Every Texas business with more than one owner needs a written agreement that says who makes decisions, how money comes in and goes out, what happens when owners disagree, and how an owner can leave. For an LLC, that document is the company agreement, which many people call an operating agreement; for a corporation, it is the bylaws together with a shareholders’ agreement. A Texas operating agreement attorney helps owners replace the default rules of the Texas Business Organizations Code with terms that match the deal they actually made.
Holmes Law is the practice of Michael Holmes, an attorney licensed in Texas who works remotely with business owners across the state. This page explains the Texas default rules that apply when an agreement is silent, the room Texas gives owners to change them, and the provisions that most often cause disputes. It is general information rather than legal advice, and it fits within Holmes Law’s Texas business law practice.
Why Texas Default Rules Matter
The Texas Business Organizations Code (TBOC) supplies a full set of default rules for LLCs in Chapter 101 and for corporations in Chapter 21. Those rules apply automatically when the owners have not agreed otherwise, and they often produce results that surprise people. Section 101.052 makes the company agreement the primary governing document for an LLC, and most of Chapter 101 yields to it. Section 101.054 lists the relatively short set of provisions the company agreement cannot waive or modify, such as certain rules on prohibited distributions, the requirement that a promise to contribute be in writing to be enforceable, and a member’s right to examine records, which the agreement may not unreasonably restrict.
A Texas company agreement can be written or oral under the statute’s definition, but relying on an oral agreement is a recipe for litigation. Owners remember deals differently, and an oral understanding about who contributed what, or who was supposed to be paid a salary, is difficult to prove years later.
Texas LLC Defaults a Company Agreement Should Override
Several Chapter 101 defaults are worth highlighting because they are so different from what owners tend to assume.
Voting Is Per Member, Not Per Percentage
Under Section 101.354, each member, manager, or committee member has an equal vote at a meeting unless the company agreement provides otherwise. In a three-member LLC where one member contributed 80 percent of the capital, the default rule gives that member one vote out of three. Most company agreements replace this with voting by percentage interest, and many add supermajority or unanimous approval for major decisions.
Approval Thresholds
Section 101.356 sets default thresholds: ordinary actions of the governing authority require a majority of all governing persons, fundamental business transactions such as a merger or conversion require a majority of all members, and amending the certificate of formation requires the vote of all members. A careful agreement defines which decisions count as major decisions and assigns each one an appropriate threshold, instead of relying on these general categories.
Profits and Distributions Follow Agreed Contributions
Section 101.201 allocates profits and losses on the basis of the agreed value of each member’s contributions as stated in the company’s records. If those records are incomplete, or if one member contributed services rather than cash, the default can lead to arguments over what the agreed values were. For LLCs taxed as partnerships, the allocation and distribution provisions also have to work with federal partnership tax rules, including capital account maintenance.
No Withdrawal, No Expulsion
Section 101.107 states that a member may not withdraw or be expelled from the company. That default protects the company from an owner demanding a sudden payout, but it also means a departing member has no statutory exit and a disruptive member cannot be removed unless the company agreement creates a mechanism. Texas companies should address voluntary departure, removal for cause, and the price and terms of any buyout in the agreement itself, often through a separate or integrated Texas buy-sell agreement.
Transfers and New Members
A member can assign a membership interest, but by default the assignee receives only economic rights, such as allocations and distributions, plus limited information rights. Under Section 101.109, an assignee becomes a member only with the approval of all members. Most agreements add rights of first refusal, consent requirements, and prohibited-transfer rules, and they specify whether transfers to a spouse, a trust, or an estate are permitted.
Fiduciary Duties and How Far They Can Be Modified
Texas gives LLC owners broad freedom to define the duties they owe one another. Section 101.401 allows the company agreement to expand or restrict duties, including fiduciary duties, and related liabilities that a member, manager, officer, or other person has to the company or to a member. In 2025, Senate Bill 29 amended the TBOC and, according to published summaries, clarified that LLC and limited partnership governing documents may expand, restrict, or eliminate fiduciary duties, including the duties of loyalty, care, and good faith. The TBOC’s liability-limitation provisions in Chapter 7 continue to matter, and courts read these provisions against the specific language the owners used.
