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), which also reaches other domestic entities. LLCs and partnerships are also 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), which also reaches other domestic entities. LLCs and partnerships are also 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
A district court in the county of the entity's registered office or principal Texas place of business 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 statute does not define "not reasonably practicable," and whether the standard is met depends on the facts.
The economic purpose test
Triggers winding-up jurisdiction where economic purpose is "likely" to be unreasonably frustrated. Future or threatened frustration suffices.
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.
§ 11.404, corporate rehabilitative receivership
Substantially narrower, and available for any domestic entity, not only corporations. In an owner's action, a court may appoint a receiver only on (1) insolvency or imminent insolvency; (2) certain deadlock; (3) illegal, oppressive, or fraudulent conduct by the governing persons (with "oppressive" defined in Ritchie); 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 the entity is in receivership and the court does not find feasible any plan presented within one year after the receiver's appointment for remedying the condition that required the receivership, the court may order liquidation, but only if circumstances demand it and all other remedies, including rehabilitation, are inadequate. § 11.405(a)(3), (b).
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 gives minority members of Texas LLCs a remedy that minority shareholders of Texas corporations lack. Section 101.054(a)(6) generally bars a company agreement from waiving or modifying Chapter 11, which contains this remedy. The difference between the LLC and corporate remedies can matter in choosing an entity form.