delivered the opinion of the Court.
The business judgment rule in Texas generally protects corporate officers and directors, who owe fiduciary duties to the corporation, from liability for acts that are within the honest exercise of their business judgment and discretion. See Cates v. Sparkman,
I. Factual and Procedural Background
This case demonstrates the close ties within closely held corporations. In 1926, C.J. Webre started a family business mining salt from underground salt caverns in Hockley, Texas. The family business grew and became profitable. Over time, the family business evolved into multiple corporations and companies, wholly owned subsidiaries, and affiliates that engaged in brine production ánd salt manufacturing. Texas Brine Company, LLC and other related entities drilled wells into salt caverns to produce and recover brine. The brine producing line of companies also used the underground caverns by injecting gas or liquid hydrocarbons for storage. Texas United Corporation and its wholly owned subsidiary, United Salt Corporation, engaged in the business of manufac-
Ownership of the entities comprising the family business has remained within the Webre family. During the relevant time in this case, four siblings — Lloyd P. We-bre, Jr., Camille Webre Tichenor, Mary Iris Webre, and Roberta Webre Rude (collectively the Webre siblings) — each owned roughly 24% of the Class A voting stock in Texas United.
Robert Sneed served as the president and CEO of Texas United. Sneed also served as the secretary and treasurer of Texas Brine. In addition to being a shareholder and board member, James Tichenor served as Texas United’s senior vice president. Tichenor also served as the vice president of Texas Brine. Fred Wolgel served as Texas United’s vice president and general counsel. Wolgel also served as the vice president and general counsel of Texas Brine.
The four Webre siblings also served on the board of directors of Texas United’s wholly owned subsidiary, United Salt, along with Iris P. Webre (their mother), Arnold Webre (their uncle), their brother-in-law James Tichenor (Camille Webre Tichenor’s husband), and Robert Duboise. James O’Donnell served as the president and CEO of United Salt.
Although each of the entities comprising the family business was closely held, the Webre family operated them as if they were larger, publicly traded entities. The entities were managed in full observation of all corporate formalities, there were regular shareholder and board of director meetings, and the entities kept written records of the actions and resolutions taken at those meetings. The family business also employed other staff, employees, and officers to help run the various entities.
A. The Saltville Acquisition
The dispute in this case arose from a United Salt business deal to acquire a salt mining and storage facility in Saltville, Virginia (the Saltville Acquisition). Beginning in 2006, United Salt’s president, James O’Donnell, presented the Saltville Acquisition as a new business opportunity to the board of directors. The acquired land and facilities would be used to recover salt for sale, and a plan was formed to expand the Saltville facilities to drill additional wells to extract salt from the brine and to eventually use the underground caverns created by the brining process for gas storage. Due to concerns over the potential liabilities of operating a gas storage facility, Texas Brine was to create a new subsidiary to acquire the gas storage operations immediately after the Saltville
Over the course of several years, corporate records reflect that the'United Salt board of directors took numerous votes and actions with respect to conducting, affirming, and ratifying the Saltville Acquisition. Every vote was passed by a majority of the United Salt board of directors. Eventually, the United Salt board became aware that the cost of the Saltville Acquisition was exceeding initial projections, and the board commissioned investigations into the cost overruns to inquire about any possible wrongdoing. The investigations included the hiring of an independent accounting firm to conduct an audit of the Saltville Acquisition, but the accounting firm did not find any fraud or self-dealing in the payment of expenditures or costs. Financial projections for the Saltville Acquisition, which included projected cost overruns, forecasted that the deal would generate a net profit of $46 million over the first ten years. Each of the four We-bre siblings, as shareholders of United Salt’s parent corporation, Texas United, were projected to receive approximately $10 million in profit from the deal over the same ten-year period.
One United Salt director, Lloyd P. We-bre, Jr. (Webre), who was also a Texas United director and shareholder, was not convinced about the profitability of the Saltville Acquisition. He dissented every time the United Salt board took a vote regarding the deal. .He even visited the Saltville facility to question its management about his concerns. Time and again, he voiced his concerns at the United Salt director meetings to his family and the other directors, and time and again, a majority of the board of directors voted to proceed with the Saltville Acquisition.
