Critical Distinctions Between Texas and Delaware LLC Law

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Helena: Hello, everyone. Welcome to today's webinar, "Critical Distinctions Between Texas and Delaware LLC Law." My name is Helena Ledic, and I'm associate general counsel for CSC based in our Chicago office.

Today's guest speakers will be Byron Egan and Daniel Lewis from Jackson Walker LLP. I'd like to welcome both Byron and Daniel. So with that, I am actually going to get us started off over here today. You can see our photos are on here. But I'll do a few opening remarks over here talking about both Texas and Delaware.

So what we're going to cover in today's program is there are five common entity forms that are in both Texas and Delaware, and that's your corporations, your general partnerships, your limited partnerships, your limited liability partnerships, and the limited liability corporations, the LLCs. Our focus today is going to be on the LLCs, and we will be referencing "Egan On Entities" today during our program. If you would like to purchase "Egan On Entities," you can find copies of this, or you can do purchases at either the CSC website or the LexisNexis website. And, of course, "Egan On Entities" is authored by Byron, who will be joining us here today.

So let's do a little bit of a dive, kind of a numbers dive here first. So let's talk a little bit about Texas statistical information here, what we have from the Secretary of State. And this first slide here that I'm showing you is the number of entities that were formed during the calendar year of 2023. So those were newly filed in 2023. And you can see that the number of for-profit corporations is about 22,000, and then the limited liability companies was 365,000. So you can see that that is quite a number that's over here. This is a big jump over here.

So before we move on, let's take a step back and see how we got here. So the first LCC law authorizing LLCs was in 1997 (sic) in Wyoming. In 1998 (sic), the IRS decided that the Wyoming LLCs were taxable as partnerships, and this then led to the other states passing LLC statutes. And by 1996, all 50 states, plus D.C., had LLC statutes.

And so if we can look here now at the overall number for Texas, this is all active entities as of January 1. We can see that LLCs now, if we look even historically with all these corporations that are still active in Texas, LLCs number about five times the number of for-profit corporations. So you can see we've even got some domestic LLPs in here and everything, but it's about five times that number.

But let's now look at the Delaware numbers. And where I mentioned earlier that it was about five times the number, in Delaware, it's a little bit closer to probably about four times that number on the master file statistics. You can see the difference at the top is just what was formed in 2023, and then that was everything that was through 2023. So that top number over there, we have the domestic for-profits are almost at 60,000, about 219,000 for the domestic LLCs in 2023. And then what we've got is for the active entities overall, we've got about 396,000 corporations, but almost 1.5 million LLCs.

So now what we're going to do is we're going to learn about some of these new things that are causing the explosion of activity in Texas, and we're going to be hearing now from Byron and Daniel to take over.

Daniel: Great. Well, yeah, the big buzz in Texas business law right now is these new Texas Business Courts. And as with other states that have implemented business courts, the goal is ultimately to have judges who are real experts in the field and can help very efficiently and skillfully resolve business-related conflicts. And so starting real soon here, actually in September, our Business Courts are going to begin trying cases. And the Business Courts also come with one intermediate court of appeals between them and the Texas Supreme Court, that's made up of three very capable jurists, who were named earlier this year.

Let's see. We can go to the next slide if we want to. And so Business Court jurisdiction is narrower than just general state court jurisdiction. We really only want certain kinds of cases to be going here. So first of all, there's dollar thresholds that you all can see here. If you're trying to pierce the corporate veil, that's the sort of thing we're getting at. And there's also, look, you can just agree like in your governing law venue, kinds of boiler boilerplate provisions in contracts to select Business Court jurisdiction.

So the idea is we really want these certain kinds of cases to be moving quickly and efficiently. We really want focused expertise, and so we're not going to be doing family law, we're not going to be doing healthcare, probate, things of that nature. That's all still going to go on as usual in just regular old state courts.

