Texas law calls it a company agreement
Nearly every business owner, and nearly every other state's LLC statute, speaks of an "operating agreement." That is the phrase people search for and the phrase that ends up on the cover page. The Texas Business Organizations Code never uses it. The controlling term is "company agreement," defined in Section 101.001(1) of the Business Organizations Code as any agreement, "written, implied, or oral, of the members concerning the affairs or the conduct of the business of a limited liability company." The vocabulary matters less than what sits inside the definition: a Texas company agreement does not have to be written. An oral understanding, or a course of dealing the members treated as binding, can be the company agreement, which is why the first fight in litigation is often over what the agreement even is.
Section 101.052 gives the company agreement its force. It governs the relations among the members, managers, officers, and assignees of membership interests, and the internal affairs of the company. It binds a member, manager, or assignee whether or not that person signed it, and it is enforceable by and against the company even if the company never formally adopted it. And with a short list of exceptions collected in Section 101.054, nearly any provision of the LLC statute can be waived or modified in the company agreement. Texas is, by design, a freedom-of-contract jurisdiction for LLCs. The document is the deal.
That design carries a corollary that surprises people on both sides of a dispute. Where the company agreement is silent, the members did not avoid the rules. They accepted the ones the Legislature wrote.
The default rules that fill a silent agreement
Section 101.052(b) supplies the gap-filler: to the extent the company agreement does not provide otherwise, Chapter 101 and the applicable general provisions of the Code govern the company's internal affairs. Three defaults do most of the damage in real disputes.
Voting. Under Section 101.354, each member has an equal vote. Not a vote proportional to ownership percentage or capital contributed. Equal. A 90/10 LLC that never addressed voting in a company agreement is, on member-level governance questions, a one-vote-each LLC. Most owners assume the opposite, and the assumption holds right up until the minority member reads the statute.
Allocations. Under Section 101.201, profits and losses are allocated on the basis of the agreed value of each member's contributions as stated in the company's required records. The default is not equal division and not whatever the members loosely had in mind; it turns on records that many companies never actually kept, which converts a money question into an evidence question.
Management. Under Sections 101.251 and 101.252, the governing authority follows the certificate of formation: managers govern if the certificate provides for managers, and otherwise the members do. Whoever holds governing authority holds the default power the agreement failed to allocate.
One more default matters for what the Code does not do: it does not force anyone to write a second check. Absent an enforceable obligation in the governing documents, a member who declines to contribute additional capital generally cannot be compelled to contribute it. Undocumented capital expectations are one of the most common seeds of a member dispute for exactly that reason.
Fiduciary duties after Senate Bill 29
Start with a baseline that surprises most members: under Texas common law, LLC members do not owe broad formal fiduciary duties to one another. The Texas Supreme Court said it plainly in Bertucci v. Watkins in March 2025: members of limited liability companies do not owe formal fiduciary duties to fellow members simply because of their relationship as co-members.
The baseline has narrow exceptions. An informal fiduciary duty can arise from a relationship of special trust and confidence that existed before, and apart from, the agreement in dispute, a principle the Texas Supreme Court reaffirmed in Pitts v. Rivas in February 2025. And Texas appellate authority has recognized a formal duty in one recurring posture: in Allen v. Devon Energy Holdings, a majority member who was also the sole member-manager owed a duty when negotiating to redeem a minority member's interest in a way that increased his own stake. Those doctrines are real, but they are narrow, and they leave the company agreement doing most of the work.
The statute leans the same direction, and in 2025 it leaned further. Section 101.401 of the Business Organizations Code has long permitted a company agreement to expand or restrict the duties, including fiduciary duties, that a member, manager, officer, or other person owes to the company or to its members. Effective May 14, 2025, Senate Bill 29 of the 89th Legislature amended Section 101.401 to add two words with real weight: a company agreement may now expand, restrict, or eliminate those duties and the related liabilities. Outright elimination, not merely restriction, is now on the statutory menu.