B. The Lawsuit
After the Saltville Acquisition was completed, Webre sued a director and several of the officers and managerial employees of United Salt and other affiliated entities in his individual capacity and derivatively on behalf of United Salt and Texas United. Webre’s lawsuit was based on his status as a shareholder in Texas United. Specifically, Webre sued Robert Sneed, James Tichenor, Fred Wolgel, and James O’Donnell (collectively, the individual defendants) as the officers and managers of United Salt and the other entities affiliated with Texas United.
Webre amended his petition to allege that the individual defendants “purposely and fraudulently failed to fully inform the directors of United Salt about the full scope of the [Saltville Acquisition], potential liabilities, additional costs, and plans for the future of the Saltville Acquisition and that such actions were fraudulent and a breach of their fiduciary duties.” Webre also alleged that the individual defendants breached their fiduciary duties by recklessly entering into contracts on behalf of United Salt that the corporation could not perform, and that they engaged in fraudulent concealment of key information relating to the Saltville Acquisition. Recognizing the large overlap between the management of the entities involved in the Saltville Acquisition, Webre alleged that the respective boards of directors relied heavily on the individual defendants for advice, guidance, and information in making corporate decisions. This heavy reliance enabled the individual defendants to manipulate the respective boards by providing false or incomplete information. Webre alleged that he visited the Saltville site personally, discovered numerous problems associated with the proposed acquisition, and wrote a letter to the individual defendants in April 2007 detailing his concerns. He alleged that the individual defendants failed to fully investigate all of the concerns presented in the letter, and in a special United Salt board meeting later that month, the individual defendants failed to provide the board with complete information to allow the board members to make an informed decision about whether to proceed with the Saltville Acquisition. As a result, a majority of the United Salt board members voted to reaffirm the Saltville Acquisition, and later, according to Webre, the numerous problems he predicted materialized and caused United Salt and Texas United significant financial loss. Webre also accused the individual defendants of knowingly or recklessly supplying false information to the United Salt and Texas United boards of directors to boost the corporations’ financial forecasts so the individual defendants would receive higher performance bonuses.
Texas United and United Salt (collectively, the corporations) intervened as indispensable defendants. The corporations and the other individual defendants (collectively, the defendants) filed special exceptions, pleas to the jurisdiction, pleas in abatement, motions for summary judgment, and motions to dismiss that contended, among other things, that Webre lacked standing to assert a shareholder derivative lawsuit.
The trial court found that Webre lacked standing to sue, but it did not elaborate on whether Webre’s lack of standing was based on the double-derivative nature of the lawsuit or because his pleadings failed to overcome the business judgment rule. The trial court granted the pleas to the jurisdiction and motions to dismiss the lawsuit, and it did not rule on the motions for summary judgment, pleas in abatement, or special exceptions.
The court of appeals reversed.
II. Discussion
This case involves closely held corporations, which are defined as having fewer than thirty-five shareholders and “no shares listed on a national securities exchange or regularly quoted in an over-the-counter market by one or more members of a national securities association.”
By definition, a “closely held” corporation is owned by a small number of shareholders whose shares are not publicly traded. Often, these shareholders enjoy personal relationships as friends or family members in addition to their business relationship. Sometimes, they enter into shareholder agreements to define things like their respective management and voting powers, the apportionment of losses and profits, the payment of dividends, and their rights to buy or sell their shares from or to each other, the corporation, or an outside party. Occasionally, things don’t work out as planned: shareholders die, businesses struggle, relationships change, and disputes arise. When ... there is noshareholders’ agreement, minority shareholders who lack both contractual rights and voting power may have no control over how those disputes are resolved. As a group of law school professors ... observed, minority shareholders in closely held corporations have “no statutory right to exit the venture and receive a return of capital” like partners in a partnership do, and “usually have no ability to sell their shares” like shareholders in a publicly held corporation do; thus, if they fail to contract for shareholder rights, they will be “uniquely subject to potential abuse by a majority or controlling shareholder or group.” Unhappy with the situation and unable to change it, they are often unable to extract themselves from the business relationship, at least without financial loss.
