Business Divorce in Texas: What a Locked-In Owner Can Actually Do

If your co-owner has stopped distributions, pushed you out of management, or is running the company
as though you are not in it, the Texas answer starts in an unwelcome place: you probably cannot leave.
A member of a Texas LLC has no statutory right to withdraw and cannot be expelled by the others, so
neither side can end this by resigning or by voting. What decides the outcome is your company
agreement, what each side can actually do to the other, and — more often than owners expect — a valuation
argument neither of them is ready for.

This is a guide to that situation: how it starts, what your documents control, what Texas law supplies
when they are silent, what routes exist, and what each route takes.

The Business Organizations Code says it in sixteen words:

"A member of a limited liability company may not withdraw or be expelled from the company."
— Tex. Bus. Orgs. Code § 101.107

Most owners have never read it, and the surprise runs both directions. You cannot hand back your
units and be finished. Your co-owner cannot assemble a majority and remove you. Absent something in
the contract, the two of you are locked together and the only exits are ones you negotiate or ones a
court supplies.

That provision sits in Chapter 101 and governs LLCs. Corporations and partnerships operate under
different rules, and whether an LLC company agreement can vary this default turns on the agreement's
actual language.

The judicial exits exist and both are narrow on purpose. For a domestic partnership or LLC, a court
may order the entity wound up and terminated on an owner's application where it determines that the
economic purpose is likely to be unreasonably frustrated, that another owner's conduct makes it
"not reasonably practicable to carry on the business with that owner," or that it is not reasonably
practicable to carry on the business in conformity with the governing documents
(§ 11.314).
A court may appoint a receiver to rehabilitate an entity on grounds including insolvency, deadlock
among the governing persons where the owners cannot break it and irreparable injury is threatened,
conduct by governing persons that is "illegal, oppressive, or fraudulent," and property of the entity
being "misapplied or wasted"
(§ 11.404).

Then read the gate on the receiver. Section 11.404(b) permits appointment only if circumstances
necessitate it to conserve the business and avoid damage to interested parties, all other requirements
of law are met, and the court determines that "all other available legal and equitable remedies … are
inadequate." The separate liquidating-receiver provision carries the same inadequacy requirement
(§ 11.405).

Put the two together and you have the shape of Texas law on this subject: you cannot leave, and the
court will not easily dissolve. That is not a counsel of despair. It is the reason the first
productive hour of work is spent on the company agreement rather than on the grievance.

Because there is no statutory exit, the contract is where the outcome is determined. Six provisions
do most of the deciding, and an owner can check for all six in twenty minutes:

• A buy-sell or redemption provision. Whether there is a mechanism at all, what fires it, and who is obligated to buy. If your agreement has one, it is the most important paragraph in your life right now. We have written separately about redemption agreements in LLC and partnership exits.
• The price term. A stated formula, a stated appraisal process, or nothing. The valuation section below is about what happens with each.
• Transfer restrictions. Whether you can sell to a third party at all, and what consent is required — see transfer restrictions in LLC and partnership agreements.
• The distribution waterfall. Whether distributions are discretionary or mandatory, whether preferred returns accrue, and where related-party compensation sits relative to distributions. This is the provision that determines whether a frozen-out owner is owed anything at all — how distribution waterfalls work in LLC agreements.
• Information and inspection rights. What you can demand to see, in what form, on what notice. The statute supplies a starting point: unless the governing documents provide otherwise, a member "on written demand stating a proper purpose, is entitled to examine and copy" company records "reasonably related to and appropriate to examine and copy for that proper purpose," and the company agreement "may not unreasonably restrict" that right (Tex. Bus. Orgs. Code §§ 101.502(a), 101.054(e)). ⚠️ Those records "shall not include e-mails, text messages or similar electronic communications, or information from social media accounts unless the particular e-mail, communication, or social media information effectuates an action by the limited liability company or the company agreement expressly states otherwise" — so what the agreement says about information matters.
• Deadlock and tie-breaking. A casting vote, a mediation step, a shotgun clause, a put right — or, in most agreements we see, nothing.

If your company has no written agreement at all, that is a different and worse problem, and it is
worth reading does a Texas LLC need an operating agreement
before anything else. Without a contract, § 101.107 still applies — so you have no exit and no
mechanism either.

A freeze-out is a pattern rather than an event. The majority stops distributions, terminates the
minority owner's employment, removes them from management, and cuts off information. Then they wait,
because waiting is free for them and expensive for you.

Most owners arrive furious about the paycheck. The paycheck is usually the smaller loss. The larger
one is equity being starved while somebody else controls when — and whether — it becomes liquid.
Part of what a first meeting is for is reordering those two.