There is a wrinkle potentially with constitutionality and whether the legislature in Texas has the authority to create these courts. Byron, do you want to take it over?

Byron: Sure. We're talking about the Supreme Court challenge. The legislature knew that the plaintiffs were not happy with the concept that their elected judges would not be trying the cases. So they have threatened to challenge the constitutionality of the Business Courts. And there's already been a case filed in Dallas challenging the 15th Court of Appeals, which is pending at the moment. There'll probably be additional challenges.

But as the slide says, Jordan v. Crudgington, back in 1950, decided that there was authority to create courts like the Business Court. So the legislature believed and I believe that the Business Courts will be upheld. But that's ultimately going to go to the Texas Supreme Court.

And I guess the Supreme Court now really the ball is in its court, and it's adopting rules, procedural rules for the trying of cases beginning September 1. And the idea is that these opinions will be written opinions and published opinions, so that people will be able to see how these things are coming down and the precedential value being created.

Business Court cases may be tried by a jury when required by the Constitution. Delaware has a Chancery Court, which is a court of equity, and they do not have juries. They do have the law courts, which do have jury trials. The choice of a jury in Texas is going to be limited by the nature of the case. As Daniel has said, the Business Courts are only going to handle big business disputes, and so we're excluding family law disputes, tort claims for personal injury, and things like that. So a lot of the cases that would normally go to a jury are not going to be in the Business Court, which is going to reduce the number of opportunities for jury trials. Nonetheless, they are available, and some of our litigators say that in the right case they would use a jury to find the facts. So that's sort of where we are.

And then in Delaware, the cases are going to go to the Court of Chancery, which is a court of equity, which doesn't have jury trials. And then Chancery Court appeals go directly to the Delaware Supreme Court.

Helena: All right. So let's shift gears now, and why don't we hear from Daniel to talk to us a little bit about the Texas Business Organizations Code.

Daniel: Great. So in Texas, the Texas Business Organizations Code governs LLCs, which is our topic here today. And it has been in effect in governing LLC for almost two decades now.

So the TBOC is a codified source of statutory law. It's amended a little bit each legislative session. Generally, no tectonic shifts, just little tweaks here and there. And as Byron says, you can think of it a little bit as a hub-and-spoke kind of setup. And there's different spokes that apply to particular kinds of entities. The spoke we're focusing on today would be the LLC spoke. Compare that to Delaware, where we've got the Limited Liability Company Act.

All right. And let's see, I think now we're shifting gears over into federal income taxes. So this is going to be in "Egan On Entities," there are some appendices that are relevant here. So at a high level, in the way federal income tax treats entities, you've got corporations that are taxed at the entity level, and they have certain rates, that you can see here in our bullet points, that are going to apply. But the idea is that taxes are not flowing through to shareholders. We're going to capture taxes at the entity level as opposed to partnerships and LLCs, which are flow-through entities. That is the taxation is just going to go on up to whoever has a stake in that partnership or LLC. LLCs can be taxed like a corporation if you so elect. But overwhelmingly, LLCs are treated as partnerships for tax purposes.

Something to be aware of, at the state level in Texas, there is the margin tax. You need to make sure you have taken care of your margin taxes by May 15th. And it covers all business entities and taxes as a general matter. The rules then proceed to just carve out certain things. So there's an exception if you're a general partnership, not an LLP, and all of your partners are individuals. Okay, well, then we're going to carve you out. Or if you're an entity and 90% of your gross income comes from these very narrowly defined passive income sources, okay, we're not going to hit you with the Texas margin tax. So you've got to pay attention to make sure you're paying these on time and also just be cognizant that there are a few exceptions you might be able to avail yourself of them.

When you're calculating how much margin tax is going to be due, your base is going to be the entity's or unitary group's gross receipts after you deduct the largest of your W-2 compensation, cost of goods sold, and there's a Texas Tax Code definition for that. And then we've got 30% of gross receipts, or just flat out a million bucks. So it kind of looks like income tax. But don't trust your eyes says the Texas Supreme Court. If you want to go read the Allcat Claims Service case, you can. But whatever you might have thought, this is not an income tax.

