A tech startup founder in East Austin called me last month with a problem that’s becoming all too common. His business partner had been siphoning money into side projects, making unauthorized loans to friends, and blocking every strategic decision the company needed to make. The LLC was paralyzed. Revenue was tanking. And the operating agreement they’d signed three years ago? His partner claimed it didn’t matter.

“Can I just kick him out?” he asked. “This is my company too.”

Here’s what I had to tell him: under Texas law, you can’t just remove an LLC partner because you’re frustrated or because they’re difficult to work with. But when a partner violates your operating agreement – especially when that violation involves financial misconduct, breach of fiduciary duty, or conduct that makes it impossible to run the business – Texas law gives you powerful legal remedies. You just need to know which tools to use and when.

Operating agreement violations in Texas aren’t just contract disputes. They’re threats to your business’s survival, your financial security, and everything you’ve built. The question isn’t whether you should address the violation. The question is whether you’ll handle it strategically through the right legal channels – or watch your LLC crumble while your partner continues violating the rules you both agreed to follow.

What Constitutes an Operating Agreement Violation in Texas

Not every disagreement with your LLC partner rises to the level of a legal violation. Texas courts distinguish between normal business friction and conduct that actually breaches your operating agreement or violates fiduciary duties under Texas law.

Here are the most common operating agreement violations I see with Austin business owners:

  • Unauthorized financial decisions. Your partner makes major purchases, takes out loans, distributes profits, or spends company money without the required approval outlined in your operating agreement. In 2026, I’m seeing this frequently with partners who think they can use LLC funds for “business development” without documentation or consent.
  • Breach of fiduciary duty. Under Texas Business Organizations Code, LLC members owe each other duties of loyalty and care. This means no self-dealing, no taking business opportunities that belong to the company, no conflicts of interest without disclosure, and no decisions that put personal gain ahead of the LLC’s interests.
  • Withholding information. Your partner refuses to share financial records, hides material information about the business, or blocks your access to accounts, contracts, or operational data. Texas law requires transparency among LLC members.
  • Violation of non-compete or confidentiality clauses. Your partner starts a competing business, takes LLC clients to their side venture, or shares proprietary information with third parties in violation of your operating agreement terms.
  • Deadlock and refusal to cooperate. Your partner repeatedly blocks required votes, refuses to participate in necessary meetings, or makes it impossible to conduct business operations as outlined in your governing documents.
  • Failure to contribute capital. Your operating agreement requires capital contributions, and your partner simply doesn’t pay what they committed to provide.

I worked with a medical practice in Central Austin last year where one doctor was seeing patients through a separate entity and billing through the LLC’s infrastructure without sharing revenue. That’s textbook breach of fiduciary duty combined with operating agreement violation. We documented everything – the separate entity formation, the billing patterns, the revenue diversion – and used it to force a buyout within 90 days.

The key is understanding that in Texas, you can’t just say your partner violated the agreement because you don’t like their decisions. You need to show actual breach of specific terms in your operating agreement, violation of fiduciary duties under Texas law, or conduct that makes it unreasonably difficult to operate the business as intended.

Breach of Fiduciary Duty Under Texas Law

Even if your operating agreement doesn’t explicitly address certain conduct, LLC members in Texas owe each other fiduciary duties by default. The duty of loyalty requires members to act in the LLC’s best interests, not their own personal interests. The duty of care requires members to avoid gross negligence in business decisions.

Common fiduciary duty violations include:

  • Self-dealing transactions where the partner benefits at the LLC’s expense
  • Taking corporate opportunities for personal gain
  • Competing with the LLC while still a member
  • Misappropriating LLC funds or assets
  • Making decisions with actual knowledge they will harm the company

A breach of fiduciary duty claim can support stronger legal remedies than a simple contract breach, including the possibility of judicial dissolution under Texas Business Organizations Code Section 11.314.

Your Step-by-Step Legal Options When a Partner Violates the Operating Agreement

When you’re dealing with an operating agreement violation in Texas, you have several legal paths forward. The right choice depends on the severity of the breach, your operating agreement’s specific terms, and whether you want to continue the business or wind it down.