Ritchie,
A. Applicability of the Business Judgment Rule to Closely Held Corporations
In Texas, the business judgment rule protects corporate officers and directors from being held liable to the corporation for alleged breach of duties based on actions that are negligent, unwise, inexpedient, or imprudent if the actions were “within the exercise of their discretion and judgment in the development or prosecution of the enterprise in which their interests are involved.”
Thus, the business judgment rule traditionally is implicated twice within the life cycle of a shareholder derivative proceeding brought on behalf of a corporation. First, the business judgment rule applies to the board of directors’ decision whether to pursue the corporation’s cause of action. See Cates,
The defendants urge us to “reaffirm that the business judgment rule in Texas applies to derivative suits brought on behalf of all corporations, including closely held corporations.” The defendants accuse the court of appeals of “removing the protections of the business judgment rule from closely held corporations, [which] conflicts with over 100 years of Texas law represented by Cates and its progeny, not to mention equally long-standing authority in other states.” In response, Webre contends that “Sections B through H [of article 5.14] provide the statute’s traditional ‘business judgment rule’ provisions, requiring demand, majority vote by the directors, and so forth.” Further, Webre argues that the Legislature intended to exempt closely held corporations from those “requirements and defenses” by enacting article 5.14(L). At oral argument, both parties conceded that the business judgment rule applies in derivative proceedings to the merits of the case.
We disagree with the defendants’ characterization of the court of appeals’ opinion and find no instance where it held that the business judgment rule is entirely inapplicable when derivative suits are brought on behalf of closely held corporations. Instead, the court of appeals held that “sections (B) through (H) of article 5.14 do not apply to derivative suits filed on behalf of closely held corporations.”
Our recent decision in Ritchie affirms that the business judgment rule applies to closely held corporations. See Rit-chie,
B. The Business Judgment Rule and a Shareholder’s Standing to Initiate a Derivative Proceeding on Behalf of a Closely Held Corporation
“Standing is a constitutional prerequisite to maintaining suit in either
Standing is a component of subject matter jurisdiction that courts review de novo. Tex. Dep’t of Transp. v. City of Sunset Valley,
Relying on Cates, the defendants contend that the business judgment rule “vests responsibility for decision-making in the corporation’s board of directors and precludes shareholders from disrupting the board’s decisions through derivative actions when the board has determined a particular action is or is not in the corporation’s best interest.”' The defendants assert that the corporation owns the cause of action, and, under article 2.31 of the TBCA, the board of directors, and not shareholders or even the courts, has the power to manage the corporation’s affairs. Included under article 2.31’s grant of board-only management is the sole authority to decide whether to pursue the corporation’s legal rights in litigation. The defendants cite Delaware case law for the proposition that “[t]he business judgment rule is a threshold issue of substance in every derivative suit without exception, because a shareholder suit is in essence a challenge to the board of directors and their managerial power over derivative litigation.” According to the defendants, because the business judgment rule is substantive, it “creates a presumption that the directors acted lawfully in taking corporate actions, including refusing to bring derivative suits.” Therefore, the defendants contend that for Webre to divest the United Salt board’s control over the corporate cause of action and maintain a derivative suit, he must plead and prove that the board of directors acted in a manner that goes beyond unsound business judgment. To obtain standing under the defendants’ theory, Webre would have to plead and prove that the board of directors’ failure to pursue the corporate cause of action was “characterized by ultra vires, fraudulent, and injurious practices, abuse of power, and oppression on the part of the company or its controlling agency clearly subversive of the rights of the minority, or of a shareholder, and which, without such interference, would leave the latter remediless.” Cates,
Our analysis begins with the statute that governed shareholder derivative suits in Texas during the relevant time in this case, article 5.14 of the TBCA. See
It is critical to recognize, and indeed outcome determinative in this case, that article 5.14’s standing, demand, and mandatory dismissal requirements do not apply to shareholder derivative lawsuits brought on behalf of closely held corporations. See Tex. Bus. CoRP. Act art. 5.14(L)(1) (“The provisions of Section B through H of this article are not applicable to a closely held corporation.”). Thus, with respect to closely held corporations, all that remains is article 5.14(A)(l)’s recognition that a derivative proceeding “means a civil suit in the right of a domestic corporation,” and article 5.14(L)’s recognition that a shareholder of a closely held corporation may bring a derivative proceeding, and, if justice requires, a court may treat the derivative action as a direct action brought by the shareholder for his own benefit and award recovery directly to the shareholder or derivatively to the corporation.
