Can One Partner Dissolve the Company? Winding Up a Texas LLC or Partnership

The direct answer, by entity

Texas treats the two most common forms very differently, so the first question is which one you have.

LLCs: no exit, and a majority vote to close

Section 101.107 of the Business Organizations Code says a member of an LLC may not withdraw or be expelled from the company. That cuts both ways: your partner cannot quit and demand his capital back, and you cannot throw him out. The company agreement can grant a withdrawal right, and if it does, the departing member is paid the fair value of his interest within a reasonable time (§ 101.205). Without that clause, a member who wants out can only assign his interest, which transfers the right to distributions and nothing else (§ 101.108).

Ending the company is a separate question. Under section 11.051 an LLC must wind up when its stated duration ends, when the members vote to wind up, when an event named in the company agreement occurs, when the Code requires it, or when a court orders it. Section 101.552 sets the vote for a voluntary winding up: a majority of all members, unless the company agreement says otherwise. Agreements often raise that threshold to a supermajority or unanimity, and some add triggers such as the death of a founding member or a failed buy-sell. A 50/50 member has no majority, so neither can dissolve the company over the other's objection; that deadlock has its own solutions, discussed in how Texas courts resolve a 50/50 deadlock.

General partnerships: a partner can leave, but the business can continue

Partners have far more freedom to go. Section 152.503(a) lets a partner withdraw at any time before an event requiring winding up, and section 152.501 lists the events of withdrawal, starting with the partnership's receipt of notice that the partner intends to leave. Whether leaving ends the business depends on what kind of partnership it is.

In an at-will partnership, one with no fixed term or specific undertaking, a partner who has not agreed otherwise can request that the partnership be wound up. Under section 11.057(d), winding up then occurs on the 60th day after the partnership receives the request unless a majority in interest of the other partners denies it or agrees to continue the business. If the remaining partners simply carry on without settling up, that conduct is prima facie evidence they agreed to continue. The departing partner's interest is then redeemed under sections 152.601 and 152.602 at its fair value on the withdrawal date.

In a partnership for a fixed term or a particular undertaking, winding up early requires all partners (§ 11.057(b)), and a partner who leaves before the term ends by his own will has withdrawn wrongfully (§ 152.503(b)). He is liable to the partnership and the other partners for the damages his withdrawal causes, and his redemption price is the lesser of fair value or what he would have received had the partnership wound up when he left (§ 152.602).

When a court will order winding up

The one route open to a single owner of either entity is judicial. Section 11.314 gives the district court in the county of the entity's registered office or principal place of business jurisdiction to order the winding up and termination of a partnership or LLC on application by an owner, if the court finds that the entity's economic purpose is likely to be unreasonably frustrated, that another owner has engaged in conduct relating to the business that makes it not reasonably practicable to carry on the business with that owner, or that it is not reasonably practicable to carry on the business in conformity with the governing documents. These are hard findings. A disagreement about strategy does not meet them; a partner who has looted the accounts or a company that can no longer do what it was formed to do may. The procedure, and the receivership that often accompanies it, is covered in asking a court to appoint a receiver or dissolve a Texas company.

Example

Suppose two members own a Frisco pool construction LLC 60/40. The 40 percent member, who runs field operations, announces he is 'dissolving the company' and tells customers the business is closing. He cannot. He has no withdrawal right under the agreement, no majority to vote a winding up, and no ground for a court order. If he stops working and starts a competing company, the 60 percent member's claims are for breach of the agreement and of any non-compete it contains, and for the customer interference, not for dissolution. If instead the two were general partners with no written agreement, the 40 percent partner could give notice of withdrawal; the 60 percent partner, as a majority in interest, could elect to continue and would then owe him the fair value of his interest.

What the agreement usually changes

• The vote needed to wind up, often raised above a bare majority.
• Events that trigger winding up automatically, or that expressly do not.
• A withdrawal right for LLC members, with a valuation formula and payment terms.
• A buy-sell mechanism as the alternative to dissolution: put and call rights, shotgun provisions, rights of first refusal.
• A non-compete or non-solicitation that survives a partner's exit.

Where the documents provide a buyout, courts generally expect the owners to use it rather than dissolve. The mechanics are in how a partner buyout is priced and enforced.

What dissolution costs the business

Winding up is a liquidation. Assets are sold, often below going-concern value, contracts and leases are terminated or assigned, employees leave, and creditors are paid before any owner sees a distribution. For a profitable company, a buyout of the unhappy owner is almost always worth more to both sides than a wind-up. That is also why a credible threat to dissolve is usually a negotiating position rather than a plan, and why the response is to test whether the threatening partner actually has the votes or the grounds.

When to involve a litigator

When a partner announces a dissolution, stops performing, or starts telling customers the company is closing. The first job is to read the agreement for the vote, the withdrawal and buy-sell terms; the second is to protect the business while the ownership question is sorted out, which may mean a temporary injunction against interference and a records demand. Tina Wysk represents owners on both sides of partnership and LLC dissolution disputes in Dallas state and federal courts. See shareholder and partnership disputes for the scope of that work.