So let's see. So having talked about our base, we now also have our step where we multiply by a fraction to get our actual tax that's going to be due. And it's not an overwhelming tax rate. Obviously, this is happening in conjunction with federal taxes. So you're going to be looking at 0.75%, 0.375%, nothing huge. But you do need to be aware of that. You do need to be paying that.

And this is in contrast to the Delaware corporate income tax. The Delaware corporate income tax rate is 8.7%, which is a little higher than typical in the United States. But right after making this kind of general rule, the Delaware General Corporation Law then has a bunch of big carve-outs. So if you're a corporation and you maintain your statutory corporate office in Delaware, but you're not really doing business there, or your activities in Delaware are basically just you maintain or manage intangible assets, then we're not really looking to tax you.

So that brings us to LLCs in Delaware. Delaware state income tax does not apply at the entity level to an LLC, unless you want to elect otherwise. These are kind of just like the default rules. Instead an LLC's members are going to usually be subject to Delaware personal income tax, and the highest marginal tax rate there is going to be 6.6%.

And most of us don't live in Delaware. So if you're a non-resident individual member of a Delaware LLC or a partnership, you're only going to be taxable on your income that is attributable to sources in Delaware. So the end result is that a big swath of people who have LLCs in Delaware are not really going to be hit with any material Delaware income tax. Obviously, you want to do your research and check everything. But Delaware, I think, realizes they're not going to have a lot of people using them for LLCs if they turn around and slap them with exorbitant taxes. So to no one's surprise.

Okay. So LLC vocabulary, I believe this is, Byron, correct me if I'm wrong, but I think this is going to be your turn here.

Byron: Yeah, that's mine. And basically, as in Texas and Delaware, the owners of the LLC are called members, and they're analogous to shareholders in a corporation or limited partners in a limited partnership. So they're the people that own the entity. They own the equity in the entity.

The people that run an LLC are generally call the managers, that's statutory, and analogous to directors of a corporation, and as such elected by the members in the same manner as corporate directors are elected by the shareholders. That's the normal approach. But under the Texas Business Organizations Code, as in Delaware, an LLC may be structured so that management shall be by the members, as in the case of a close corporation or a general partnership, and in that case, the members would be analogous to the general partners in a general or limited partnership. But key point, they will not have the personal liability of a general partner. So they may have the fiduciary duties, that we'll talk about later, of a general partner, but they won't have that personal liability, unless of course you can pierce the veil, which we'll talk about later also.

So under the TBOC, any individual corporation, partnership, LLC, or other person may become a member or a manager. Thus, it's possible in Texas to have an LLC with a corporation as a sole manager, just like you can have a limited partnership with a corporate general partner.

The vocabulary in Delaware is essentially the same. And they don't have a code. They have separate statutes for each kind of entity. And so limited liability companies are governed by the Delaware Limited Liability Company Act. And as in Texas, the owners are called members, and they're analogous to stockholders. Notice in Texas we call the owners of a corporation shareholders. In Delaware, they call them stockholders. But they're the same critter.

So Daniel, how do we form an LLC in Texas?

Daniel: Okay. So if we want to form an LLC in Texas, then you're going to file a certificate of formation with the Texas Secretary of State and a filing fee. We cannot forget that filing fee. I've seen it get bounced back before.

So your certificate information basically just needs to have the exact kind of information you would think the State would want to have. What is your name? Are you sure that you're an LLC? What are you being formed for? What's your address we can reach you at? Who's the point person? I won't go through every single point here on our slide there. But it's all it's pretty intuitive. They're not going to ask you what your favorite color is or what your high school mascot was or something.

