Derivative Standing
Derivative standing is the right to sue on behalf of an entity for a wrong done to it. In Texas the plaintiff generally must have been an owner at the time of the conduct complained of, or have taken the interest by operation of law from someone who was, and courts also require ownership when the suit is filed. Losing the interest before filing can end the claim outright.
The company owns the claim. A shareholder who thinks the directors wasted company assets has not been injured in a way the law recognizes separately, because the company has. Derivative procedure is the workaround, and standing is its first and most fatal requirement.
The statutory framework
Corporations are governed by Tex. Bus. Orgs. Code §§ 21.551–.563 and limited liability companies by §§ 101.451–.463. The two schemes run in parallel. Each requires the plaintiff to have been an owner at the time of the act or omission complained of, or to have become one by operation of law from such an owner, before the plaintiff may institute or maintain the suit. Each requires a written demand on the entity, followed by a waiting period during which the entity may investigate through a committee of disinterested persons.
Closely held entities are relieved of most of that machinery. Under § 21.563 for corporations and § 101.463 for limited liability companies, §§ 21.552–.560 and §§ 101.452–.460, including the standing, demand and committee provisions, do not apply to claims against present or former insiders, the court may treat a derivative proceeding as a direct action, and recovery may be paid to the plaintiff rather than to the entity where justice requires. A closely held limited liability company is one with fewer than 35 members and no membership interests listed on a national securities exchange or regularly quoted over the counter. Sneed v. Webre, 465 S.W.3d 169 (Tex. 2015), applying the predecessor provision, held that a shareholder of a closely held corporation may pursue a derivative claim without interference from the board and need not plead around the business judgment rule to establish standing.
Ownership at filing
The business court enforced the requirement without sympathy in Crain v. Northern, 2026 Tex. Bus. 11 (8th Div. Mar. 11, 2026). The court's buy-sell ruling, issued after suit was filed, fixed the assignment of his membership interests as of December 19, 2024, six months before he filed. That was enough. Membership at the time of filing is required, and a former member has no standing to pursue the entity's claim no matter how well founded the underlying grievance.
The timing point is uncomfortable. In Crain a ruling entered after suit was filed set an earlier assignment date for the interest, and that date controlled standing. A pending buyout can therefore be argued as a standing bar.
The 2025 threshold provision
S.B. 29, effective May 14, 2025, added Tex. Bus. Orgs. Code § 21.552(a)(3), which lets a corporation adopt an ownership threshold of up to 3% of outstanding shares as a condition of derivative standing. It is an opt-in, and its reach is limited. It is available to a corporation with common shares listed on a national securities exchange, or one that has affirmatively elected to be governed by § 21.419 and has 500 or more shareholders. The threshold must appear in the certificate of formation or bylaws. Because § 21.551(2)(C) treats two or more shareholders acting in concert as a shareholder, holders may aggregate to meet it.
Most private Texas companies cannot use it.