Texas Business Divorce (Buying Out an LLC Partner, Forced Exits, and Deadlock in 2026)

A Texas business divorce starts when the co-owners of an LLC or partnership can’t keep running the company together, and one of them needs out. It’s a fight between business partners. Spouses dividing a company in a marital divorce belong in family court (a separate area of law our firm doesn’t practice).

Texas law also sets a default rule that catches owners off guard. Under Texas Business Organizations Code §101.107, an LLC member “may not withdraw or be expelled from the company.”

Your company agreement can change that rule. It’s the first document the Austin business law attorneys at Kelly Legal Group ask to see.

Worried the legal bill for a Texas business divorce will swallow your share of the company? A negotiated exit costs far less than a lawsuit.

Our guide to business attorney costs in Austin puts a business dispute at $5,000 into five figures. A case that reaches trial can pass $50,000.

Disclaimer. This article is for educational and informational purposes only and does not constitute legal advice. Consult a licensed Texas business attorney about your company agreement and your facts before you act.

What Counts as a Texas Business Divorce?

Take two 50/50 members of a Round Rock roofing LLC. One wants to borrow and grow, and the other wants to pull cash out and slow down. Nobody has sued anyone yet, but that’s already a Texas business divorce.

A Texas business divorce is the legal and financial process of separating the owners of a Texas company. It usually ends one of four ways.

• • One owner buys the other out, or the company buys back the departing owner’s interest.

• • A member is removed under an expulsion clause in the company agreement.

• • The owners sell the whole company and divide what’s left after debts.

• • A court orders the company wound up and its assets sold.

The buyout is usually the cheapest path. A court-ordered wind-up sits at the other end, because a forced sale tends to bring less than a willing buyer would pay.

Still arguing about day-to-day decisions, with nobody talking about leaving yet? Our guide to resolving a partnership dispute in Texas covers mediation and other ways to fix the relationship before anyone exits.

Where Do the Exit Terms Live in Your Company Agreement?

Texas calls an LLC’s operating agreement a “company agreement.” Under §101.052, it governs the relations among members, managers, and officers. Members are bound by it.

So the first move in any Texas business divorce is reading that document line by line. Slowly.

The buy-sell provision carries the most weight. It lists the events that force a sale and sets the formula for the price.

Clause	What it controls	What to check
Buy-sell triggers	Events that force or allow a sale	Death, disability, retirement, or deadlock, and if a voluntary exit counts
Valuation formula	How the price gets set	Fixed price, formula, or appraisal, plus the date of the last agreed number
Payment terms	Lump sum or installments	Interest rate, security for the note, and what a missed payment triggers
Transfer limits	Who may buy an interest	Right of first refusal and member consent rules
Expulsion or removal	Voting a member out	The vote needed, the notice period, and the “for cause” definition
Deadlock clause	What happens on a tie vote	Mediation, arbitration, or a shotgun buy-sell

Owners search “LLC partner buyout agreement Texas” and download a free template. Templates often leave the valuation date blank.

They also say nothing about securing installment payments. A buyer who stops paying in year two is a common reason a Texas business divorce ends up in court.

What Happens If Your LLC Has No Company Agreement?

The Texas default rules apply. A member can’t withdraw or be expelled under §101.107. A member can assign (transfer) a membership interest, but under §101.108 the buyer doesn’t become a member and gets no say in management.

The seller also stays a member until the buyer is formally admitted, according to §101.111. A partner who “sells” to an outsider without the other members’ consent hasn’t left. Not in the way that counts.

Two related situations have their own guides. If your partner broke the agreement and you want remedies for that breach, read our LLC operating agreement violation guide. If the exit follows a death, see what happens when a business partner dies without a buyout agreement.

How Is a Member’s Share Valued in a Texas Business Divorce?

The price is usually the whole fight in a Texas business divorce. Owners who agree on everything else can spend months arguing over one number.