Texas case law has not fully settled what duties LLC members owe one another by default when the agreement is silent. Managers are generally treated as owing duties to the company, but whether a member owes a formal fiduciary duty to a fellow member can depend on the facts. That uncertainty is one more reason to address duties expressly: the agreement can permit members to pursue other business opportunities, define conflicts of interest and how they are approved, and set a clear standard of conduct for managers.
For corporations, officers and directors owe duties of obedience, loyalty, and due care to the corporation. Section 7.001 allows a corporation’s certificate of formation to limit or eliminate a director’s liability for monetary damages, subject to exceptions such as breaches of the duty of loyalty, bad-faith acts, intentional misconduct, and transactions from which the director received an improper benefit. SB 29 also codified a business judgment rule in Section 21.419, but it applies to corporations with shares listed on a national securities exchange or those that elect into it in their governing documents, so most small Texas corporations will need to decide whether to opt in.
Management Structure
An LLC’s certificate of formation states whether the company is managed by its members or by managers. In a member-managed LLC, members act as the governing authority and, by default, each can bind the company in the ordinary course. In a manager-managed LLC, the managers act as the governing authority, and members who are not managers have more limited authority. The company agreement should define the powers of managers and officers, list the actions that require member approval, set rules for meetings and written consents, and establish how managers are appointed and removed.
For corporations, the default structure is a board of directors elected by shareholders, with officers appointed by the board. Shareholder votes generally run by share, and under the TBOC cumulative voting and preemptive rights exist only when the certificate of formation provides for them. A shareholders’ agreement under Section 21.101 can restructure governance in ways the default rules would not allow, such as eliminating the board, restricting board discretion, or requiring particular people to serve as officers, as long as the agreement satisfies the statutory requirements and all shareholders approve it. A closely held corporation can also elect close corporation status under Subchapter O of Chapter 21.
Capital Contributions and Capital Calls
Many disputes begin when a business needs more money. Section 101.151 makes a promise to make a contribution to an LLC enforceable only if it is in writing and signed by the person making the promise. A company agreement should therefore say whether members are required to contribute additional capital, who can call for it, how much notice is required, and what happens if a member does not fund.
Common remedies for a non-contributing member include dilution of the member’s percentage interest, treating a contributing member’s advance as a loan with interest, subordinating the non-contributing member’s distributions, or triggering a buyout. Each has tax and fairness implications, and dilution formulas in particular should be tested with numbers before signing. The agreement should also address distributions, including tax distributions to cover owners’ income tax on allocated profits, and it should respect Section 101.206, which prohibits distributions that would leave the LLC insolvent.
Transfer Restrictions
Owners of a closely held business usually want control over who their co-owners are. Typical transfer provisions include:
- A general prohibition on transfers without consent, with permitted transfers to estate planning vehicles such as a revocable trust.
- A right of first refusal allowing the company or other owners to match a third-party offer.
- Drag-along rights allowing a majority to require minority owners to join a sale of the whole company, and tag-along rights allowing minority owners to join a sale by the majority.
- Rules for involuntary transfers, including transfers in a divorce, bankruptcy, or foreclosure.
For corporations, Section 21.211 lists the kinds of share transfer restrictions a corporation may impose, and Section 3.202 requires that a restriction be noted conspicuously on the share certificate, or in the required notice for uncertificated shares, to be enforceable against a person without actual knowledge of it. LLC interests are subject to the charging-order rule in Section 101.112, which makes a charging order the exclusive remedy of a member’s judgment creditor against the membership interest. That protection works best when the company agreement is consistent with it.
Deadlock, Dissociation, and Dissolution
Fifty-fifty ownership is common among Texas founders, and it creates a real risk of deadlock. Texas law provides limited court remedies. Section 11.404 allows a court to appoint a rehabilitative receiver when governing persons are deadlocked, the owners cannot break the deadlock, and irreparable injury is threatened, but only if other remedies are inadequate. Section 11.314 permits an owner of an LLC or partnership to seek court-ordered winding up if the entity’s economic purpose is likely to be unreasonably frustrated, if another owner’s conduct makes it not reasonably practicable to carry on the business with that owner, or if it is not reasonably practicable to carry on in conformity with the governing documents.