Probably the least intuitive thing though that is rather important is you need to explain whether you're going to be manager-managed or member-managed. This can get a little confusing. Maybe it's because all the words start with M. But member-managed just means whoever the equity holders in this LLC are, that is its members, they're going to actually run the LLC. They're going to do everything for the LLC. And so you need to let the State of Texas know that so that they can kind of know who you are and how to get a hold of you. Or you can have managers be in charge of your LLC. So that would mean someone who might be a member, might not, it doesn't really matter, they're going to be the manager, and surprise, surprise they will manage the affairs of the LLC.

There's really no right way or wrong way to go about it. Talk with your attorney. It just sort of depends on your situation one or the other might make more sense for you. But that's, I think, worth highlighting because, as we'll see in a little bit Delaware, just has slightly different requirements in their certificates of formation.

And so the exact day your LLC begins can be when you file. You can also say I'm filing now, but please don't consider this effective until such and such date. You can also be formed as part of a conversion or a merger, in which case you're going to file your certificate of conversion or your certificate of merger, and it'll proceed to give all of the same kinds of information to the State of Texas.

A few other things to note. Your LLC needs to have something in its name that sort of tips people off that it is an LLC. So I could form Daniel Lewis LLC or Daniel Lewis Limited Liability Company or something like that, and that would just kind of help the world understand that, yes, this is an LLC that I'm dealing with.

We can move on here to a few other points of interest. The real nuts and bolts of how an LLC is going to work are not really going to be found in the certificate of formation. That's going to be in the company agreement. That's where you're going to really get into the meat and potatoes of here's how we're going to be managed. Do we have managers? If so, do we have one, two , three, four? How long do they serve? Can we get rid of them? How do members vote? What sort of percentage of members are needed to vote for certain things? That's all going to get spelled out in your company agreement, but you don't have to put that in your certificate of formation for the whole world to see.

So again, the certificate of formation is what forms the entity, so hence the name formation. Delaware we'll see has slightly different requirements. But at this point, Byron, if you'd like to take them microphone back and talk more about the Delaware side.

Byron: Okay, let me do that. Let's see. So basically, in Delaware, you form it just like you do in Texas with a certificate of formation, but the key, like in Texas, the company agreement is called, they call it a limited liability company, but it's a limited liability company agreement. But it's essentially the same as the company agreement, and it's defined in the Delaware statute as the principal governing document of the LLC, and it encompasses any, and I'm going to read the quotes, "any agreement . . . written, oral implied, of the members as to the affairs of the limited liability company or its business." So that's the guts of how you govern an LLC in Delaware. And the critical thing is to spell out exactly what you intend, how it's going to be governed, and what the duties of the various parties are, who's going to bring the cookies, the whole who's going to contribute capital, the amounts, how is it going to be managed.

A member or manager is bound by an LLC agreement whether or not he signs it. So it's a contract that binds all the people that own interest in it and the fiduciaries, but they aren't signatories. That's just statutory.

An LLC agreement may be amended according to it its terms. But it doesn't require a filing with the Delaware Secretary of State.

Single member LLCs are expressly authorized. If an LLC is to be managed or managed, its managers will oversee its business and affairs, just like a board of directors just like in Texas. And a manager, like in Texas, may be an individual, corporation, or other entity. And it may have a single member, a single manager that's a corporation or other entity, or a human being.

The certificate of formation or the company agreement may provide that the LLC's members will manage it, just like in Texas, just like a close corporation. So you could have an LLC run without managers, like a close corporation, or you have it run by managers day-to-day operations. Officers, of course, are elected by the managers or the members if it's a member-managed. It's therefore critical that the company agreement specify who has the authority to obligate the LLC contractually or to empower others to do.

A manager is an agent of an LLC, that's an important point, and has the authority to manage it. The company agreement specifies how the managers are selected, their terms of office, how they may be removed, etc.