Jeff Kelly was a CFO before he became a lawyer, and he reads a company’s books the way a buyer’s accountant will. Above-market owner pay, one-time legal bills, a relative on payroll, and personal trucks on the books all change the earnings figure behind the price. Clean those up first and the argument gets shorter.

Method	How it works	Where it fits
Asset approach	Adds up what the company owns, minus what it owes	Real estate holding LLCs and equipment-heavy companies
Income approach	Turns expected cash flow into a present-day value	Service and operating companies with steady earnings
Market approach	Compares sales of similar private companies	Industries with enough comparable deals to measure against

Two smaller choices often move the price more than the method does.

One is the standard of value in your agreement. “Fair market value” often allows discounts for a minority stake and for lack of marketability. “Fair value” often doesn’t (that’s the usual reading, though your agreement’s own definition controls).

The other is the valuation date. It counts when revenue rose or fell during the dispute, which happens more often than owners expect.

For any Texas business divorce involving a company worth fighting over, hire a credentialed business appraiser. Sharing the cost of one neutral appraiser usually costs less than paying for two competing reports.

How Do You Remove a Member From an LLC in Texas?

Start with the company agreement, since Texas law gives you no default expulsion power. If the agreement has an expulsion or removal clause, follow it exactly (the notice period, the vote, and any “for cause” definition). Skip a step and you’ve handed the removed member a breach claim.

In a Texas business divorce, removal is often the move most likely to land in front of a judge. A single missed notice can undo a vote the members won.

Without that clause, removal usually happens one of these ways.

• • A negotiated buyout, which is a removal the departing member agrees to.

• • A lawsuit for breach of the agreement or breach of fiduciary duty. Our overview of business litigation in Texas explains how those cases move.

• • A petition asking a district court to wind up the company under §11.314 when carrying on with that member isn’t reasonably practicable.

General partnerships have one more tool. Under §152.501, a judge can expel a partner for wrongful conduct or a material breach. A judge can also expel a partner whose conduct makes it not reasonably practicable to keep running the business together.

What About Removing a Managing Member?

Replacing a manager is often the first formal step in a Texas business divorce, and it’s the easier one.

Being the manager is a role, separate from owning a share. Company agreements usually let members replace a manager by a set vote. Removing someone as manager doesn’t take away their membership interest, and they may still be owed distributions.

After any change, update the paperwork. The Texas Secretary of State doesn’t keep LLC ownership records, though an LLC may file an amendment to update its management information. Changes also belong on the annual Public Information Report filed with the Texas Comptroller.

What Should You Avoid While a Removal Is Pending?

• • Locking a member out of bank accounts or company email without authority in the agreement.

• • Cutting off distributions to the departing member alone.

• • Moving customers, contracts, or equipment into a new company you control.

• • Changing passwords or locks before the vote happens.

Any one of these can turn a quiet Texas business divorce into a lawsuit. Some can support a fiduciary duty claim against you personally.

Can I Force My Business Partner to Buy Me Out?

Usually no, in a Texas LLC. Your company agreement would have to give you that right.

Look for a “put” right (your right to make the company or a partner buy your share). A buy-sell trigger or a deadlock clause that lets you name a price can do the same job.

Minority owners in a Texas business divorce sometimes hope a judge will order a buyout. The Texas Supreme Court rejected that remedy in Ritchie v. Rupe in 2014.

The court declined to create a common-law claim for shareholder oppression, and it held that the receivership statute doesn’t authorize a court-ordered buyout.

Ritchie involved a closely held corporation. The statute it read, §11.404, covers LLCs as well. So the same buyout limit likely applies to shareholder oppression claims in Texas LLCs.

So what’s left? A breach of fiduciary duty or breach of contract claim is one path. The other is asking for a rehabilitative receiver when managers act in ways that are “illegal, oppressive, or fraudulent.”

Each one can restart buyout talks. None of them promises a buyout.

How Does a General Partnership Buyout Work?

