Can you eliminate fiduciary duties in a Texas LLC?

Bottom Line: Yes, as of May 14, 2025, members of a Texas LLCs can now eliminate fiduciary duties through their company agreements (aka “operating agreements”), thanks to a crucial amendment that added the word “eliminate” to the statutory language. Texas has long been known for its business-friendly approach, but the state just became even more attractive to business owners with a significant change to its Limited Liability Company law. For years, practitioners debated whether Texas LLCs could completely eliminate fiduciary duties or merely modify or restrict them. That debate is now settled.

The Historic Change to Texas LLC Law

On May 14, 2025, Texas Business Organizations Code § 101.401 was amended as part of Texas Senate Bill 29’s comprehensive business law reforms. The change might seem subtle, but its impact is profound:

Old Language (Pre-2025):

“The company agreement of a limited liability company may expand or restrict any duties, including fiduciary duties…”

New Language (Effective May 14, 2025):

“The company agreement of a limited liability company may expand, restrict, or eliminate any duties, including fiduciary duties…”

That single word – “eliminate” –  resolves years of legal uncertainty and puts Texas LLCs on par with Delaware’s permissive approach to fiduciary duty waivers.

What This Means for Your Texas LLC

Complete Elimination of Fiduciary Duties is Now Expressly Permitted

Under the amended statute, Texas LLCs can now completely eliminate fiduciary duties “that a member, manager, officer, or other person has to the company or to a member or manager of the company.”  This would necessarily include:

• Duty of Loyalty – The obligation to act in the company’s best interests rather than personal interests
• Duty of Care – The obligation to act with reasonable care and diligence
• Duty of Good Faith – The obligation to act honestly and fairly
• Any other fiduciary duties that might arise under common law

Broader Contractual Freedom

This change reflects Texas’s commitment to contractual freedom and positions the state as a premier jurisdiction for business formation. LLC members can now craft agreements that:

• Eliminate potential conflicts between business partners
• Reduce litigation risk and associated costs
• Provide greater certainty for business decision-making
• Attract investors who want clearer liability boundaries

Important Limitations and Considerations

While the new law dramatically expands LLC flexibility, several important caveats remain:

Clear and Unambiguous Language Required

Courts will likely require that any elimination of fiduciary duties be stated in clear, unambiguous terms in the company agreement. Vague or incomplete language may not provide the intended complete elimination.

Certain Conduct May Still Create Liability

Even with comprehensive fiduciary duty eliminations, LLC members and managers may still face liability for:

• Intentional misconduct or fraud
• Criminal conduct
• Violations of explicit contractual obligations
• Actions taken in bad faith (assuming good faith obligations aren’t also eliminated)

Different Rules for Different Entity Types

Remember that this flexibility applies specifically to Texas LLCs. Texas corporations still cannot eliminate the duty of loyalty, and different rules apply to partnerships and other entity types.

Practical Drafting Considerations

If you’re considering eliminating fiduciary duties in your LLC agreement, keep these best practices in mind:

Be Specific and Comprehensive

• Clearly identify which duties are being eliminated
• Address both statutory and common law duties
• Consider whether to eliminate duties entirely or just liability for breaches

Consider Business Needs

• Complete elimination isn’t always optimal for every business relationship.
• Some level of fiduciary duties may actually benefit your business operations and provide needed and desired trust and security among members and managers.
• Balance flexibility with investor and lender expectations.

The Broader Context: Texas’s Business Court Initiative

This amendment didn’t occur in a vacuum. It’s part of Texas’s broader initiative to attract businesses through:

• The new Texas Business Court system.
• Codification of the business judgment rule.
• Enhanced protections for directors and officers.
• Streamlined corporate governance procedures.

These reforms collectively signal Texas’s intent to compete directly with Delaware and other business-friendly jurisdictions.

What’s Next?

As the Texas business community adapts to these changes, we expect to see:

• More sophisticated Texas LLC company agreements taking advantage of the new flexibility
• Potential court decisions interpreting the scope of permissible eliminations
• Increased interest from businesses considering Texas formation or redomestication

Conclusion

The addition of “eliminate” to Texas Business Organizations Code § 101.401 represents a watershed moment for Texas LLCs. The addition of this simple word provides unprecedented flexibility for business owners to structure their relationships and allocate risks according to their specific needs.

However, as Uncle Ben fatefully warned Peter Parker, “with great power comes great responsibility.” The ability to eliminate fiduciary duties should be exercised thoughtfully, with careful consideration of business objectives and potential consequences. When properly implemented with experienced legal counsel, this new flexibility can provide significant advantages for Texas LLCs and their members.