The parties agree that Cates is the seminal case on the business judgment rule in Texas. There, the Court posed a lengthy question of whether a shareholder plaintiffs allegations were sufficient to maintain a suit against officers and directors of a corporation for fraudulent practices and misapplication of corporate assets that allegedly caused the shareholder to suffer loss because the value of his stock depreciated and the corporation had actually or virtually refused to sue on its own behalf. Cates,
It may be safely said that courts of equity have not, as a general rule, been disposed to exercise their jurisdiction through suits like the present to control or interfere in the management of the corporate or internal affairs of an incorporated company. The company’s business is left to the direction of the officers or managing board which, by the law creating it,- may be clothed •with the power and discretion to conduct its affairs in the manner which, in their judgment, is best calculated to promote its interests. To justify the interposition of the courts there must exist, as a foundation for such suit, some action, — a threatened action of such board or officers which is beyond the power conferred by its charter, — or such fraudulent transaction completed, contemplated among themselves, or with others, as will result in serious injury to the stockholders suing.
Id.
In Cates, the Court announced three requirements that were “regarded as indispensable as the basis for such a [shareholder derivative] suit: The company must refuse to sue; there must be a breach of duty; there must be injury to the stockholder.” Id. at 849 (citation omitted). The Legislature later codified these requirements in article 5.14 of the TBCA. See Act of May 26, 1973, 63rd Leg., R.S., ch. 545, § 37, 1973 Tex. Gen. Laws 1486, 1508-09, amended by Act of May 13, 1997, 75th Leg., R.S., ch. 375, § 30, 1997 Tex. Gen. Laws 1517, 1540-43 (expired January 1, 2010). With respect to corporate law, we have previously recognized that when the Legislature codifies common law corporate principles, “[t]he effect of these statutes was to supplant the equitable [common law] theory by declaring a statutory equivalent.” Hunter v. Fort Worth Capital Corp.,
Quite simply, by virtue of Article 5.14, the Legislature codified a shareholder’s right to bring a derivative proceeding on behalf of a closely held corporation. Cf. Williams,
The Court’s discussion in Cates about the necessity of a shareholder requesting that the corporation bring suit to enforce its rights was a precursor to what is now commonly known as the demand requirement, which was later codified in article 5.14(C). See Tex. Bus. CoRP. Act art. 5.14(C). This Court has previously discussed the statutory history of the demand requirement:
The contours of the demand requirement in Texas law have always been somewhat unclear, in part because shareholder derivative suits have been relatively rare. The original 1941 rules of civil procedure imposed a demand requirement in derivative suits, but that provision was repealed four months after it became effective. It reappeared in 1973 in article 5.14 of the [TBCA], which required that an initial pleading state “[w]ith particularity, the efforts of the plaintiff to have suit brought for the corporation by the board of directors, or the reasons for not making any such efforts.”
In 1997, the Legislature extensively revised the [TBCA] “to provide Texas with modern and flexible business laws which should make Texas a more attractive jurisdiction in which to incorporate.” Included were changes to article 5.14 toconform Texas derivative actions to the Model Business Corporation Act. Article 5.14(C) now provides that “[n]o shareholder may commence a derivative proceeding until ... a written demand is filed with the corporation setting forth with particularity the act, omission, or other matter that is the subject of the claim or challenge and requesting that the corporation take suitable action.” Unlike Texas law for a century before, the new provision requires presuit demand in all cases; a shareholder can no longer avoid a demand, by proving it would have been futile.
In re Schmitz,
But this statutory demand requirement does not apply to shareholder derivative proceedings brought on behalf of closely held corporations. See Tex. Bus. CoRP. Act art. 5.14(L). We must give meaning to the Legislature’s removal of the demand requirement in derivative proceedings brought on behalf of closely held corporations. See Hunter,
The United States Supreme Court has accurately recognized that “the contours of the demand requirement— when it is required, and when excused— determine who has the power to control corporate litigation.” Kamen,
Under the same reasoning, we hold that by removing the mandatory dismissal requirement with respect to closely held corporations, the Legislature removed the ability for disinterested and independent directors or a special investigation committee to decide whether continuing the derivative proceeding is in the best interest of the corporation. See Tex. Bus. Corp. Act art. 5.14(F), (L). Because the Legislature excepted closely held corporations from this mandatory dismissal requirement, we decline the defendants’ request to reinstate it in an alternative form.