The change is not theoretical. In April 2025, in Tall v. Vanderhoef, the Texas Business Court dismissed a member's breach-of-fiduciary-duty claim at the pleading stage because the company agreement contained an enforceable waiver of fiduciary duties, resting on Texas's longstanding public policy of freedom of contract. The clause the court enforced did not purport to excuse everything; carve-outs preserving liability for gross negligence, intentional misconduct, and fraud are the pattern careful drafters follow. But the direction of travel is unmistakable. In a Texas LLC, the duties you can sue on are, to a very large degree, the duties the company agreement leaves standing.
Two practical consequences follow. First, any company agreement drafted before May 2025 was written when full elimination was not clearly available, so both majority and minority owners should reread their duty provisions with the amended statute in mind. Second, anyone reviewing an agreement they are being asked to sign should treat the fiduciary-duty article as the most consequential page in the document, not boilerplate.
One recurring confusion is worth clearing up while we are here. The liability-limitation provisions in Chapter 7 of the Business Organizations Code, which owners loosely think of as the general governing-person liability shield, exclude limited liability companies and partnerships by their own terms. For a Texas LLC, the modification of duties and liabilities runs through Section 101.401 and the company agreement itself. That is exactly why the drafting matters so much: the statute hands the entire subject to the contract.
Ritchie v. Rupe and the missing buyout right
Minority owners often arrive with the same plan: the majority is squeezing me out, so I will sue for oppression and force a buyout of my interest at fair value. In Texas, that plan fails at both steps. In Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014), the Texas Supreme Court held that Texas does not recognize a common-law cause of action for minority oppression, reasoning that existing claims, such as breach of fiduciary duty, breach of contract, and fraud, together with existing statutes, are the remedies the law provides.
The one statute that speaks to "oppressive" conduct is the receivership provision now codified at Section 11.404 of the Business Organizations Code, and Ritchie read it narrowly: oppression for that purpose requires majority owners who abuse their authority with intent to harm an owner's interests, in a manner that does not comport with the honest exercise of business judgment, creating a serious risk of harm to the entity. Even then, the remedy is a rehabilitative receiver. The statute does not authorize a court-ordered buyout of the complaining owner.
Ritchie was a corporate shareholder case. Texas courts and commentators have since applied its reasoning to LLC member disputes, and the prevailing practitioner view is that the same logic forecloses a common-law oppression claim for LLC members, although the Texas Supreme Court has not squarely decided the question in the LLC context. A prudent member plans as if Ritchie applies.
There is no statutory right to be bought out
The deeper trap sits underneath the oppression doctrine. Texas gives an LLC member no general statutory right to force the company or the other members to purchase the member's interest, at fair value or otherwise. A membership interest is the member's personal property under Section 101.106, and its economic rights can be assigned, but an assignee does not become a member without the required consent, and an unhappy member cannot simply hand the interest back in exchange for a check.
Absent a buy-sell provision, a member who wants out has four realistic paths: a negotiated exit; an assignment of the economic interest, usually at a deep discount because the assignee takes no governance rights; litigation over an actual wrong, such as breach of the company agreement or of a duty the agreement left standing; or a petition for judicial winding up. None of those guarantees a price, a timeline, or an exit at all. This single fact is why the buy-sell article of a company agreement deserves more attention than everything else in the document combined. It is typically the only reliable mechanism that gets a member out at a known price through a known process.
Deadlock and judicial winding up
The Code contains no definition of deadlock. What it contains is Section 11.314, which authorizes a district court to order the winding up of a domestic entity, expressly including an LLC, on any of three findings: 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; or it is not reasonably practicable to carry on the entity's business in conformity with its governing documents.
For LLC members, Section 11.314 is the practical stand-in for the oppression remedy Ritchie declined to create. The "not reasonably practicable to carry on the business with that owner" ground fits the classic two-member falling-out. But the relief is winding up: the orderly end of the company. Courts handling these proceedings have equitable latitude in how a winding up is conducted, and disputes in this posture frequently resolve with one side buying the other out, but no statute entitles a petitioning member to a buyout instead of liquidation, and no one should file expecting one.
