Firing a Member as an Employee in a Texas LLC
Firing a Member as an Employee in a Texas LLC (Without Affecting Ownership)
In Texas, employment is generally at-will. If your operating (company) agreement is silent, you may terminate a member’s employment like any other employee—while their membership interest remains intact. Importantly, LLC member generally can’t be forced out or voluntarily walk away from his or her membership interest even if fired. The law really only offers two blunt tools to remove someone's membership interest: voluntary dissolution (members vote to wind up) or judicial dissolution (a court order). So, you can fire a member from being an employee if certain actions are taken and assuming the operating agreement or another written agreement does not prohibit it. The exact voting mechanics depend on whether the LLC is member-managed or manager-managed and on the Certificate of Formation. Initial key considerations must include (for which you must consult a lawyer):
- who the “governing authority” is;
- whether action can be by written consent;
- final paycheck within six days of discharge; and
- avoiding any prohibited reasons for termination.
Steps to Follow Before Firing a Member
Co-owners often wear two hats: “member” (owner) and “employee/officer.” Texas law lets you remove the
employee/officer hat without stripping the
owner hat—unless your company agreement says otherwise. By default, the
company agreement controls internal affairs and if it’s silent, the
Texas Business Organizations Code (TBOC) provided the answers for any gaps and will provide the missing termination requirements (e.g., who votes, how to act by consent, how to remove an officer/manager). Our business attorney helps you navigate those defaults without accidentally tripping duties, deadlines, or buy-sell triggers:
Step 1: Confirm how your LLC is managed
- Check the Certificate of Formation (and the company agreement)
Texas requires the Certificate of Formation to clearly state whether the LLC has managers. If it has managers, it’s manager-managed; if it does not have managers, it’s member-managed. This is the starting point for who can vote to hire/fire and who can remove officers.
- Identify the “governing authority”
When the agreement is silent, the “governing authority” is either the managers (if manager-managed) or the members (if member-managed). That governing authority directs management and acts per the Code.
Texas Statutes
Step 2: Apply Default Texas Voting Rules (when the operating agreement is silent)
- Equal votes per person (not per percentage)
By default under TBOC §101.354, each member/manager has an equal vote at meetings. With three members (A, B, C), B + C = 2 of 3, which is a majority by headcount unless your agreement changes that default. Ordinary actions typically pass by majority at a meeting with quorum.
- Written consent instead of a meeting
Texas permits many actions to be taken by less-than-unanimous written consent when the action could be taken at a meeting—an efficient way to document routine personnel actions.
Step 3: Distinguish Two Common LLC Management Scenarios
- Member-managed LLC (no managers)
- Who acts? The members (equal votes by default).
- What to do? Adopt a brief written consent or hold a members’ meeting to terminate A’s employment. If A holds an officer title (e.g., President), remove the officer first (with or without cause) and then end the employment. Officer removal does not prejudice contract rights, if any. Texas Statutes
- Manager-managed LLC (managers listed)
- Who acts on day-to-day? The managers. They generally handle hiring/firing employees.
- If A is a manager: The members can remove A as manager with or without cause at a members’ meeting called for that purpose (then terminate employment).
- If A is only an officer (not a manager): The governing authority may remove the officer with or without cause, then terminate employment. Texas Statutes
Important ownership safeguard: Texas forbids expulsion of a member by default. Firing as an employee does not cancel or redeem their equity unless your agreement expressly allows it and you follow those procedures. See TBOC §101.107.
Step 4: Follow Texas Employment-Law Guardrails
- At-will employment: You may discharge for any lawful reason or no reason at all, unless a contract or statute says otherwise. Texas recognizes a narrow “Sabine Pilot” exception: you cannot fire someone solely for refusing to commit an illegal act.
- Final pay deadline: If you discharge an employee, you must pay all wages owed no later than the sixth (6th) calendar day after discharge. (If they resign, pay on the next regular payday.) Texas Statutes
- Discrimination/retaliation: Standard federal/state anti-discrimination and retaliation laws apply, even when the employee is also an owner.