In a similar vein, we address the defendants’ contention that to divest a closely held corporation’s ownership of a cause of action, a shareholder plaintiff must plead and prove that the board of director members were not disinterested or acted fraudulently in declining to pursue the corporation’s cause of action. This contention mimics the “demand futility” exception from Cates that was codified in the pre-1997 version of article 5.14 but was later eliminated. See In re Schmitz,
In essence, the defendants ask us to resurrect the demand futility requirement, not simply as a procedural hurdle, but as an element of a shareholder’s standing to pursue a derivative proceeding on behalf of a closely held corporation. Again, we decline this invitation to add a requirement that the Legislature has intentionally omitted.
Turning our attention back to Cates, there the Court examined the other two elements for a shareholder to assert a derivative action against a corporation’s officers or directors: “Such breach of duty by the directors or officers of the company, and such injury to the plaintiffs stock, essential to maintain the action.”
The defendants confuse standing with an issue that goes to the merits.
Accordingly, the pronouncement of the business judgment rule in Cates, with respect to breaches of duty, goes “in reality to the right of the plaintiff to relief rather than to the jurisdiction of the court to afford it.” See Dubai Petroleum Co.,
Today’s decision follows our recent opinion in Ritchie. In Ritchie, while discussing the successor statute to article 5.14, we recognized that “the Legislature has enacted special rules to allow its shareholders to more easily bring a derivative suit on behalf of the corporation.” Ritchie,
Not only does today’s decision align with Cates and Ritchie, but our holding is also consistent with this Court’s other jurisprudence on shareholder lawsuits. The defendants rely on several statements from Massachusetts v. Davis,
Further, the case of Pledger v. Schoellkopf,
Finally, as Webre points out, our decision in Eye Site, Inc. v. Blackburn,
Accordingly, we reaffirm that when a shareholder of a closely held corporation brings a derivative proceeding “in compliance with our corporation laws and our derivative action rule, ... he has standing to pursue the corporation’s claim.” Id. Through sections (B) through (H) of article 5.14, the Legislature has given directors of publicly traded corporations the ability to exercise their business judgment in handling the corporation’s legal disputes. See Tex. Bus. CoRP. Act art. 5.14(B)-(H). By virtue of article 5.14(L), closely held corporations do not have the same deference to their boards of directors’ decision-making with respect to pursuing corporate causes of action. See id. art 5.14(L). When a closely held corporation is injured, and such an injury decreases the value of its shares, its shareholders have standing to pursue the corporation’s causes of action derivatively. Thus, courts have jurisdiction to decide shareholder derivative litigation brought on behalf of closely held corporations, and it is immaterial whether the board of directors approves or disapproves of the derivative litigation. The court of appeals properly concluded that the business judgment rule does not deprive Webre of standing to assert a derivative proceeding on behalf of a closely held corporation in this case. See
C. Double-Derivative Standing
We next address whether the court of appeals erred in recognizing the concept of double-derivative standing. “In a ‘double derivative’ action, the shareholder is effectively maintaining the derivative action on behalf of the subsidiary, based upon the fact that the parent or holding company has derivative rights to the cause of action possessed by the subsidiary.” Blasband v. Rales,
In the TBCA, a shareholder is defined to mean “the person in whose name shares issued by a corporation are registered at the relevant time in the share transfer records maintained by the corporation.” Tex. Bus. Corp. Act art. 1.02(A)(22). In the “Derivative Proceedings” provisions, article 5.14(A)(2) defines a shareholder: “ ‘Shareholder’ includes a beneficial owner whose shares are held in a voting trust or by a nominee on the beneficial owner’s behalf.” Id. art. 5.14(A)(2) (emphasis added). Under the Code Construction Act, “ ‘[i]ncludes’ and ‘including’ are terms of enlargement and not of limitation or exclusive enumeration, and use of the terms does not create a presumption that components not expressed are excluded.” Tex. Gov’t Code § 311.005(13).