And then, the TBOC is going to authorize in an emergency, and this is what we had back in COVID, situation where you couldn't get the managers together to take action. So you had emergency provisions that you put in your documents to provide alternative government. For instance, if you have a requirement that you have a quorum to take action, you may have in your governing documents some provision that one person can act. So that's a flexibility that we have.

In Texas, a bar committee produces amendments to the Business Organizations Code that are considered by the legislature every two years. So we keep it up to date, and it gets amended from time to time in response to situations that come up, like emergencies. And that's the result of the emergency provisions I just described.

Now we're going to focus on TBOC §101.254, which is a critical provision. It provides that the following are the LLC's agent: any officer or other agent who is vested with actual or apparent authority to act on behalf of the entity; each manager to the extent that management of the LLC is vested that manager; and each member, again to the extent that management has been reserved to the members or that member.

And if a member is named in the LLC and it takes on an act apparently to carry on the LLC's business in the usual way, like executing a document in the LLC's name, then that person binds the LLC, unless that individual lacks the authority to act for the LLC, and the third party knows that that individual lacks the authority. Lenders dealing with an LLC will determine with certainty who has the authority by looking at the documents. Critical point.

The Delaware provisions are really essentially the same.

Fiduciary duties, that's a gut issue in both Texas and Delaware. The TBOC, like Delaware, does not address specifically whether managers or members have fiduciary or other duties. It does not even attempt to define fiduciary duties. But it's implied in the case law that says that these duties may exist under statutory provisions that permit a company agreement to expand or restrict those duties. So in other words, the statute doesn't say whether there are fiduciary duties existing, but it allows them to be modified by a company agreement. So that's a critical point of drafting.

In a manager-managed LLC, the managers' duty is to the LLC see, and it's assumed to be fiduciary duty by reference to the fiduciary duties of corporate directors, unless the company agreement says otherwise. Now most of the company agreements I work on attempt to deal with fiduciary duties, who owes them, and how they are going to be expanded or limited.

By analogy to corporate directors, managers would have the duties of obedience, care, loyalty, and they should have the benefit of the business judgment rule. That says that the courts defer to the business judgment of the directors. Like a corporate director, who theoretically represents all the corporation's shareholders, a manager should be deemed to have a fiduciary duty to all of the members. Whether the members owe a fiduciary duty to each other, to other members, or to the LLC is going to be determined by corporate principles. And my general impression is that the case law is coming down to the duty is owed to the entity itself and not to other managers or members. But, of course, that can be varied by the facts and circumstances or by the company agreement.

Three provisions of the TBOC allow company agreements to expand, restrict, or waive the duties, including fiduciary duties, critical, and liabilities of members, managers, and other persons to the LLC or to its members or managers. To the extent that any or all fiduciary duties are waived, there would be no fiduciary duties to breach, thus any liability for breach of fiduciary duty would not exist. So said again, the company agreement may waive any or all of the fiduciary duties of the managers or members. And if that's the case, then there would be no fiduciary duty to breach. Very critical point. Now that's going to be a highly-negotiated provision. If you're a member, you may want other members to owe you a fiduciary duty. So that's something that gets worked out in the drafting of the governing documents.

The TBOC, in §7.001, allows the elimination of liability to the LLC or its owners or members for breaches of fiduciary duties. But there's an exception for the breach of the duty of loyalty, bad faith, etc. In other words, breaches of the duty of loyalty cannot be eliminated under that provision. But under the other provisions, §101.052, etc., you can waive those duties and therefore eliminate them. Hence §7.001 is an earlier provision that's in the code, but it's not going to be typically relied on.

I've got in the slides a sample restrictive provision that attempts to restrict or eliminate fiduciary duties. So it says this agreement is not intended to and does not impose any fiduciary or other duty on any member or manager. No fiduciary duty is created by this document then. Furthermore, each of the members, the managers, and the company hereby, to the fullest extent permitted by the law. And we see that that's pretty broad. To the extent that those duties exist, they're hereby waived, and that there's no duty that exists, except as set forth in this agreement. And the idea is you take away fiduciary duties because a breach of fiduciary duty is a tort and punitive damages lie for a tort. But then you're going to want to govern the relationships of the people.