A Texas business divorce between general partners runs the other way. A partner can withdraw by giving notice. Under §152.601, the partnership then automatically redeems the withdrawn partner’s interest, unless a winding-up event happens within 61 days.

The price is the interest’s fair value on the withdrawal date (§152.602). There’s a catch, though.

Say the withdrawal breaks the partnership agreement. The price then drops to the lesser of fair value or what the partner would have received in a wind-up, plus interest.

Not sure which rules cover your Texas business divorce? Call Kelly Legal Group at (737) 257-6338 for a free consultation, and bring your company agreement. You’ll leave knowing which exit paths are open before you spend money on any of them.

What Happens When Two 50% Owners Deadlock?

Deadlock is the classic Texas business divorce. A 50/50 LLC has no tiebreaker unless the owners wrote one in. When the votes lock, bills keep coming due and nobody has authority to approve a fix.

A good deadlock clause forces a decision. The common versions look different from one another.

• • Mediation first, then binding arbitration if mediation fails.

• • A named tiebreaker, such as an outside advisor the owners trust.

• • A shotgun buy-sell. One owner names a price, and the other owner decides to buy or to sell at that price.

• • A put or call right that switches on after a set number of deadlocked votes.

The shotgun works best between owners with similar access to cash. If one partner can’t finance a purchase, the wealthier partner can name a low price and win. Worth thinking through before you sign one.

With no clause, the court route is the fallback. Under §11.404, a court can appoint a rehabilitative receiver for a deadlocked company.

The owners must be unable to break the deadlock, and the company must be suffering or facing irreparable injury because of it. The judge also has to find every other remedy inadequate.

Where you file matters too. A §11.314 wind-up case goes to the district court where the company has its registered office or principal place of business. For a Travis County LLC, that’s Travis County district court.

Larger governance fights may qualify for the Texas Business Court, which has an Austin division and hears disputes above $5 million.

When Does Judicial Dissolution Make Sense for a Texas LLC?

Rarely, and usually after other paths fail. Judicial dissolution (Texas calls it court-ordered winding up) ends a Texas business divorce by ending the company itself. Creditors get paid before the owners see a dollar.

Under §11.314, an owner of an LLC or partnership can ask a district court to order a wind-up. The court has to find one of three conditions.

• • “the economic purpose of the entity is likely to be unreasonably frustrated”

• • “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”

• • “it is not reasonably practicable to carry on the entity’s business in conformity with its governing documents”

Receivership sits one step short of that. A §11.404 receiver runs the company to rehabilitate it, and the receivership ends once the problem is fixed.

A liquidating receiver under §11.405 is harder to get. In an owner dispute, the usual route runs through a rehabilitative receivership first. If no workable plan appears within a year, a court can order liquidation and a sale of the assets.

Why treat this as the last resort in a Texas business divorce? A forced sale often brings less than the business is worth, and key employees and customers tend to leave once word gets out. Owners usually do better negotiating a buyout, with a dissolution petition held in reserve as bargaining power.

What Are the Tax Implications of an LLC Partner Buyout?

Taxes are the part of a Texas business divorce owners forget until April. A multi-member LLC is taxed as a partnership by default, and the buyout structure changes who pays what.

A Texas LLC member buyout usually takes one of two structures. In a redemption, the company buys back the departing member’s interest, and in a cross-purchase, the remaining members buy it personally.

For the seller, profit on a sale of a partnership interest is generally treated as capital gain. The exception is the part tied to unrealized receivables and inventory, which is taxed as ordinary income, according to IRS Publication 541. Payment timing (one lump sum or installments) shifts the tax year the income lands in, too.

Did your LLC elect S corporation status? Then different rules apply.

Bring your CPA in before you sign a term sheet, and have your lawyer and accountant review the draft together. A buyout priced right can still cost you if the tax structure is wrong.

How to Buy Out an LLC Partner in Texas

Knowing how to buy out an LLC partner in Texas mostly comes down to sequence. A clean buyout usually follows a set order. These Texas business partner exit steps assume the owners are still talking to each other.

