Originally published on January 1, 2023

Disputes among LLC members in Texas can quickly turn destructive, threatening the stability of the business and the personal finances of the owners. These conflicts often involve disagreements over control, profit distributions, fiduciary duties, or removal of a member. Fortunately, Texas law offers several legal paths to resolve these disputes.

Whether you’re a minority owner being shut out of decisions or a managing member dealing with internal conflict, understanding how LLC ownership disputes are resolved is critical to protecting your investment and legal rights.

Start with the Company Agreement

In Texas, an LLC’s company agreement (also known as an operating agreement) governs how ownership disputes are handled. This document may include:

  • Voting rights and quorum requirements
  • Procedures for removing a member
  • Buyout terms or valuation methods
  • Deadlock resolution clauses (e.g., mediation, arbitration)
  • Distributions and capital contributions

Courts give great weight to the company agreement. If it’s clear and enforceable, it will control the outcome in most disputes.

What If There’s No Written Agreement?

If the LLC has no written company agreement—or if the agreement is silent on the disputed issue—Texas law fills the gaps. The Texas Business Organizations Code (BOC) provides default rules for:

  • Management rights (usually equal votes for each member)
  • Fiduciary duties of loyalty and care
  • Right to inspect books and records
  • Member withdrawal and termination procedures

However, the BOC is not as detailed or flexible as a good agreement, and relying on it may lead to expensive litigation.

Common Types of LLC Ownership Disputes

  • Profit Distribution Conflicts: Disagreements over when and how profits are shared
  • Breach of Fiduciary Duty: Allegations that a managing member acted in self-interest or concealed information
  • Unauthorized Decisions: One member makes major decisions without required approval
  • Deadlocks: Equal ownership splits prevent decisions from being made
  • Expulsion or Buyout Disputes: When one member wants to force another out or sell their interest

Step 1: Informal Resolution

Many LLC disputes can be resolved through direct negotiation or informal mediation, especially if the parties want to preserve the business relationship. Common strategies include:

  • Clarifying misunderstanding or roles
  • Amending the operating agreement
  • Negotiating a buyout or transfer of interest

However, informal efforts often fail when the conflict involves significant money, distrust, or personal history.

Step 2: Mediation or Arbitration

Some company agreements require disputes to be resolved through mediation or arbitration before going to court. These alternative methods can save time and money while keeping matters private.

  • Mediation: A neutral third party facilitates a compromise
  • Arbitration: A private “judge” hears evidence and issues a binding decision

Texas courts generally enforce arbitration clauses unless they’re unconscionable or waived.

Step 3: Filing a Lawsuit

If informal resolution fails, the dispute may require litigation. Common legal claims in LLC disputes include:

  • Breach of fiduciary duty
  • Fraud or misrepresentation
  • Oppression of minority members
  • Accounting or demand to inspect records
  • Judicial dissolution of the LLC

In extreme cases, a Texas court can order the LLC dissolved if it becomes impractical to operate the business due to ongoing conflict. However, courts consider dissolution a last resort.

Can a Member Be Removed from the LLC?

Texas law allows members to be expelled only under specific conditions:

  • The company agreement allows for removal, or
  • The court orders expulsion based on serious misconduct, fraud, or deadlock

It is generally not possible to remove a member unilaterally unless the company agreement provides a clear process.

Can I Force a Buyout?

There is no automatic right to a buyout under Texas law. To compel a buyout, you typically need:

  • A provision in the company agreement
  • An agreement negotiated through mediation or litigation
  • A court ruling in a dispute that justifies liquidation or equitable relief

Valuation of the ownership interest is often the most contested issue and may require expert testimony.

How Guerra Days Law Group Can Help

At Guerra Days Law Group, we represent LLC owners and business partners in disputes throughout Texas. Whether you’re seeking to enforce your rights, protect your financial interest, or resolve a deadlock, we offer practical legal strategies backed by real courtroom experience.

Contact us today to schedule a consultation and get the guidance you need to resolve your LLC ownership dispute efficiently and effectively.