And then the part nobody warns you about. If the company is taxed as a partnership or an
S corporation, income can be allocated to you on a Schedule K-1 whether or not any cash was
distributed to you. An owner receiving nothing can owe tax on income they never saw. For a
calendar-year domestic partnership, Form 1065 is due March 15
(IRS, Instructions for Form 1065), so the K-1 arrives in
the first quarter and the tax consequence arrives behind it. That is the one deadline in a
freeze-out that the other side does not control, and it is why February and March are when these
matters turn from grievance into crisis.

If you are being frozen out, the two documents worth locating before you do anything else are the
company agreement and the last two K-1s. If you cannot get the K-1s, that fact is itself information.

Diverting business to a side entity. Paying themselves a "management fee" nobody approved. Putting
family on payroll. Running personal expenses through the company. Leaving with the customer list and
two key employees.

This is the trigger where the calendar compresses from months to days, because there may be a basis
for immediate injunctive relief and because evidence disappears. Two things matter more than any
legal theory in the first week:

Preserve, do not improvise. Do not delete, do not "tidy up" a shared drive, do not send the
all-hands email explaining your position, and do not confront the other owner by text at midnight.
Every one of those becomes an exhibit.

Know which theory you are on. A co-owner who leaves with the customer list is not only a
non-compete problem. Texas's trade secrets statute defines "improper means" to include "breach or
inducement of a breach of a duty to maintain secrecy"
(Tex. Civ. Prac. & Rem. Code § 134A.002),
and where a departing owner was the company's agent, that duty can exist without a signed
covenant — so the theory does not depend on one. What it does depend on is the company agreement:
Tex. Bus. Orgs. Code § 101.401 lets an LLC agreement expand, restrict or — since May 2025 —
eliminate the duties its members and managers owe. ⚠️ Whether eliminating fiduciary duties also
eliminates the duty of secrecy this theory runs on has not been decided by any Texas appellate court.
More on that in
trade secrets when a co-owner leaves and, on the
diverted-opportunity side, in the corporate opportunity doctrine.

Fifty-fifty ownership, or a governance structure that requires unanimity, and the owners cannot agree.
Nothing moves. Sometimes the company is fine and the owners are not; sometimes the company is dying
while they argue about who caused it.

Deadlock is the trigger that persists for a year and then becomes urgent in a week, usually because
something external forces a decision — a lease renewal, a bank covenant, a departing key employee, an
offer for the business. Deadlock the owners cannot break, with irreparable injury threatened, is one of
the enumerated grounds for a rehabilitative receiver under
§ 11.404,
but read that section together with subsection (b)'s requirement that all other remedies be
inadequate. Receivership is the statute's answer of last resort, not its answer.

The realistic routes out of deadlock are contractual — a shotgun or Texas shoot-out provision, a put
right, a mediated buyout, or a sale of the whole company. Which is why a deadlock matter usually turns
into either a buyout negotiation or a sale process, and why counsel who can run both is worth more
here than counsel who can run one.

An owner dies and their estate or heirs hold the equity — people with no operational role, no
relationship with the remaining owners, and a strong reason to want cash. Or an owner divorces and a
community-property interest in the equity becomes live.

These arrive slowly and then become structural, and they are usually surfaced by an estate lawyer, a
CPA, or a wealth manager rather than by the owner. The provisions that would have handled them —
a transfer restriction, a mandatory redemption on death, a funded buy-sell — are the ones nobody
rereads until the event happens. If you are the professional who has just spotted this in a client's
documents, the useful question is not what the law provides; it is whether the agreement has a
mechanism and whether anything funds it.

Owners think a business divorce is decided by who behaved badly. In practice it is usually decided by
what the interest is worth, and the fight over that number is longer and more expensive than the
fight over the conduct.

Four things drive it:

What the agreement says the price is. A stated formula — book value, a multiple of trailing
EBITDA, a fixed per-unit price set at formation — controls if it applies, and formula prices go stale
badly. A price set in 2014 on a company that has tripled is a windfall for one side and a disaster for
the other, and the party it favours will insist the formula is unambiguous.

Whether discounts apply. A minority interest in a closely held company is worth less than its
pro-rata share of the whole, because it cannot control distributions and cannot be sold. Whether a
discount for lack of control or lack of marketability applies to a particular transaction — and how
large it is — is one of the most consequential and most contested questions in the case. It is also
where the agreement's own wording frequently decides the answer before an appraiser is ever retained.

Who picks the appraiser. Each side names one and the two name a third. One side names and the
other may object. A named firm. A process with no deadline. Each of these produces a different fight,
and the version with no deadline produces the longest one.