Turning to Roadside, which Webre relies upon for its recognition of equitable ownership, there the court addressed a question of first impression of “whether a stockholder in the parent company can bring a suit on behalf of a subsidiary.” Roadside Stations, Inc.,
Stockholders of a corporation are the equitable owners of the assets of the corporation. Consequently, 7HBF, as a stockholder with a fifty percent interest in Nu-Way, Inc., also is an equitable owner of fifty percent of the stock of Nu-Way Distributing Co. because Nu-Way, Inc. is the owner of all stock in Nu-Way Distributing Co. We agree ... that such an equitable ownership interest gives one standing to bring a derivative suit. Therefore, we conclude 7HBF has standing to bring this derivative suit.
Id. at 931 (citations omitted).
In the instant case, the court of appeals applied Roadside’s reasoning and held that Webre’s ownership of Texas United stock made him an “equitable owner of stock in United Salt because Texas United owns all of the stock in United Salt.”
The Court recognized that “the stockholders are the beneficial owners of the assets of the corporation” well over a
The legal dictionary broadly defines “beneficial interest” as “[a] right or expectancy in something (such as a trust or an estate), as opposed to legal title to that thing.” Black’s Law DictionaRY 885 (9th ed. 2009). Similarly, we have said that “ ‘beneficial interest’ is profit, benefit or advantage resulting from contract or ownership of estate as distinct from legal ownership or control.” Satterlee v. Gulf Coast Waste. Disposal Auth.,576 S.W.2d 773 , 777 (Tex.1978) (citing Christiansen v. Dep’t of Soc. Sec.,15 Wash.2d 465 ,131 P.2d 189 (1942)). Record title, on the other hand, typically refers to legal evidence of a person’s ownership rights in property. See Longoria v. Lasater,292 S.W.3d 156 , 165 (Tex.App.-San Antonio 2009, pet. denied) (citing Black’s Law Dictionary 1523 (8th ed. 2004)). “Beneficial ownership” is defined as “[a]- beneficiary’s interest in trust property” or “a corporate shareholder’s power to buy or sell the shares, though the shareholder is not registered on the corporation’s books as the owner.” Black’s Law Dictionary 1215 (9th ed. 2009).
Milner v. Milner,
Accordingly, we agree with Roadside and the court of appeals’ reasoning. Article 5.14(A)(2)’s definition of a shareholder uses the term “includes,” which “does not
Were we to hold otherwise, the directors of a closely held holding corporation could create a wholly owned subsidiary to circumvent the Legislature’s intent to make it easier for shareholders to assert derivative proceedings on behalf of closely held corporations. See id. In considering this precise issue, the Supreme Court of Illinois recognized that refusal to recognize double-derivative standing would leave “[a] shareholder of record in the holding company ... without remedy, even where ... the holding company is the wrongdoer.” Brown v. Tenney,
It is axiomatic that standing to assert a derivative action on behalf of a wholly owned subsidiary requires standing to assert a derivative action on behalf of the parent corporation. As a shareholder of Texas United, Webre has an equitable or beneficial ownership interest in Texas United’s assets. Texas United owns all of United Salt and the right to assert a shareholder derivative proceeding on behalf of United Salt. We have already concluded that Webre has standing to assert a derivative proceeding on behalf of Texas United, and therefore, he has standing to assert a derivative proceeding on behalf of United Salt. The court of appeals did not err in reaching the same conclusion. See
III. Conclusion
The Legislature’s enactment of the TBCA did not alter the way the business judgment rule applies to the merits of derivative lawsuits alleging that the directors or officers of a closely held corporation breached their duties to the corporation. To achieve standing to assert a derivative proceeding under TBCA article 5.14, a shareholder of a closely held corporation is not required to plead and prove that the board of directors acted outside of the protections of the business judgment rule in deciding not to pursue the corporation’s cause of action. Finally, we hold that Texas law recognizes the availability of double-derivative standing for shareholders of a closely held parent corporation to assert a derivative action on behalf of a wholly owned subsidiary. The court of appeals correctly reversed the trial court’s grant of the defendants’ pleas to the jurisdiction and motions to dismiss. We affirm the court of appeals’ judgment and remand this case to the trial court for further proceedings.