Step 1: Review Your Operating Agreement for Built-In Remedies

Start by reading your operating agreement carefully. Many well-drafted agreements include specific procedures for handling violations:

  • Cure periods. The violating partner gets 30-60 days to fix the breach after written notice.
  • Mandatory mediation or arbitration. Disputes must go through alternative dispute resolution before litigation.
  • Buyout provisions. Breach of certain terms triggers a mandatory buyout at a predetermined valuation.
  • Expulsion procedures. Specific grounds and voting requirements for removing a member.
  • Damages or penalties. Financial consequences for violating specific agreement terms.

If your operating agreement has these provisions, follow them exactly. Texas courts expect parties to exhaust the remedies they agreed to before seeking judicial intervention.

Document everything. Save emails, text messages, financial records, meeting notes, and any evidence showing the violation and your attempts to resolve it. This documentation becomes critical if you end up in court or mediation.

Step 2: Attempt Informal Resolution First

Before filing a lawsuit, try direct communication. Send your partner a formal written notice detailing:

  • The specific operating agreement provisions being violated
  • Concrete examples of the violating conduct
  • The harm being caused to the LLC
  • A clear deadline to cure the breach (typically 30 days)
  • The legal remedies you’ll pursue if the breach isn’t cured

Sometimes partners genuinely don’t realize they’re violating the agreement. Other times, a formal notice with legal consequences spelled out creates enough leverage to force a settlement conversation.

If direct communication fails, consider professional mediation. A neutral third-party mediator can facilitate buyout negotiations, operating agreement modifications, or separation terms without the expense and uncertainty of litigation.

Step 3: Formal Legal Remedies Under Texas Law

When informal resolution doesn’t work, Texas law provides several formal remedies for operating agreement violations:

Breach of contract lawsuit. You can sue your partner for damages caused by violating the operating agreement. This can include lost profits, harm to business value, costs to fix problems they created, and attorney’s fees if your agreement allows it.

The limitation: damages claims don’t remove your partner from the LLC. You might win money, but you’re still stuck in business with someone who’s already proven they won’t follow the rules.

Judicial dissolution under TBOC Section 11.314. This is the most powerful remedy for serious operating agreement violations. Texas Business Organizations Code Section 11.314 allows a district court to order winding up and termination of an LLC when:

  • The economic purpose of the entity is likely to be unreasonably frustrated – the LLC can’t achieve what it was formed to do because of the breach
  • Another owner has engaged in conduct that makes it not reasonably practicable to carry on business with that owner – your partner’s violations make continuing the business together impossible or unreasonable
  • It is not reasonably practicable to carry on the entity’s business in conformity with its governing documents – the LLC can’t function according to your operating agreement because of the violation

I used Section 11.314 last year for a real estate investment LLC in Williamson County where one partner was continuously blocking every property acquisition, refinancing decision, and management choice needed to operate the business. We proved it wasn’t reasonably practicable to carry on the business in conformity with the operating agreement. The court ordered winding up, but before that happened, the violating partner agreed to a buyout at fair market value.

Here’s what most business owners don’t realize: Texas courts have broad discretion when granting relief under Section 11.314. Instead of dissolving the LLC, judges can order:

  • Court-supervised buyout of the violating partner at fair market value
  • Appointment of a receiver to manage business operations
  • Modification of the operating agreement and management structure
  • Other equitable remedies that solve the problem without destroying the business

This means Section 11.314 can be used as leverage to force a reasonable buyout even when you don’t actually want to dissolve the LLC.

Step 4: Alternatives to Litigation

Litigation is expensive, time-consuming, and unpredictable. Even when you win, you might spend $50,000-$150,000 in legal fees and wait 12-18 months for resolution. Smart business owners explore these alternatives:

Voluntary buyout negotiation. Propose buying out your partner’s interest (or having them buy you out) at an agreed-upon valuation. Engage a neutral business appraiser, agree on payment terms, and document the buyout in a complete settlement agreement. This is faster, cheaper, and more confidential than litigation.

Arbitration. If your operating agreement includes an arbitration clause, use it. Arbitration is typically faster and less expensive than court litigation, and the arbitrator’s decision is final and binding.

Settlement with restructured management. Sometimes you can solve the problem without anyone leaving the LLC. Renegotiate management rights, voting requirements, distribution formulas, or decision-making authority to prevent future violations while keeping the business intact.

For a construction company in Travis County, we negotiated a solution where the violating partner became a passive investor with economic rights only, while the operating partner got full management control. Both parties kept their ownership percentages, but the management structure changed to prevent further violations. Problem solved without litigation.