What the majority has been paying itself. Owner compensation, related-party rent, management fees
to an affiliate, and family on payroll all reduce the earnings a multiple is applied to. Normalising
them is standard valuation work, and in a freeze-out it is frequently the single largest number in
dispute.

If you are heading into a buy-sell valuation, the practical reading is
how to buy out a business partner: valuation and agreements,
which works through the mechanics in detail.

Texas is not a state with a general common-law minority oppression claim. In Ritchie v. Rupe,
443 S.W.3d 856, 877–78, 891–92 (Tex. 2014), the Texas Supreme Court held that Texas does not
recognise a freestanding common-law claim for shareholder oppression, and that the receivership
statute does not itself authorise a buyout as an alternative oppression remedy.

⚠️ What the Court did not do is close the door. It remanded for consideration of whether the
separate breach-of-fiduciary-duty claim could support a buyout, and expressly reserved whether a
properly appointed receiver might implement one consistently with the statute's purposes (id. at 877
n.32, 891–92). Those are open questions, not a general remedy — a buyout does not become available
because the situation is unfair.

What that means for you is less bleak than the headline. It removes one route, not the case. The
claim the Court sent back was a fiduciary-duty claim, and an owner dispute runs through specific duties
and specific documents: the company agreement and any buy-sell inside it, the loyalty duties Texas
appellate decisions recognise a manager as owing the company, and — where a co-owner has taken —
the trade-secret and diverted-opportunity theories above.

⛔ Three limits on that list. The Texas Supreme Court has not comprehensively defined the default
scope of a manager's duties, so that is a general rule rather than a settled boundary. Duties owed to
the company are not duties owed to you personally: in Bertucci v. Watkins, 709 S.W.3d 534, 544
(Tex. 2025), the Supreme Court held that LLC members do not owe formal fiduciary duties to one another
merely because they are co-members. That distinction decides who can sue, and
the corporate opportunity article
covers it. And a company agreement may expand, restrict or — since May 2025 — eliminate those duties
(Tex. Bus. Orgs. Code § 101.401), so the agreement is read first here too.

This is also, bluntly, the area where a generic article does the most damage. If you are reading a
page that describes Texas shareholder oppression as a freestanding cause of action, you are reading
something written before 2014 or written without checking.

There are four, and most matters move through more than one.

A negotiated exit. Demand, information exchange, a valuation, and a deal. No filing. This is the
cheapest route and the most common good outcome, and it works when both sides can price the
alternative honestly. It is also the route most damaged by a combative opening letter.

A filed case that resolves at mediation. The modal contested business divorce. Pleadings,
discovery — which is where the related-party spending becomes visible and the bargaining position usually shifts
— an expert or two, and a mediation. Most of these do not reach trial, and the ones that settle well
settle after the numbers are in rather than before.

An emergency application. A temporary restraining order and a temporary injunction where a
co-owner is actively taking. This route is front-loaded in a way the others are not: the work
compresses into days, and the first ninety days can cost more than the following year.

Receivership or winding up. The statutory routes in
§ 11.314
and § 11.404.
Both are narrow, and a receiver is available only where every other remedy is inadequate. Real,
occasionally the right answer, and much rarer than the searches for it suggest.

The cost of these matters is driven by three things — how
far apart the two valuations are, whether there is an emergency component, and whether the other side
is represented by someone who returns calls. The first is the largest. Competing valuation experts are
frequently the single biggest line item in a contested owner dispute, and they are the line item
clients are least prepared for.

They are often run by the same firm and they are not the same work, and a great deal of wasted money
comes from confusing them.

A negotiation is a pricing exercise. The objective is a number and a set of releases. Speed helps
you if the company is healthy and hurts you if it is being drained. The bargaining position is built on information —
what you can show about what the business earns and what the other side has been taking — which is
why an information demand often precedes a settlement demand.

Litigation is a proof exercise, and it changes what both sides can do. Discovery gives you the
documents a freeze-out was designed to keep from you. It also puts the company's affairs into a public
record, which is a cost the majority owner feels and the minority owner sometimes does not.

The decision between them is usually not moral and rarely permanent. Most matters open in negotiation,
file when negotiation stalls, and settle once discovery has moved the numbers. What matters is
choosing deliberately rather than sliding into litigation because the first letter was written to be
satisfying rather than useful.

The company keeps operating, and who controls it during the dispute usually does not change. That is
the fact minority owners find hardest, and it deserves saying plainly: filing suit does not put you
back on the bank account.

