Originally published on March 23, 2025

When business partners form a limited liability company (LLC), they rarely expect to end up in court. But disputes over control, profits, or strategy can erupt—and when they do, the fallout can jeopardize the entire operation. In Texas, LLC ownership disputes are governed by a combination of the company’s internal agreement and state law. Whether you’re dealing with a power struggle, breach of fiduciary duty, or attempted buyout, knowing your rights is essential.

This article outlines how LLC disputes arise, the tools available to resolve them, and what steps you should take if your business is caught in a deadlock.

Common Causes of LLC Ownership Disputes

LLC conflicts often stem from:

  • Disagreements over profit distribution
  • Conflicts about management decisions or company direction
  • Claims of mismanagement or breach of fiduciary duty
  • Failure to contribute capital or labor
  • Attempted transfers of membership interests without consent
  • Deadlock between 50/50 members

Even close friends or family members can find themselves in heated litigation if expectations weren’t clearly defined in the beginning.

The Importance of a Company Agreement

Texas law allows LLCs to adopt a written company agreement (sometimes called an operating agreement) that governs:

  • Voting rights
  • Profit distribution
  • Member duties and responsibilities
  • Buy-sell provisions
  • Procedures for resolving disputes

If your LLC has a valid agreement in place, courts will generally follow its terms. A well-drafted agreement is the single most powerful tool in preventing and resolving disputes.

What If There’s No Operating Agreement?

Without a company agreement, the Texas Business Organizations Code (BOC) provides default rules. These include:

  • Each member has equal voting rights (regardless of contribution)
  • Members must act in good faith and fair dealing
  • Major decisions require unanimous consent

These default rules may not reflect the expectations or contributions of the parties, which is why operating agreements are so critical.

Options for Resolving LLC Disputes

1. Internal Negotiation

The first step should always be internal discussion. If all members are still actively involved, consider sitting down with or without counsel to discuss a buyout, reallocation of roles, or restructuring.

2. Mediation

Mediation offers a neutral third-party facilitator to help members find common ground. It’s often faster and cheaper than litigation, and any resulting agreement can be made legally binding.

3. Buyout or Redemption

Many disputes can be resolved by having one member buy out the other’s interest. The valuation of the ownership share is often the sticking point, especially in profitable businesses. Your company agreement may already contain a buyout formula or appraisal procedure.

4. Derivative Lawsuits

When a member believes another member or manager has harmed the company (e.g., embezzlement, self-dealing), they may bring a derivative action on behalf of the LLC. This type of lawsuit seeks to recover losses suffered by the business.

5. Judicial Expulsion

Although rare and difficult to obtain, courts may expel a member if they breach fiduciary duties, commit fraud, or seriously damage the business. This remedy requires strong evidence and is usually a last resort.

6. Judicial Dissolution

When deadlock or dysfunction makes it impossible to continue business, a court may dissolve the LLC entirely. This is an extreme measure and often results in a forced sale or liquidation of assets.

Deadlock in 50/50 LLCs

Deadlocks occur when two equal owners cannot agree on key decisions. Without a tiebreaking mechanism, business operations can grind to a halt.

Texas courts may intervene in a deadlock situation by:

  • Ordering dissolution
  • Appointing a receiver or provisional director
  • Enforcing buyout provisions if they exist

Deadlocks highlight the importance of including deadlock-breaking clauses in the company agreement.

Fiduciary Duties Among LLC Members

LLC managers owe fiduciary duties to the company, including duties of loyalty and care. Depending on the structure, members in member-managed LLCs may owe similar duties to one another.

Examples of breaches include:

  • Diversion of company opportunities
  • Using company funds for personal expenses
  • Failing to disclose conflicts of interest

These actions can trigger legal liability and may justify a forced buyout, injunction, or damages award.

When to Hire a Business Dispute Attorney

LLC ownership disputes are legally complex and emotionally charged. Early intervention by a skilled business attorney can prevent escalation, preserve the business, or position you for a favorable exit. An attorney can:

  • Interpret your company agreement
  • Evaluate potential claims and defenses
  • Draft demand letters or negotiate buyouts
  • Represent you in court, arbitration, or mediation

The earlier you involve legal counsel, the more options you’ll have—especially if the dispute threatens the company’s operations or reputation.

Why Choose Guerra Days Law Group

At Guerra Days Law Group, we help Texas entrepreneurs protect their business interests in the face of internal disputes. Whether you need a fast resolution to a disagreement or are preparing for litigation, we deliver strategic, decisive counsel tailored to your goals.

We understand both the legal and personal complexities of business breakups—and we work to resolve disputes with minimal disruption and maximum protection of your rights.

If you’re involved in an LLC dispute, contact us today for a confidential consultation and find out how we can help you take control of the situation before it takes control of your business.