Step 5: Practical Workflow (Checklist)
- Pull the Certificate of Formation to confirm member- vs manager-managed.
- Review the company agreement and any employment/offer letters (bonus/vesting/severance). The agreement controls if it speaks.
- Prepare a short action by consent or minutes:
- Member-managed: members’ written consent/meeting minutes.
- Manager-managed: managers’ written consent/meeting minutes; if A is a manager, add member action removing A as manager.
- Officer clean-up (if applicable): remove officer positions with or without cause.
- Deliver termination notice, recover access/property, and pay final wages within six days.
- Do not touch equity (distributions, K-1s, information rights) unless your agreement authorizes a process to redeem, buy out, or reallocate ownership. Expulsion is prohibited by default.
How to Protect Yourself During a Partnership or LLC Exit
- Exit with clear written releases and indemnities
- Accept a price with a clear valuation method and payment security
- Revoke access (email, cloud, banking, credit cards) and reclaim IP/assets
- Aligning on tax reporting and final distributions
Contact a Wilson Whitaker Rynell Business Lawyer today to discuss
No Shareholder Oppression Claim in Texas
Minority owners in closely held businesses—whether corporations or LLCs—can be squeezed out by those in control and cut off from information, excluded from management, denied distributions, or even terminated from employment. These are often known as the “seeds of oppression” and note the problem is the same with LLCs due to the fact of majority rule, concentrated control, and lack of an easy exit the parties. In 2014, the Texas Supreme Court in Ritchie v. Rupe rejected a free-standing oppression cause of action and narrowed “oppressive” conduct under the receivership statute to abuses intended to harm that create a serious risk of harm to the corporation—a much tougher standard that focuses on the entity, not just the aggrieved minority.
What Remedies Still Exist in Texas For Shareholder Oppression? (Corporations & LLCs)
Receivership—rehabilitate or liquidate (rare, but powerful)
A district court can appoint a receiver to rehabilitate an entity if it’s insolvent (or nearly so) or if other remedies are inadequate and a receiver is necessary to conserve the business; it can liquidate only under even tighter conditions. Expect courts to require proof that lesser remedies won’t work.
Derivative proceedings (your workhorse after Ritchie)
- Corporations (closely held): Texas’s closely-held corporation statute relaxes derivative barriers and can allow the minority to recover directly in some circumstances. Use it for breaches of fiduciary duty, usurpation of opportunities, diversion of assets, etc.
- LLCs: The TBOC provides a full derivative framework for LLCs (Subchapter J), commonly used to pursue company claims (e.g., breach of fiduciary duty by managers/members, self-dealing, misappropriation).
Books-and-records & information rights (build your case file)
- Corporations: Shareholders meeting the statutory thresholds can inspect books and records for a proper purpose; courts can compel production. 2025 amendments narrow what counts as “records” (e.g., excluding most emails/texts/social media unless they effectuate corporate action).
- LLCs: Members (and in some cases assignees) have statutory inspection rights; 2025 changes parallel the corporate narrowing—plan early to preserve formal records and minutes.
Contract & statutory claims
- Breach of the company agreement/bylaws,
- Breach of fiduciary duty (asserted derivatively where duties run to the entity),
- Fraud, conversion, money had & received, accounting, and
- Declatory relief for an equitable remedy.
Can we remove or expel a member from a Texas LLC if our operating agreement is silent (no buy-sell in place)?
Generally, no. Texas law does not allow expulsion or voluntary withdrawal by default. You can only remove a member if your operating agreement (or a separate buy-sell) expressly allows it. Without those, your hard-reset options are voluntary dissolution (member vote to wind up) or judicial dissolution (court order).
Our operating agreement is silent as to member termination. What are our real options?
Three practical paths:
- Adopt or amend an operating agreement (or sign a stand-alone buy-sell) that adds removal/buy-out terms—this usually requires majority approval, but unanimous consent is cleaner.
- Negotiate a voluntary buy-out with the member.
- As a last resort, consider dissolution (voluntary or judicial) if continued co-ownership is unworkable.