That is the argument for handling deadlock inside the company agreement instead. An escalation period, mediation, and a decisive backstop, whether a shotgun clause under which one member names a price and the other elects to buy or sell at that price, a sealed-bid auction, or a predefined dissolution trigger, will resolve a deadlock in weeks on terms the members chose. A Section 11.314 petition resolves it in however long contested litigation takes, on terms a judge chooses.
The member's opening moves: records and direct claims
Books and records under Section 101.502
Nearly every member dispute begins with information asymmetry, and the statute answers it. Under Section 101.502 of the Business Organizations Code, a member or an assignee, on written demand stating a proper purpose, may examine and copy, at a reasonable time at the company's principal office, records reasonably related to that purpose, and may act through an attorney, accountant, or other agent. On written request, the company must also furnish without charge the certificate of formation and its amendments, the written company agreement and its amendments, and specified tax returns. Section 101.503 provides a penalty for refusal to permit examination of certain records.
Drafters cannot take this away. Section 101.054 makes the records right a floor: a company agreement may not unreasonably restrict a member's or assignee's rights under Section 101.502. For a minority member who suspects diverted distributions or self-dealing, a precise, proper-purpose records demand is almost always the correct first move, and a refusal is itself evidence.
Most small-LLC claims are not really derivative
Owners often assume that a claim about harm to the company, such as diverted contracts, inflated management fees, or misapplied funds, must be brought derivatively on the company's behalf, through the demand and standing procedures of Subchapter I of Chapter 101, Sections 101.451 through 101.463. For most Texas LLCs, that assumption is wrong, and wrong in the member's favor.
Section 101.463 defines a closely held LLC as one with fewer than 35 members and no membership interests listed on a national securities exchange or regularly quoted in an over-the-counter market. For those companies, which describes the overwhelming majority of Texas LLCs, the derivative-suit gatekeeping provisions of Sections 101.452 through 101.460 do not apply, and a court may treat a derivative proceeding as a direct action brought by the member for the member's own benefit, with any recovery paid directly to the member where justified, subject to protections for creditors and the other members. In plain terms: in a small Texas LLC, "can I sue over what they did with company money" is usually a yes, without first serving a demand on the very people accused, and the recovery does not necessarily route through the company they control.
Drafting against the dispute
Everything above describes what happens when the company agreement is silent. The better practice is to make it speak. In our experience reviewing agreements after relationships have soured, five provisions are where silence does the most damage. They are the core of the company agreement drafting work we do for Texas businesses, and the same questions arise for professional practices we organize through PLLC formation.
Capital calls and the price of not contributing
Founding agreements record the day-one contributions and go quiet about the second check. Because the Code will not compel a further contribution, the agreement has to say who can call capital, on what notice and contribution window, and what happens to a member who declines: pro rata dilution, priority repayment for the contributing member ahead of ordinary distributions, or treatment of the shortfall as a loan at a stated rate. Silence converts every future funding need into a negotiation with a holdout.
Allocations, distributions, and the tax bill
Allocations of taxable income and distributions of cash are different things, and the member who receives a Schedule K-1 without the cash to pay the tax on it is the member who calls a litigator. A mandatory tax distribution clause, paired with a stated distribution priority and a stated trigger for discretionary distributions, removes the two most recurring money fights in one page.
Voting tiers that displace the per-capita default
Because Section 101.354 defaults to one member, one vote, the agreement should say explicitly which decisions carry which threshold: ordinary-course matters with the manager or a simple majority; significant decisions, such as budgets, debt, and spending above a stated dollar threshold, at a supermajority; and fundamental decisions, such as admitting members, amending the agreement, selling the company, or dissolving, at unanimity or close to it.
