Judicial Dissolution
A court-ordered termination of a Texas business entity's existence. The Texas regime is bifurcated: corporations are subject to TBOC § 11.404 (rehabilitative receivership); LLCs and partnerships are subject to TBOC § 11.314, which is substantially broader.
Judicial dissolution is a court-ordered termination of a Texas business entity's existence, requiring the entity to wind up its business and distribute remaining assets. The Texas regime is bifurcated: corporations are subject to TBOC § 11.404 (rehabilitative receivership, with conversion to liquidating receivership under § 11.405); LLCs and partnerships are subject to TBOC § 11.314 (involuntary winding up), which is substantially broader and more accessible than the corporate statute.
§ 11.314, the LLC and partnership dissolution statute
The most significant post-Ritchie development for closely-held businesses. A district court has jurisdiction to order winding up of a Texas LLC or partnership on application of an owner if the court determines:
(1) the economic purpose of the entity is likely to be unreasonably frustrated (the economic purpose test);
(2) another owner has engaged in conduct that makes it not reasonably practicable to carry on the business with that owner (the owner conduct test); or
(3) it is not reasonably practicable to carry on the business in conformity with the governing documents (the reasonable practicability test).
§ 11.314(1)–(3). The 2017 amendments extended subsections (1) and (2) to LLCs (which previously could only invoke (3)).
The reasonable practicability test
The most frequently invoked. "Not reasonably practicable" does not require impossibility, it requires that managers and members are unable to pursue the entity's purposes in a reasonable, sensible, and feasible manner. Common applications: voting deadlock, persistent breach of the company agreement by controlling owners, irretrievable breakdown of trust, continuous defeat of the company's stated purpose.
The economic purpose test
Triggers winding-up jurisdiction where economic purpose is "likely" to be unreasonably frustrated. Future or threatened frustration suffices. Leading case: CBIF Ltd. P'ship v. TGI Fridays Inc. (Dallas Court of Appeals).
The owner conduct test
Focuses on the actions of a particular owner that make it not reasonably practicable to carry on the business with that owner. The closest TBOC analog to the pre-Ritchie common-law oppression doctrine and a principal post-Ritchie mechanism for oppressed minority members of Texas LLCs.
§ 11.404, corporate rehabilitative receivership
Substantially narrower. A court may appoint a receiver only on (1) insolvency or imminent insolvency; (2) certain deadlock; (3) illegal, oppressive, or fraudulent conduct (subject to Ritchie's four-element test); or (4) misapplication or waste. The court must additionally find that all other available remedies are inadequate. The remedy is appointment of a rehabilitative receiver, not dissolution and not a court-ordered buyout.
§ 11.405, conversion to liquidating receivership
If a rehabilitative receivership remains in place for more than one year without resolution, the court may convert it to liquidating and ultimately order dissolution. The one-year wait and the lesser-remedies-must-be-inadequate requirement make this a slow path.
§ 11.314 is one of the most important and underused provisions in Texas closely-held business law. Because § 11.314 is not subject to Ritchie's narrow oppression definition and applies to LLCs and partnerships regardless of the four-element corporate test, it provides oppressed minority members of Texas LLCs with substantially more leverage than minority shareholders of Texas corporations have under § 11.404. The bifurcation between LLC and corporate dissolution remedies is one of the strongest reasons closely-held Texas businesses seeking the most owner-protective regime should consider LLC form rather than corporate form, all else being equal.