Is firing a member from their job the same as removing them as an owner?
No. Terminating a member’s employment or officer role (usually at-will) does not affect ownership unless your agreements say it does and you follow those procedures. Keep employment decisions separate from equity rights.
What is a “call” option in a buy-sell agreement?
A “call” gives the company or non-exiting members the right to purchase a member’s interest upon specified triggers (e.g., cause, deadlock, departure) at a pre-agreed valuation and payment formula. If properly adopted, the targeted member can’t block it once a trigger occurs.
How do we set the price for a departing member’s interest?
- Fixed or formula-based (e.g., EBITDA multiple),
- Independent appraisal (with a tie-breaker appraiser),
- Capital account or book value (less common for operating businesses),
- Fair market value (with or without discounts).
- Lock down the valuation date, adjustments (debt, cash, working capital), and funding (cash, note, insurance, or staged payments).
Can we adopt an operating agreement now if we never had one?
Often yes—majority approval can adopt one prospectively. But you can’t retroactively strip vested rights or weaponize new terms in bad faith. Get counsel to structure amendments (or a buy-sell) that are enforceable and fairly adopted.
What happens if we remove someone without following the agreement?
You risk breach of contract, breach of fiduciary duty, demands for injunctions, fee-shifting, and claims over wrongful distributions or conversion. Always follow the notice, vote, quorum, and documentation mechanics in your agreements—and keep a clean paper trail.
How do you remove or terminate an LLC member in Texas if the operating agreement is silent?
If your Texas LLC’s operating agreement doesn’t address member removal, the default rule is no withdrawal or expulsion. Practical paths are:
- Adopt or amend an operating agreement (or a stand-alone buy-sell) by majority vote to add removal/buy-out terms going forward.
- Negotiate a voluntary buy-out with clear valuation and payment terms.
- Consider voluntary dissolution (member vote) or judicial dissolution (court order) if co-ownership is unworkable.
Tip: Keep employment termination separate from ownership—firing a member-employee doesn’t cancel equity without contract authority.
What’s the fastest way to dissolve a Texas LLC when co-owners won’t agree on removing a member?
When removal isn’t available, the speed play is often voluntary dissolution if you can reach the required member vote. If not, you may seek judicial dissolution, but courts require strong proof that the LLC can’t function and lesser remedies won’t work. For a smoother exit:
- Use a buy-sell with a call option, a clear valuation formula (e.g., appraisal with tie-breaker), and funding terms (cash/note/installments).
- Document deadlock and failed negotiations to support either a court petition or leverage for settlement.
- Coordinate tax (K-1), distribution, and winding-up steps to avoid post-dissolution disputes.
Wilson Whitaker Rynell | Top Business Litigation Attorneys in Dallas, Houston & Austin
Need experienced business lawyers in Texas?
Navigating membership changes in an LLC doesn’t have to be overwhelming. At Wilson Legal Group P.C., we help Texas business owners remove or withdraw members, draft and enforce buy-sell/withdrawal agreements, resolve ownership disputes, and stay compliant with the Texas Business Organizations Code. Whether you need help removing a partner, exiting an LLC, or dissolving a company, our team guides you step-by-step—from strategy and valuation through execution and filings.
How We Help
- Member Removal & Withdrawals: Buyout terms, valuation methods, notices, and voting mechanics that hold up.
- Buy-Sell & Withdrawal Agreements: Clean, enforceable documents that reduce risk and future litigation.
- Dispute Resolution: Negotiation, mediation, or litigation for freeze-outs, distribution disputes, and fiduciary claims.
- Dissolution & Winding Up: Statutory compliance, creditor notices, tax/K-1 wrap-up, and asset distribution.
- Compliance & Governance: Amend operating agreements, adopt call/put options, and modernize records policies.
Serving Dallas, Plano, Frisco, DFW Area, Austin, Houston and clients across Texas.
Ready to protect your ownership and exit on your terms?
Schedule a consultation with Wilson Legal Group P.C. today:
(972) 248-8080.
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