The buy-sell: the exit the statute does not provide
Given that no statute forces a buyout, the buy-sell provision is the only reliable exit. It should address each trigger separately, including death, permanent disability, divorce, bankruptcy, voluntary withdrawal, and termination of an employee-member; state who may or must purchase in each case; fix a valuation method that will actually function, whether a stated formula, an annually refreshed agreed value, or a designated independent appraisal; and set the payment terms, including whether the price is paid at closing or over a promissory note.
Deadlock mechanics and arbitration
A working deadlock provision keeps Section 11.314 on the shelf. A written arbitration clause belongs next to it: such agreements are valid and enforceable under Section 171.001 of the Civil Practice and Remedies Code, and Texas courts, including the Business Court, will stay member litigation pending arbitration under a company agreement's mandatory arbitration clause. One caution from the recent case law: a party who litigates first can, on the totality of the circumstances, waive the right to compel arbitration later, so the clause must be invoked with discipline rather than held in reserve.
Frequently asked questions
Is an operating agreement legally required for a Texas LLC?
No. Texas does not require a written agreement for an LLC to exist, and Section 101.001(1) of the Business Organizations Code recognizes company agreements that are written, implied, or oral. Without one, the Code's default rules govern, and those defaults, including per-capita voting, rarely match what the owners intended.
What does Texas law call an operating agreement?
The Business Organizations Code uses the term "company agreement," defined in Section 101.001(1) and given effect in Section 101.052. Operating agreement is the informal name nearly everyone uses; company agreement is the term a Texas court will apply.
Can a Texas company agreement eliminate fiduciary duties between members?
Yes. Effective May 14, 2025, Senate Bill 29 amended Section 101.401 to permit a company agreement to expand, restrict, or eliminate duties, including fiduciary duties, and related liabilities. The Texas Business Court has already enforced a waiver of fiduciary duties to dismiss a member's claim.
Can a minority member force the LLC or the other members to buy out their interest?
Generally no, absent a company agreement provision saying so. Texas recognizes no common-law claim for minority oppression, and the receivership statute tied to oppressive conduct does not authorize a court-ordered buyout. A drafted buy-sell provision is typically the only reliable way to secure an exit price and process.
Does a member have to follow the formal derivative-suit process to sue over LLC misconduct?
Often not. For a closely held LLC, one with fewer than 35 members and no publicly traded interests, Section 101.463 makes the usual demand and standing procedures inapplicable and permits a court to treat the claim as a direct action, with recovery payable to the member where justified.
What can a member do if the owners are deadlocked?
If the company agreement supplies a deadlock mechanism, use it. If not, the principal statutory option is a petition for judicial winding up under Section 11.314 on the ground that it is no longer reasonably practicable to carry on the business, a remedy that ends the company and moves at the speed of contested litigation.
When to bring in counsel
The fact patterns that warrant counsel before positions harden are consistent: a records demand that has been refused or slow-walked; a capital call, or a refusal to fund one, in an LLC whose agreement is silent on consequences; a majority owner negotiating to redeem a minority interest; a fiduciary-duty article drafted before May 2025 that no one has reread since Senate Bill 29; a two-member company approaching its first true deadlock; or any member relationship where the company agreement has not been opened since formation. In each of those, the cost of the wrong first move is measured in years of litigation, not in a phone call.
Maddox & Muñiz advises Texas LLC members, managers, and companies across our corporate and business practice, from company agreement drafting and review through dispute strategy, and serves as ongoing outside general counsel for businesses that want these questions answered before they become disputes. If a member relationship is showing strain, or your agreement predates the 2025 amendments, schedule a consultation and we will walk through where you actually stand.
If your company agreement predates the May 2025 amendments, or a member relationship is under strain, the consultation is complimentary.
Schedule ConsultationThis article is general information about Texas limited liability company law and is not legal advice. It does not create an attorney-client relationship with Maddox & Muñiz, PLLC. Statutes, rules, and case law change, and this area of Texas law changed substantially in 2025; confirm the current text of the Business Organizations Code and the current state of the case law with counsel before acting on anything discussed here.