Four practical consequences:

• The majority continues to run the business, including deciding compensation and distributions, unless a court orders otherwise or the agreement says otherwise.
• Fees may be paid by the company for one side and personally by the other. Whether the company can fund the majority's defence is contested territory and turns on the agreement's advancement and indemnification provisions.
• Employees and customers notice. An owner dispute at a 40-person company is not a secret at week three, and the operational damage is real on both sides. This is the strongest argument for a negotiated exit and the one most often forgotten in month two.
• A sale becomes hard while it runs. Buyers price ownership disputes as risk, and a live one either kills a process or discounts it. If the company was heading toward a sale, that timeline is now a factor in the dispute — which is where this practice meets selling the company at the end of a dispute.

Most of these are district court cases. Texas created a specialised Business Court — HB 19, 88th
Legislature (2023), effective 2023-09-01, with the courts accepting cases from 2024-09-01
(Kilpatrick;
Spencer Fane) —
and its jurisdictional list reads like a description of this practice area: derivative proceedings,
actions regarding the governance, governing documents or internal affairs of an organization, actions
by an organization or its owner against an owner, controlling person or managerial official for acts in
that capacity, claims that an owner, controlling person or managerial official breached a duty owed to
the organization or an owner, and "an action arising out of the Business Organizations Code"
(Tex. Gov't Code § 25A.004(b)).

For those categories the amount in controversy has to exceed $5 million, "excluding interest,
statutory damages, exemplary damages, penalties, attorney's fees, and court costs" (§ 25A.004(b)).
The requirement falls away where a party is a publicly traded company (§ 25A.004(c)).

The threshold matters more than the list does. A dispute over a closely held company is very often
below it, which means the specialised court exists for these disputes at the top of the value range
and the typical business divorce is still a district court case. Read more in
the Texas Business Court and owner disputes.

Hypothetical. Not a client matter, not a real company, and the numbers are constructed to show the
mechanics.

Two owners founded a Texas LLC that does commercial HVAC service. One holds 65% and runs the company;
the other holds 35% and ran field operations until she was terminated eighteen months ago. Revenue is
about $14M and the company has historically distributed enough for each owner to cover tax plus a
meaningful surplus.

Since the termination: no distributions. The majority owner's salary went from $280k to $520k. The
company began renting its yard from an entity the majority owner owns, at $18k a month for a property
that had been costing the business $9k. Two of the majority owner's adult children are on payroll. The
minority owner still receives a K-1 — last year it allocated her $410k of income, on which she owed
tax, and she received nothing.

The company agreement has a buy-sell provision that fires on death, disability, or a transfer attempt.
It does not fire on termination of employment. The price term is "fair market value as agreed, or
failing agreement, as determined by an appraiser mutually selected." There is no deadline in the
appraisal process and no tie-breaker if the parties cannot agree on an appraiser.

What that fact pattern actually is. It is not primarily an oppression case. The strongest
elements are the related-party rent and the compensation increase — normalising items that both reduce
distributable earnings and go directly to the value of her interest — and the K-1 allocation without
distribution, which sets a hard calendar. The buy-sell is close to useless as written, because nothing
in it has fired and the price mechanism can be stalled indefinitely by refusing to agree on an
appraiser.

How the work sequences. An information demand first, because the rent comparables and the payroll
records are what convert a suspicion into a number. Then a valuation of her interest with the
related-party items normalised, which is likely to produce a figure materially above what the majority
will open at. Then a demand with an actual number in it, and a filed case if the number is ignored —
where discovery does the same work the information demand attempted, more slowly and more expensively.

What she probably will not get. A court order requiring the company to buy her out. A quick
resolution. And the outcome she describes in the first meeting, which is being restored to her job.

The lesson the hypothetical is built to carry: the provision that decided this case was the
absence of a deadline in the appraisal clause, drafted at formation by people who were friends.

If any of this describes your situation, three steps are useful before you talk to anybody:

1. Find the company agreement — the executed one with the signature pages, plus any amendments.
2. Find the last two K-1s and the last two years of financial statements, if you can get them.
3. Write down the timeline while you still remember it: dates, who said what, when the distributions stopped.

Our partner buyout field guide works through the decision points in
order and the documents to gather, and it is written to be useful whether or not you ever hire a
lawyer.

If you want to talk it through, request a consultation. If a co-owner is actively
taking right now, the week matters more than the form — call 512.222.6883.

Disclaimer. This publication is provided by Amini & Conant, LLP for educational and informational purposes only and is not intended and should not be construed as legal advice. Should the reader seek further analysis of the subject matter or answers to specific questions about the subject matter, please contact the author at neema@aminiconant.com. This publication is considered advertising under applicable state laws.

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