But notwithstanding if they've eliminated fiduciary duties, but then it's contractually agreed, so the damages for breach of this is going to be a breach of contract, for which it's actual damages and equitable relief is available. And then it says basically the managers shall not permit, not authorize any of the following acts, and that begins to get to the things that the members want to eliminate the managers from doing. And then the second provision deals with interested party transactions, and it basically allows a member or manager to deal with the LLC, but then typically requires that to be on terms no less favorable to the company that would be obtainable in an arm's length transaction. So that's all contractual, very much like in a loan agreement.

Provisions, like what I just read to you, are going to be heavily negotiated, and some investors absolutely refuse to accept those limitations. Now, in Delaware, you cannot eliminate a contractual duty of good faith and fair dealing. And in Texas, we don't have a robust duty, and it generally does not exist in all contractual relationships. However, there are a few cases where there is a special relationship between the parties, like in an LLC, and where there's unequal bargaining power, a court of equity may want to adjust things and put some duties of good faith and fair dealing on a member to be sure that things are fair.

So basically, the statute allows you to eliminate fiduciary duties, and there's not a duty of good faith and fair dealing. But courts in Texas and in Delaware refuse to actually let people get away with certain things. There no contractual good faith and fair dealing cases in Texas really.

In a joint venture, the duty of a manager to all members could be an issue because managers may be selected to represent the interests of particular members. And the way you can address that kind of issue is structure the LLC to be managed by the members, and they then appoint representatives to act for them.

Daniel: Okay. So the Delaware Limited Liability Company Act doesn't actually codify manager or member fiduciary duties. And you can actually do this, it feels a little counterintuitive, but you can set up your LLC to specifically eliminate fiduciary duties. Although, as we'll see, it might not be quite as easy as just waiving your wand and saying it's so. You could find out later that you didn't effectively get rid of those.

So the general rule is that unless the LLC in the LLC agreement modifies, you're going to have common law fiduciary duties that are going to apply. So let's dive into this a little deeper.

So Delaware statutes that control partnerships and LLCs provide that really we want to give maximum effect to the freedom of contract. And when you make an LLC agreement or a limited partnership agreement, that really just is a contract, a contractual agreement among the members or the partners. So as a general rule, Delaware is going to try to honor what those people have agreed to and not really get in the way or be eager to rewrite contracts the way the courts think they should have been written. You might call this a contractarian approach, which is we respect the parties' bargains manifested in contract.

So move to this next slide. So you might think about using something like the second bullet point language if you've got a Delaware LLC agreement and you're trying to effectively eliminate those fiduciary duties. I trust that you can all read that, so I'm not going to read it word for word. And I will just make a quick plug. "Egan On Entities" has a lot of great sample language that you can use in your company agreements or limited liability company agreements in Delaware. But the idea is we've sort of crafted some language based on Delaware statutes and Delaware Chancery Court cases to make sure that we help you do what it is you think you're trying to do.

So the other thing to bear in mind is if this is the sort of thing you're drafting, odds are pretty good that you're a sophisticated party and negotiations could get kind of intense. So you might have to give and take a little bit, and so maybe you don't quite get that full-throated disclaimer of fiduciary duties, like you would want here. That's just something to bear in mind. You ultimately are just trying to negotiate how risk will be allocated.

So provisions in your LLC agreement that kind of purport to put some limits on those fiduciary duties need to be very explicit and conspicuous. You can't just be as it were just talking about the fiduciary duties and then just kind of like mumble off on the side, just kind of whisper like, "Oh, fiduciary duties go away." The courts don't like that. We all want to know that even if we're going to be "contractarians," we still like to know that you actually knew what you were contracting for, and so you need to be very clear. Again, shameless plug, if you look at "Egan On Entities," there's some great language that just makes it very clear, falls very much within what courts will look for language to help you eliminate fiduciary duties if you're trying to.