Protecting Your Austin Business from Operating Agreement Violations

The best time to address operating agreement violations is before they happen. Here’s what you should do right now if you’re an LLC member in Central Texas:

Review your operating agreement to confirm it addresses removal procedures, buyout triggers, breach remedies, and dispute resolution. If your agreement is silent on these issues – or if you don’t have an operating agreement at all – you’re operating without protection.

Document everything related to business decisions, financial transactions, and partner communications. If a violation occurs, your documentation becomes your evidence.

Address small violations immediately. Don’t let minor breaches become patterns of misconduct. A formal written notice early can prevent bigger problems later.

Know your legal options before you need them. Understanding Section 11.314, breach of fiduciary duty claims, and buyout procedures gives you leverage when conflicts arise.

At Kelly Legal Group, we help Austin business owners enforce their operating agreements and resolve LLC partner disputes before they destroy the business. We’ve guided dozens of partnerships, LLCs, and multi-member companies through breach of agreement cases, buyout negotiations, and Section 11.314 dissolution proceedings.

If you’re dealing with an operating agreement violation in Texas – whether it’s financial misconduct, breach of fiduciary duty, unauthorized decisions, or a partner who’s making it impossible to run your business – let’s talk. Schedule a consultation with our business litigation team, and we’ll review your operating agreement, evaluate your legal options, and help you develop a strategy that protects your investment and your business’s future.

Operating agreement violations don’t fix themselves. They get worse. The partner who’s violating today will violate again tomorrow unless you take legal action to stop it. The question is whether you’ll act now while you still have options – or wait until your LLC is so damaged that dissolution is the only path forward.

Your business deserves better than a partner who won’t follow the rules. Let’s make sure you get the resolution you need.

 

Operating Agreement Violations FAQs

No. Under Texas law, you cannot remove an LLC partner simply because you disagree with their decisions or find them difficult to work with. You must demonstrate actual breach of specific operating agreement terms, violation of fiduciary duties under Texas Business Organizations Code, or conduct making it unreasonably impractical to operate the business. Normal business disagreements don’t constitute legal violations. However, unauthorized financial decisions, self-dealing, blocking necessary operations, or breaching fiduciary duties provide legal grounds for removal through buyout negotiations or judicial dissolution under TBOC Section 11.314.

Yes. Texas law imposes default fiduciary duties on LLC members regardless of written agreements—including duties of loyalty and care. Members cannot engage in self-dealing, misappropriate funds, take corporate opportunities for personal gain, or act with gross negligence. You can pursue breach of fiduciary duty claims or seek judicial dissolution under TBOC Section 11.314. However, a well-drafted operating agreement with specific breach remedies, buyout provisions, and dispute resolution procedures provides significantly stronger legal protections and clearer enforcement mechanisms.

Timeline varies by resolution method. Voluntary buyout negotiations: 30-90 days. Mediation: 2-4 months. Arbitration: 6-9 months. Court litigation: 12-18+ months from filing to judgment. Judicial dissolution under TBOC Section 11.314: 12-24 months, though many cases resolve through court-ordered buyouts before final dissolution. Negotiated settlement is typically fastest, which is why documenting violations immediately and engaging in structured buyout discussions often produces better outcomes than litigation.

Costs depend on the remedy pursued. Initial consultation and demand letter: $2,500-$5,000. Mediation: $10,000-$25,000 in legal fees plus mediator costs. Arbitration: $30,000-$75,000. Full litigation for breach of contract or judicial dissolution: $50,000-$150,000+, depending on complexity, discovery, expert witnesses, and trial length. Many operating agreements include attorney’s fee provisions allowing the prevailing party to recover costs. The most cost-effective approach is often aggressive negotiation backed by credible litigation threat—thorough documentation and clear legal grounds create settlement leverage without full litigation costs.

Texas Business Organizations Code Section 11.314 allows courts to order LLC winding up when: (1) the economic purpose is unreasonably frustrated, (2) another owner’s conduct makes it not reasonably practicable to continue business together, or (3) it’s not reasonably practicable to operate according to governing documents. Instead of actual dissolution, judges often order court-supervised buyout at fair market value, appointment of a receiver, or management structure modifications. Section 11.314 provides leverage to force reasonable buyout negotiations—the threat of court-ordered winding up often motivates violating partners to accept fair buyout terms.