Texas Shareholder Oppression Lawyer

The LLC Workaround: § 11.314 of the Texas BOC

The most significant development in Texas minority shareholder law since Ritchie is the recognition that LLC members have substantially stronger statutory remedies than corporate shareholders.

Under § 11.314 of the Texas Business Organizations Code, a member of a Texas LLC may petition a court for judicial dissolution when the managers or controlling members have engaged in conduct that is illegal, oppressive, or fraudulent. Unlike the corporate context post-Ritchie, LLC members can seek equitable remedies, including buyouts alongside dissolution claims.

This distinction — corporation vs. LLC — is one of the most practically important in Texas shareholder oppression law today. Many Texas closely held businesses operate as LLCs precisely because of the operational flexibility. But that same LLC structure provides the minority member with a stronger statutory platform for asserting rights when things go wrong.

What § 11.314 Allows

A minority member of a Texas LLC can petition for dissolution when the managing members or those in control have:

• Engaged in illegal, oppressive, or fraudulent conduct
• Misapplied or wasted company assets
• Acted in a manner that makes it not reasonably practicable to carry on the business

Courts handling § 11.314 cases have authority to fashion equitable relief, which can include ordering a buyout of the minority's interest at fair value as an alternative to full dissolution. This is the primary path to a forced buyout for Texas minority LLC members.

Fiduciary Duties of Majority Shareholders in Texas

While Ritchie narrowed the remedies available, it did not eliminate the substantive duties that majority shareholders owe in Texas closely held corporations. Texas courts continue to recognize that controlling shareholders in close corporations owe duties of loyalty and good faith to minority shareholders — not merely to the corporation.

This is the critical distinction from publicly held corporations: in a closely held Texas corporation or LLC, the relationship between shareholders is more analogous to a partnership. Courts have found that controlling shareholders breach their fiduciary duties when they:

• Engage in self-dealing transactions that benefit themselves at the company's expense
• Deny reasonable participation to minority shareholders who expected to be involved in management
• Withhold distributions while paying themselves excessive compensation
• Divert business opportunities from the company to themselves personally
• Use corporate assets for personal purposes
• Manipulate the company's books to obscure its true financial performance

A successful fiduciary duty claim in Texas requires showing: (1) the existence of a fiduciary duty; (2) a breach of that duty; (3) that the breach caused injury; and (4) resulting damages. In closely held companies, the existence of the fiduciary duty is well-established. The fight is usually over whether the conduct breached it and what damages resulted.

Common Forms of Minority Shareholder Oppression in Texas

The Texas Family Business Freeze-Out

The most common fact pattern Hopkins Centrich sees in Texas: a family-owned business, co-founded by two or more siblings, spouses, or business partners. The relationship deteriorates — often due to a personal event — and the majority uses control of the company to systematically exclude the minority from participation and income. The minority is fired from their job at the company, cut off from financial information, and offered an insulting buyout price or nothing at all.

This pattern constitutes a business divorce, and Texas courts take it seriously. The majority cannot use corporate control to expropriate the minority's equity while also denying them any economic benefit from it. The combination of employment termination, distribution denial, and information blackout creates the evidentiary record for a fiduciary duty or LLC oppression claim.

The Motion to Show Authority

Texas Rule of Civil Procedure 12 provides a mechanism that Hopkins Centrich regularly uses in shareholder disputes: when an opposing party is represented by counsel purportedly acting for the corporation, we can challenge whether that counsel actually has authority to represent the company. In a dispute between majority and minority shareholders, the corporation's attorney is often effectively representing only the majority. A successful motion to show authority can force the appointment of independent counsel for the company, removing an important tactical advantage from the majority.

Kirby Hopkins has significant experience with Rule 12 motions in shareholder disputes. This is one of the most underused tools in Texas minority shareholder litigation and can dramatically shift the dynamics of a case.

Excessive Majority Compensation

One of the most common ways Texas majority shareholders squeeze out minority partners: paying themselves enormous salaries and bonuses that consume all distributable profit, leaving nothing for minority shareholders who are not on the company payroll. Courts look at whether compensation is reasonable for the services provided. When majority shareholder compensation is dramatically above market rates and the pattern began after a dispute arose, it is evidence of conduct designed to harm the minority rather than to serve the company.

Denial of Financial Information

Texas shareholders and LLC members have statutory rights to inspect company records. Under § 3.151 of the Texas Business Organizations Code, equity owners are entitled to access the company's books and records. When the majority stonewalls these requests, it is not just a statutory violation — it is evidence of a cover-up that supports the underlying oppression claim.