Let's see. Okay, so as in Texas, Delaware corporate fiduciary duty is based on common law, and it's relevant to LLCs. It embraces the duties of care and loyalty. So big point of continuity.

A point of discontinuity, Delaware is going to hold that directors may be found to have breached their fiduciary duty of loyalty if they just kind of sit there and do nothing, they fail to act, even in the face of a known duty to act. That is they can act in bad faith. And we first heard about that in a very famous case called Caremark.

Byron: Yeah, that's a long way back. But the thing is Caremark has been embraced in Delaware repeatedly. There are lots of cases, Caremark cases in Delaware that are cited in the book.

The classic to me is the Marchand v. Barnhill case, which involved a little Texas corporation. It's a corporation, but this is a situation where corporate principles are applied to LLC's closely held entities. And this is a small subchapter S corporation, headquartered in Brenham, Texas. And through its subsidiaries, it made and distributed ice cream, but some of the ice cream was tainted with listeria bacteria. And some people, about eight of them were sickened, and three died. And the result was lawsuits. Blue Bell had to with withdraw its products, suspend operations, lay off more than a third of its workforce, and then enter into a highly dilutive transaction with a private equity investor. Needless to say, the board of directors was sued in a derivative action, alleging the breach of the duty of loyalty and Caremark.

The Delaware Supreme Court, the Chancery Court found that the board of directors had delegated to management the implementation of food safety programs, and they were nominally complied with. They tried to do what the FDA required. But the Delaware Supreme Court said there were specific facts alleged that the board did not itself, I repeat, the board of directors itself did not get hands-on oversight of food safety. There was no board-level process to address food safety issues, no process by which the board was supposed to be advised of food safety reports, and so on. So management had been delegated the power to do it, authority to do it, and had basically told the board everything was all right. But the complaint alleged that the directors had not done that. They didn't satisfy their duty of loyalty.

So what sounded to me like a duty of care case was a Delaware duty of loyalty case. And it says directors under the duty of loyalty must make a good faith effort to put in place a system of monitoring and reporting about the corporation's central compliance risks. This is like managers. Without more, the existence of management-level compliance programs was not enough for the directors to avoid touching Caremark exposure because the single food product, ice cream was the mission critical, and food safety was critical. And they had not really gotten involved in that.

So that suggests that boards of directors need to be hands-on, maybe have special committees tasked with monitoring corporate risks. And then you can see there are a number of cases cited, and there are more that come down every day, where the board is alleged not to have done what it's supposed to do. So that's a high risk in Delaware.

Caremark has not been adopted by the Texas courts. The duty of oversight claims in Texas, in my opinion, should be treated as duty of care cases under Gearhart and Ritchie v. Rupe and Sneed v. Webre. And in those cases, there's a strong deference to the business judgment of directors. So Caremark would have had a different result. The directors looked at food safety, and then they found that management was doing what it was supposed to do, monitor it, and they didn't get hands on and doing it. So the result would have been different in Texas.

Well, so Daniel, what's a joint venture?

Daniel: Great. So I'll try to be quick here because we're kind of at the buzzer beater. But you can think of it as kind of a limited purpose partnership. Although today, they pretty much always take the form of an LLC. Generally, this is just two parties come together for a strategic purpose. Say it's real estate. Maybe I have a lot of money, but I don't know much about real estate or how to find a good deal. But Byron knows a lot of people. He's wheeling and dealing. He needs some capital. Maybe we form a JV, and it's going to spell out how he's going to bring all these deals to us and I'm going to put in this money and here's how the cash will get distributed back out. So there's so many ways you could form a JV, so many purposes you can form it for. That's just one example.

For our purposes, I see that it's 11:00, and so I'll hit pause there and thank you all for attending our CLE today.