Texas attorney Byron Egan has spent his career thinking about where to form business entities and which entity is best entity for a given transaction. “The choice of the state for formation is critical,” he explained in a recent CSC webinar. “The state of organization of an entity governs the fiduciary duties of the managers and members to each other and to the entity.”
Egan, a partner in the Dallas offices of Jackson Walker, is one of the industry’s leading authorities on choosing and leveraging entities to do business. He’s been listed in “The Best Lawyers in America under Corporate, M&A or Securities Law” for over 20 years, and is the only attorney to win the Burton Award for distinguished legal writing four times.
Egan has drawn on his over 40 years of experience advising clients, helping to draft Texas entity statutes, and teaching legal education courses to write EGAN ON ENTITIES: Corporations, Partnerships and Limited Liability Companies in Texas, a unique and valued resource for attorneys, board directors and students looking to understand and make critical decisions about business entities.
Now in its Third Edition, the treatise provides hands-on guidance for dealing with the formation, governance, sale, and termination of entities. Egan also incorporates in-depth analysis of adjudicated cases and legal literature to further explain which entity form is best for a particular situation.
“A business today can be organized as a corporation, partnership (general, limited and limited liability) or limited liability company (“LLC”),” the author explains in the book’s preface. “Each of these forms of business entity has its own characteristics which affect those who own the entity and those who deal with it. Those characteristics determine how the respective entities are formed, governed, financed and sold. In the current economic environment owners and governing persons of entities must focus on merger and acquisition (“M&A”) transactions by which they can exit the entities they have developed, and others may seek to entice or force them to do so. Transactions involving those who manage or control entities, including M&A transactions, particularly implicate their common law fiduciary duties.”
Important updates in the Third Edition
This Third Edition represents a comprehensive updating and expansion of prior editions. The legislatures of Texas and Delaware amended their business entity statutes subsequent to the Second Edition, which led to sections in the Third Edition summarizing the statutory changes, several of which were subtle but yet significant. Numerous affected sections of the book were revised and expanded to discuss the amended statutes.
The Third Edition also discusses many significant recent judicial decisions affecting business entities by courts in both Texas and Delaware. The tax appendices were updated to reflect recent amendments to the Internal Revenue Code of 1986, as amended, and the regulations of the Internal Revenue Service thereunder, which in turn necessitated changes in the matrix of considerations in choosing the form of entity to use for a business.
“The legislators in Texas and in Delaware meet regularly,” Egan explained in a recent interview. “In Texas, they meet every two years, and in Delaware, they meet every year. The result is over a two-year span, there has been a substantial change in the laws in Texas and in Delaware—the statute laws.
“The courts have been meeting in this period and deciding cases, so there are new cases that interpret the statutes and the common law. There is a lot in the book that has to change to keep up to date. We also have changes in tax laws and regulations.
So, the result is that practically every page in the book changes. And the net result is we have approximately 900 pages of book, and about 800 of those changed from before and another 100 are new. So, there’s a lot of stuff in there.”
EGAN ON ENTITIES Excerpt: Commentary on Energy Transfer Partners, L.P. v. Enterprise Products Partners, L.P.
Among the changes is an update to the discussion of Energy Transfer Partners, L.P. v. Enterprise Products Partners, L.P. case following the Texas Supreme Court decision in January 2020. The landmark case addressed the question of whether Texas law permits parties to conclusively agree that no partnership exists unless certain conditions are satisfied. Egan reflects on the case in sections of the treatise devoted to both joint ventures and partnerships.
Disputes often arise over whether the parties have formed, or committed themselves to form, a joint venture. Texas law embraces the principles of freedom of contract and allows parties to condition their obligations to be bound by a contract or form a partnership. These principles were confirmed by the Texas Supreme Court in Energy Transfer Partners, L.P. v. Enterprise Products Partners, L.P. which involved a series of preliminary agreements that were entered into between Energy Transfer Partners, L.P. (“ETP”), a Dallas based Delaware master limited partnership (“MLP”), and Enterprise Product Partners, L.P. (“Enterprise”), a Houston based Delaware MLP. ETP and Enterprise entered into these preliminary agreements with a view to forming a joint venture to build and operate a large pipeline which they called the “Double E Pipeline” from Cushing, Oklahoma, which was receiving oil from the Dakotas and Canada, to the Gulf Coast of Texas, which had refineries.
Those preliminary agreements provided that the obligations of the parties were conditioned on the execution of a definitive joint venture agreement and approvals by their respective boards of directors. Although no definitive joint venture agreement had been signed, the parties proceeded to spend time and money on the project and, reminiscent of Texaco v. Pennzoil, they communicated publicly that a joint venture had been formed and marketed the pipeline to potential customers.
The parties’ marketing efforts did not produce enough commitments to ship through the proposed new pipeline to meet their agreed minimum threshold. Enterprise terminated its participation in the project and shortly thereafter entered into agreements with Enbridge (US) Inc. (“Enbridge”), another large pipeline company, for an alternative crude oil pipeline from Cushing to the Texas Gulf Coast. Enterprise and Enbridge had begun discussions before Enterprise announced that it had terminated the project.
ETP sued Enterprise in state court in Dallas alleging this breached Enterprise’s contractual obligations and fiduciary duties to ETP. Notwithstanding the express provisions in preliminary agreements that no party was bound unless and until definitive agreements were signed, ETP claimed, and the jury found, that the parties’ ensuing conduct served to form a Texas law general partnership and that Enterprise breached its fiduciary duty of loyalty to ETP when it negotiated with and then entered into an agreement with Enbridge. The trial court awarded ETP judgment for $535 million. This decision was reversed by the Court of Appeals. The Texas Supreme Court affirmed the decision of the Court of Appeals, summarizing in the first paragraph:
“The issue in this case is whether Texas law permits parties to conclusively agree that, as between themselves, no partnership will exist unless certain conditions are satisfied. We hold that it does and that the parties here made such an agreement. Accordingly, we affirm the judgment of the court of appeals.”
Praise for EGAN ON ENTITIES
The treatise has garnered praise for its scope and detailed treatment of the subject matter. “EGAN ON ENTITIES: Corporations, Partnerships and Limited Liability Companies in Texas incorporates a profound understanding of the corporation, partnership and limited liability company laws governing entities doing business in Texas,” writes Myron T. Steele, former Chief Justice of the Supreme Court of Delaware. “The work admirably elucidates the intersection of the entity laws of Delaware and Texas, and should be a resource to all who advise businesses in Texas.”
The Third Edition of EGAN ON ENTITIES is available as a hardbound book or as an ebook, compatible with dedicated e-reader devices, computers, tablets and smartphones that use e-reader software or applications. It is also available on the LexisNexis Digital Library.