Dilutive Share Issuances

Issuing additional shares or membership units to majority-aligned parties at below-market prices, or authorizing new classes of equity that strip minority voting rights, can be challenged as a breach of fiduciary duty in Texas. The key question is whether there was a legitimate business purpose or whether the transaction was designed to harm the minority.

The $32 Million Verdict: L&S Pro-Line LLC v. Garrett Gagliano

In Montgomery County, Texas, Hopkins Centrich represented a client in a complex shareholder dispute involving a closely held business. The jury returned a verdict of $32 million — one of the largest business dispute verdicts in Montgomery County in 2021, and listed among the top 20 Texas business verdicts for that year.

We do not discuss the specifics of client matters publicly without permission. But this result illustrates a core principle of how Hopkins Centrich approaches every case: we prepare as if we are going to trial, even when we expect to settle. That preparation is what makes our settlements worth accepting and our verdicts possible.

When a minority shareholder's case has merit and the majority refuses to be reasonable, we litigate.

Minority Shareholder Rights in Texas Corporations

Under the Texas Business Organizations Code (TBOC), minority shareholders in Texas corporations have several important rights regardless of ownership percentage: 

Inspection Rights

Under § 3.151 of the TBOC, equity owners may request inspection of company records. The request must be in writing and for a proper purpose. For corporations, shareholders of record owning at least 5% of the outstanding shares have expanded inspection rights under § 21.218.

Voting Rights

Shareholders vote on fundamental corporate matters including mergers, amendments to the certificate of formation, and dissolution. In closely held Texas corporations, cumulative voting may be available if provided in the certificate of formation, giving minority shareholders the ability to elect at least one board representative.

Appraisal Rights

In certain fundamental transactions — mergers, conversions, and transfers of substantially all assets — minority shareholders who voted against the transaction may have appraisal rights under Chapter 10 of the TBOC, entitling them to receive the fair value of their shares. These rights have strict procedural requirements that must be followed carefully.

Derivative Claims

A minority shareholder can bring a derivative lawsuit on behalf of the corporation to recover for harm done to the company by its directors or controlling shareholders. In Texas, the derivative action procedure under § 21.553 et seq. requires the shareholder to make a demand on the board or demonstrate that such demand would be futile. Hopkins Centrich regularly handles derivative claims alongside direct fiduciary duty and LLC oppression claims.

Remedies in Texas Shareholder Disputes

Post-Ritchie, the available remedies in Texas shareholder disputes are:

Monetary Damages

Where fiduciary duty breaches, fraud, or contract violations have caused quantifiable harm, Texas courts can award compensatory damages. This includes lost salary (for wrongful employment termination tied to shareholder status), improperly withheld distributions, and diminution in the value of the minority's interest caused by the majority's misconduct.

Injunctive Relief

Courts can issue temporary restraining orders and injunctions to prevent ongoing misconduct — preventing the majority from transferring assets out of the company, executing related-party transactions at unfair prices, or taking other actions that would harm the minority's position before the litigation is resolved.

Judicial Dissolution (LLC)

For Texas LLC members, a court can order dissolution under § 11.314 of the TBOC when the controlling members have engaged in oppressive conduct. More commonly, courts use the threat of dissolution to order a fair-value buyout of the minority's interest as a less drastic alternative.

Constructive Trust and Accounting

Where majority shareholders have diverted assets from the company to themselves — through excessive compensation, related-party transactions, or direct misappropriation — courts can impose a constructive trust on those assets and require an accounting. This remedy reaches back to funds that have already been improperly extracted.

Attorney's Fees

Texas is generally a "pay your own fees" state, but certain claims allow fee recovery. Fraud claims can support fee awards. Contract-based claims may provide fee recovery if the contract so provides. Derivative claims where the minority recovers for the corporation can support fee shifting from the corporate recovery.

Negotiation and Mediation in Texas Shareholder Disputes

Most Texas shareholder disputes settle before trial. That is not a commentary on the merits — it reflects the economics of litigation and the reality that both sides usually have something to lose from a public trial.

Hopkins Centrich approaches settlement from a position of strength. Before we open discussions, we have already:

• Analyzed the company's financial records and identified the scope of the harm
• Retained or identified valuation experts who can establish the fair value of the minority's interest
• Assessed the strength of the claims and the likely range of outcomes at trial
• Identified any interim relief — injunctions, temporary restraining orders — that can be sought to stop ongoing harm

This preparation gives us credibility in settlement discussions and real leverage when the majority knows we are ready to go to trial. Many of our best client outcomes are settlements that happened because the other side understood what litigation against Hopkins Centrich would look like.

When settlement is not achievable or not in the client's interest, we try cases. We have done it in Montgomery County and across Texas. We will do it again.