The Texas Supreme Court’s decision in Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014), held that Texas does not recognize a common-law cause of action for shareholder oppression and that the statutory receivership remedy is narrow. For minority owners in Texas, that makes the written agreement much more important than it would be in states with broader oppression remedies.
Practical deadlock tools include:
- A tie-breaking independent manager or advisory board.
- Mandatory mediation followed by arbitration of specified disputes.
- A buy-sell trigger such as a “shotgun” clause, in which one owner names a price and the other must either buy or sell at that price.
- A negotiated dissolution procedure with a defined sale process.
Under Section 101.552, a voluntary winding up of an LLC requires the vote of a majority of all members by default. Agreements often change that threshold and specify how assets are sold or distributed in kind.
Veil Piercing and Why Formalities Still Matter
Texas is comparatively protective of owners against veil-piercing claims. For contract claims, Section 21.223 bars holding a shareholder liable on the theory of alter ego, sham, or similar doctrines unless the shareholder caused the corporation to be used to perpetrate an actual fraud on the creditor primarily for the shareholder’s direct personal benefit. The same section provides that a failure to observe corporate formalities is not a basis for liability. Section 101.002 applies these protections to LLCs.
Those protections are strong, but owners should not rely on them as a substitute for good practice. Commingling funds, undocumented loans between owners and the business, and inconsistent treatment of the entity can create problems in tort claims, tax audits, and bankruptcy. A clear company agreement and consistent records support the separateness that liability protection depends on.
Records, Forum Selection, and Litigation Planning
Owners have statutory rights to inspect records. Section 101.502 governs an LLC member’s access, and Section 21.218 governs a shareholder’s inspection rights. SB 29 clarified that emails, text messages, and social media communications generally are not company records unless they effectuate an action by the entity, which narrows what owners can demand.
SB 29 also allows Texas entities to adopt governing-document provisions selecting one or more Texas courts as the exclusive forum for internal entity claims, and to include jury waivers for those claims, with enforceability depending on the circumstances of adoption. The Texas Business Court, which began operating on September 1, 2024, hears many governance and internal affairs disputes. A current operating or shareholder agreement should consider whether to use these tools, or to require arbitration instead.
Frequently Asked Questions
Is a company agreement required for a Texas LLC?
Texas does not require an LLC to file its company agreement with the state, and an LLC can technically operate under the statute’s default rules. For any LLC with more than one owner, however, a written company agreement is strongly advisable because the defaults, such as equal per-member voting and no right to withdraw, rarely match what the owners intended.
Do single-member LLCs need an operating agreement?
A single-member LLC benefits from one as well. It documents that the entity is separate from its owner, names a successor manager if the owner dies or becomes incapacitated, and makes it easier to open accounts and work with lenders.
Can our agreement eliminate fiduciary duties?
Texas law gives LLCs broad room to expand, restrict, or eliminate fiduciary duties in the company agreement, and 2025 amendments reinforced that flexibility. How far to go is a business decision. Minority owners may accept narrower duties in exchange for stronger information rights, veto rights, or buyout protections.
What can a minority owner do in Texas if the majority freezes them out?
Because Texas does not recognize a common-law shareholder oppression claim, the minority owner’s remedies depend mostly on the agreement and on statutory remedies such as receivership or court-ordered winding up. Negotiating protections at the outset, including information rights, approval rights over major decisions, and a put right at a defined price, is far more effective than litigating later.
How often should we update our agreement?
Review the agreement whenever ownership changes, new capital comes in, the business changes significantly, or the law changes, as it did in 2025. Many owners review their documents every few years alongside their estate plan.
Speak With a Texas Operating Agreement Attorney
A company agreement or shareholders’ agreement is the rulebook for your business, and in Texas it matters more than in many states because the statute defers to it so heavily and courts offer limited fallback remedies. Holmes Law drafts and reviews Texas company agreements, bylaws, and shareholders’ agreements for new and established businesses, and coordinates them with entity formation and succession planning. To discuss your business with a Texas operating agreement attorney, contact Holmes Law.