1. 1. Pull the company agreement, the certificate of formation, and every amendment. Mark each clause from the table above.

1. 1. Bring the books current. Nobody pays full price on stale numbers.

1. 1. Agree on a value, or agree on one appraiser and a deadline for the report.

1. 1. Negotiate a term sheet covering price, payment schedule, security for any promissory note, and a mutual release of claims.

1. 1. Talk to the bank. A departing member who signed a personal guaranty on company debt will want off it, and the lender has to agree.

1. 1. Sign a membership interest purchase or redemption agreement, a written member consent, and an amended company agreement.

1. 1. Update the Comptroller’s Public Information Report, bank signature cards, and any licenses.

Step five is where a Texas business divorce stalls most often. Lenders review guaranty releases on their own timeline, so start that conversation the week you agree on price.

How Much Does a Texas Business Divorce Cost, and How Long Does It Take?

The cost of a Texas business divorce tracks how well the owners still cooperate. Most business divorce work bills hourly, since nobody can predict how hard the other side will push. Our cost guide puts disputes at $5,000 into five figures.

Time follows the same pattern. A cooperative Texas LLC member buyout moves as fast as the appraisal and the bank allow (the bank is usually slower). A lawsuit follows the court’s docket, and discovery (the phase where each side trades documents and takes depositions) can take months by itself.

Spending money early on a solid valuation usually costs less than fighting over a bad one later. A Texas business divorce that settles in the first few months can also keep customers and staff from hearing about the fight.

Common Questions About Texas Business Divorce

How do you remove a member from an LLC?

Follow the removal or expulsion clause in the company agreement, step by step. Without one, you’ll need the member to agree to a buyout or a court order that ends the relationship. Removing someone as manager is simpler than taking away their ownership.

How do you remove a member from an LLC in Texas?

By default, a Texas LLC member “may not withdraw or be expelled” under §101.107, though the company agreement can set its own rules. If the agreement is silent, the usual paths are a buyout, a breach or fiduciary duty lawsuit, or a court-ordered wind-up under §11.314.

Can you remove a member from an LLC?

Yes, when the company agreement gives the other members that power and they follow its procedure exactly. Without that clause, removal usually means buying the member out.

Can I force my business partner to buy me out?

In most Texas LLCs, only if your agreement includes a put right, a buy-sell trigger, or a shotgun clause. General partnerships work differently, because a withdrawn partner’s interest is automatically redeemed at fair value under §152.601 and §152.602.

How do you buy out a partner in an LLC?

Agree on a price, sign a purchase or redemption agreement, and update the company agreement and state records. In a Texas business divorce, get the departing member released from any personal guaranty on company debt before closing. Have a CPA review the tax structure first.

How long does a Texas business divorce take?

A cooperative buyout can close once the appraisal is done and the lender signs off on any guaranty release. A contested Texas business divorce follows the court’s docket, and discovery alone can take months. Settling early usually saves time and money.

Does a Texas LLC dissolve when a member leaves?

No. A Texas LLC member can’t withdraw by default (§101.107), and under §101.108 a transfer of a membership interest doesn’t force a wind-up. The company keeps operating unless its agreement or its owners decide otherwise.

Bring Your Company Agreement to a Free Consultation

Every Texas business divorce starts with the same document. The sooner you know your exit terms, the more bargaining power you keep. Waiting hands the other owner the timeline.

Call Kelly Legal Group at (737) 257-6338 or send a message through our contact page for a free consultation. Bring your company agreement, your last two years of financials, and any buyout offer you’ve received. We’ll cover fees on that first call.

Kelly Legal Group has represented Austin and Central Texas business owners since 2009, from Travis County to Williamson and Hays Counties. You’ll work directly with the attorney handling your case.

We’ll walk through the Texas business partner exit steps that fit your agreement and tell you what each one is likely to cost. Read about Jeff Kelly’s background as a CFO, developer, and attorney before you call.