiduciary duty disputes begin with the same warning signs that appear in common partnership conflicts: unexplained financial discrepancies, a partner who becomes secretive about their activities, unauthorized transactions, or a sudden shift in the relationship dynamic. The earlier you act, the more options you have.
Talk to a Houston Business Litigation Attorney
Breach of fiduciary duty cases are among the most legally demanding categories of business litigation in Texas. They require a thorough understanding of entity law, fiduciary principles, damages analysis, and litigation strategy. AnunobiLaw has the depth of experience to handle these cases from investigation through trial.
We represent business owners throughout Houston, Sugar Land, Katy, The Woodlands, Spring, Cypress, Pearland, Richmond, Missouri City, and the surrounding communities in Harris County, Fort Bend County, and Montgomery County. Call us at 832-538-0833 or toll-free at 1-855-538-0863 to schedule a consultation. You can also reach us at contact@businessandfamilylawyers.com or visit our office at 1415 North Loop West, Suite 1140, Houston, TX 77008.
This article is for general informational purposes only and does not constitute legal advice. Reading this content does not create an attorney-client relationship. Laws change and individual circumstances vary. Consult a licensed Texas attorney for advice specific to your situation.