How to Buy Out Your LLC Partner in Texas

Problems with a partner? You’re not alone. Our law firm routinely fields calls from business owners seeking to remove a partner who is inactive, engaging in unethical or illegal behavior, or otherwise disrupting operations.

Removing a problematic LLC member is a much simpler process if your company has an operating or partnership agreement. In the absence of an agreement, however, you still have options under Texas law.

When Can You Remove a Member from Your Texas LLC?

Texas law recognizes several legitimate reasons for member removal. Additionally, your partnership or operating agreement may also outline grounds for removal.

Common reasons for seeking removal of a partner include:

Financial misconduct – embezzlement, unauthorized use of LLC funds, or failure to make required capital contributions can justify immediate removal.
Breach of fiduciary duties – competing with the LLC, self-dealing transactions, or misappropriating business opportunities violates the duty of loyalty owed to fellow members.
Operational disruption – members who consistently block business decisions, create workplace hostility, or sabotage operations can paralyze your LLC's effectiveness.
Partner conflicts that prevent decision-making and disrupt normal business operations.
Criminal activity or professional disqualification – felony convictions or loss of required professional licenses may make continued membership impossible or damaging to the business.
Violation of operating agreement terms – breach of non-compete clauses, confidentiality provisions, or management responsibilities outlined in your governing documents.

Check Your LLC Operating Agreement for Buyout Provisions

Before initiating any LLC partner buyout, check your operating agreement. Your LLC's operating agreement governs partner buyouts and should be your starting point. Look for provisions addressing:

Buyout triggers – circumstances that allow or require buyouts, such as death, disability, retirement, or voluntary departure
Valuation methods – how the business and the departing member's interest will be valued
Payment terms – whether payment occurs as a lump sum or installments over time
Right of first refusal – requirements to offer the departing member's interest to remaining members before outside buyers
Restrictions on transfers – limitations on selling membership interests to third parties

If your operating agreement includes member removal provisions, work with an attorney to initiate the buyout process according to the agreement's terms. A properly executed operating agreement is an enforceable contract, giving you grounds to seek court intervention if your partner resists.

LLC Partner Buyout Without an Operating Agreement

If your operating agreement lacks buyout provisions – or if you don't have an operating agreement – Texas law will govern the buyout process. In that case, unless there is a breach of the operating agreement, a breach of fiduciary duty, or some other illegal activity, your best option is to negotiate a voluntary settlement.

If your working relationship has gone beyond a face-to-face discussion, bring in experienced legal counsel to facilitate negotiations or engage in professional mediation.

Voluntary Settlement: Your Best Option for LLC Member Buyouts

When direct negotiation isn't possible, having experienced business attorneys represent each party's interests can facilitate resolution.

Legal counsel can:

Create negotiating leverage by clearly explaining each party's rights and risks under Texas law. Sometimes members don't realize that without an operating agreement, Texas Business Organizations Code Section 101.107 prohibits both voluntary withdrawal and involuntary expulsion – meaning everyone is legally "trapped" together unless they reach agreement. Additionally, voluntary negotiation typically results in better financial terms and faster outcomes than a court-ordered buyout.
Structure fair valuation processes by proposing neutral business appraisers or agreeing on valuation methods that both parties can accept. This removes emotion from the financial discussions and focuses on objective business value.
Draft comprehensive settlement agreements that address not just the buyout price and payment terms, but also transfer of management responsibilities and decision-making authority, non-compete and non-solicitation restrictions, and indemnification for past actions and future liabilities.
After completing the buyout, your attorney can update your LLC operating agreement to remove the departing member and reflect new ownership percentages. While Texas doesn't require filing ownership changes with the Secretary of State, you must update your registered agent information if that has changed.

The goal of voluntary settlement is to create a win-win outcome that allows the departing member to receive fair value for their interest while enabling the remaining member to continue operating the business successfully.

Professional Mediation for LLC Partnership Disputes

If informal settlement negotiations fail, your attorney may recommend mediation. Business mediation offers a structured environment where both parties can explore buyout options with the help of a neutral third party.

A skilled mediator can help identify creative solutions that work for both parties, such as:

Structured payment plans that protect cash flow for the remaining member
Earnout provisions based on future business performance
Asset division that gives each party what they value most
Non-compete agreements that protect the ongoing business

As with informal negotiation, mediation is strictly voluntary. You cannot compel a member to meet with a mediator. The same is true for arbitration. You can, however, compel your troublesome partner to let the courts decide.

Court-Ordered LLC Dissolution: The Last Resort

If voluntary settlement efforts fail despite legal counsel and/or professional mediation, filing a lawsuit to request a termination of the partnership may become the only remaining option.

Under Texas Business Organizations Code Section 11.314, a court can order the winding up and termination of an LLC when:

The economic purpose of the entity is likely to be unreasonably frustrated;
Another owner has engaged in conduct that makes it not reasonably practicable to carry on business with that owner; or
It is not reasonably practicable to carry on the entity's business in conformity with its governing documents.

The burden of proof is high, and courts don't dissolve LLCs simply because members disagree or prefer to part ways. The petitioning member must prove one of these strict legal standards, which requires substantial evidence of business paralysis, member misconduct, or fundamental operational breakdown.

Texas courts have broad discretion in ordering remedies to the dispute – while dissolution is one option, judges may instead order a forced buyout at court-determined fair market value, appoint a receiver to manage the business, or impose other equitable solutions.

This uncertainty means neither party can predict the final outcome. You may end up with a dissolved business instead of the forced buyout you were seeking, making litigation risky even for members with strong legal positions.

The threat of judicial dissolution, however, can provide important leverage in settlement negotiations, as both parties understand the risks and costs of leaving their fate to a judge's discretion.

The High Cost of No Operating Agreement

Without an operating agreement, Texas LLC members have limited options, most of which are expensive, time-consuming, and unpredictable. The law essentially forces members to either work things out cooperatively or face the "nuclear option" of judicial dissolution.

If you don't have an operating agreement, work with an attorney to create one customized to your business and members' interests – ideally when forming your LLC or before disputes arise.

Get Legal Help with LLC Partner Buyouts in Texas

Whether you need to draft a comprehensive operating agreement, review existing buyout provisions, or navigate an active member dispute, our business law attorneys can help you protect your interests and preserve your business value.

Don't let LLC buyout disputes threaten your business or personal financial security. Contact us today at (713) 783-3110 to discuss your LLC member rights and explore your options for resolving partnership conflicts.