How to Remove a Member From an LLC in Texas When They Will Not Leave

There is no vote that removes a member of a Texas LLC. Tex. Bus. Orgs. Code § 101.107 provides that a member of a limited liability company "may not withdraw or be expelled from the company," so the other owners cannot caucus, pass a resolution and be finished with it (Tex. Bus. Orgs. Code ch. 101). How to remove a member from an LLC in Texas is really a question about four things: what your company agreement already says, what you are willing to pay, what role you can take away short of ownership, and what a district court can be asked to do.

Those four differ in cost, speed and certainty, and only one of them ends the relationship cleanly.

Section 101.107 is one sentence long and it sets the whole starting point: a member of an LLC may not withdraw or be expelled.

That cuts both ways, which owners in a dispute usually miss. The member you want gone cannot be forced out — and they cannot force the company to cash them out either. Both sides are locked into the same illiquid position, and that symmetry is what prices every negotiation that follows.

Removal resolutions still circulate, in form packets and in advice written against a different statute. Passing one does not change who owns the company.

Section 101.107 is a default rule rather than an unalterable one. Section 101.052(c) provides that, except as provided by § 101.054, a provision of the title applicable to a limited liability company may be waived or modified in the company agreement, and the list in § 101.054(a) of provisions that may not be waived does not include § 101.107 (Tex. Bus. Orgs. Code ch. 101).

So a Texas company agreement can create what the statute withholds: an expulsion right on defined events, a call option at a stated price, a buy-sell triggered by death, divorce, default or the end of employment, or a redemption formula. Agreements that carry those provisions got them on purpose.

Agreements that do not carry them do not grow them later. Amending a company agreement to add a removal right generally requires the agreement of the person being removed, which is where most of these conversations stop.

One limit is worth knowing in advance. Section 101.054(a)(6) places Chapter 11 outside what a company agreement may waive or modify, so the judicial routes described below cannot be drafted away (Tex. Bus. Orgs. Code ch. 11).

Buy the interest. A redemption by the company, or a purchase by the remaining members, is the only route that reliably ends the relationship, and it turns a governance problem into a price-and-terms problem. We have written separately on how redemption agreements allocate that risk.

Separate ownership from the roles attached to it. Employment, a management seat, signing authority and compensation are frequently bundled together in practice and are separable on paper. What can actually be unwound depends on the company agreement, the employment terms and the facts.

Know what an assignment does and does not do. Under § 101.108(b)(2), assigning a membership interest does not entitle the assignee to participate in the company's management or to become a member, and under § 101.109(b) an assignee becomes a member only on the approval of all the company's members (Tex. Bus. Orgs. Code ch. 101). An interest can change hands without the management rights travelling with it, which is why transfer restrictions in the agreement decide so much of what is possible.

In a manager-managed LLC, § 101.304 provides that a manager may be removed, with or without cause, at a meeting of the company's members called for that purpose, subject to § 101.306(a) — and § 101.306(a) provides that a manager elected by a class or group of members may be removed only by that class or group (Tex. Bus. Orgs. Code ch. 101).

That is a much shorter lever than ownership, and it is the one owners overlook. A member who cannot be expelled may still be removable from day-to-day control, if the company is manager-managed and that manager was not elected by a protected class. It changes who signs and who decides. It does not change who owns, who is allocated income, or who receives a K-1.

Two provisions of Chapter 11 matter here, and both are blunt instruments. Section 11.314 allows a district court to order the winding up and termination of a domestic limited liability company on an owner's application if the court finds that the economic purpose of the entity is likely to be unreasonably frustrated, that another owner has engaged in conduct relating to the entity's business that 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 (Tex. Bus. Orgs. Code ch. 11).

Section 11.404 allows a court to appoint a receiver to rehabilitate a domestic entity in listed circumstances, including deadlock among the governing persons that causes or threatens harm to the entity, but § 11.404(b)(3) permits that appointment only if the court finds that all other available legal and equitable remedies are inadequate (Tex. Bus. Orgs. Code ch. 11).

Neither is a removal remedy. Winding up ends the company rather than the membership, and a receivership takes control away from everyone. They matter mostly because they exist: an owner who can credibly reach them negotiates from a different place than one who cannot. Whether either is available turns entirely on the facts, and these questions are decided case by case.

The following is constructed to show the mechanics. It is not a real matter and is not advice about any particular company.

A Texas services LLC has three members holding 50, 30 and 20 percent. The 30 percent member has stopped working and still receives distributions. The company agreement has no expulsion clause, no buy-sell and no redemption formula.

The other two cannot vote the 30 percent member out. What they can do is make an offer. Suppose the company produces $1.2 million of EBITDA; at a four-times multiple that is $4.8 million of enterprise value, less $800,000 of debt, leaving $4.0 million of equity. Thirty percent of that is $1.2 million on a straight pro-rata basis.

The argument is about the distance between that $1.2 million and what a minority interest is worth in the hands of someone who cannot force a sale, cannot compel a distribution and has no market to sell into. Where the parties land between those two figures — and whether the money is paid at closing or across five years with interest and security — is the deal.

Every route above is slower, costlier and less certain than the paragraph that should have been in the company agreement. A buy-sell with a valuation method and a payment schedule, a call right on defined events, and a clean separation between employment and ownership do more work than any remedy available once the relationship has broken.

That is also the argument for rereading an agreement signed years ago by people who were getting along. Whether an LLC needs an operating agreement in Texas is settled; whether the one you have still fits the company you now run is usually not.

The first hour of this work is reading the company agreement for three things: the transfer restrictions, any buy-sell or call trigger, and whether management is vested in the members or in named managers. Those three answers tell you which of the routes above is open to you.

Circumstances differ, and nothing here is advice about a specific situation. If you want a second read on your own documents before you decide anything, we are glad to do that.

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 marketing@aminiconant.com. This publication is considered advertising under applicable state laws.

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