Notes
. Texas United also issued non-voting Class B stock, which was owned by each of the Webre siblings, as well as multiple limited partnerships and family trusts.
. Iris P. Webre served on the United Salt board of directors during the events in question. Prior to December 2007, Iris P. Webre owned 46% of the voting stock in Texas United. At that time, each of her children owned about 12.5%. Sometime around December 2007, Iris P. Webre sold each of the Webre siblings 11.5% of the issued and outstanding Texas United shares, which increased each sibling’s overall ownership interest to 24%.
. James Tichenor was also a director of Texas United and United Salt, and was a minority shareholder of Texas United.
.The parties do not dispute the court of appeals’ application of the TBCA, which formerly governed Texas corporations, to this case. See
. The court of appeals also held it was not proper to attack subject matter jurisdiction on grounds that Webre was barred by estoppel from bringing a derivative lawsuit because he allegedly benefitted from the Saltville Acquisition.
. A "closely held corporation” is not. to be confused with a "close corporation.” See Ritchie v. Rupe,
. We refer to breach of duty claims generally because this case does not require us to consider which duties are subject to the business judgment rule.
. A further aspect of article 5.14 remains, despite section (L). When a derivative proceeding is terminated, the court may order "the plaintiff to pay the expenses of the ... corporation or any defendant incurred in investigating and defending the proceeding if it finds that the proceeding was commenced or maintained without reasonable cause or for an improper purpose.” Id. art. 5.14(J)(l)(b).
. See also Bryan Stanfield, Comment, For Better or for Worse?: Marriage of the Texas and Model Business Corporation Acts’ Derivative Action Statutes and What It Means for Corporations, 35 Tex. Tech L. Rev. 347, 359 n.119 (2004) ("Demand was required to give directors the opportunity to use business judgment for the corporation’s best interests, serve the goal of judicial economy by allowing a corporation to pursue non-judicial remedies, and discourage 'strike suits,' which are intended only to benefit a shareholder.”) (citing Robert K. Wise, Demand Futility in Shareholder-Derivative Litigation Under Texas Law, 28 Tex. Tech L. Rev. 59, 66 (1997) (recognizing that the purpose of the demand requirement "advances the fundamental principle of corporate law that the business and affairs of a corporation, including decisions regarding whether a particular claim should be litigated, are managed by directors, rather than by shareholders,” and that the demand requirement provides directors an opportunity to exercise their business judgment in deciding whether enforcing the corporation's rights in litigation is in the corporation's best interests)).
. In any event, under the pre-1997 version of article 5.14, special exceptions — and not a plea to the jurisdiction — were the appropriate vehicle to address a shareholder plaintiff’s failure to plead with particularity reasons why complying with the demand requirement would have been futile. See Wingate v. Hajdik,
. The Court held that the injury requirement was not met because "the petition [did] not allege such facts as would authorize the suit by plaintiff, as an individual stockholder, against the company for damages in the depreciation of the value of his stock, and injury to the corporate property.” Cates,
. This confusion is understandable. It has been observed that " ‘[sjtanding’ in the context of derivative actions is not to be confused with its more traditional meaning as defining when an individual can challenge governmental action.” Daniel R. Fischel, Note, The Demand and Standing Requirements in Stockholder Derivative Actions, 44 U. Chi. L. Rev. 168, 168 n.5 (1976). "As used in the [shareholder derivative] context, standing defines when minority shareholders can sue despite the opposition of the board of directors or a majority of the shareholders.” Id.
. The defendants also filed pleas in abatement, special exceptions, and motions for summary judgment in this case. The trial court may consider those matters on remand.
. We limit our holding to the situation presented in this case in which a shareholder of a closely held parent corporation asserts double-derivative standing to assert a cause of action on behalf of a wholly owned subsidiary. This situation is distinct from one in which a purported shareholder attempts to pursue a derivative action based on conduct that occurred before the purported shareholder held an ownership interest in any shares of any corporation. See, e.g., Willis v. Donnelly,