Partnership and Ownership Disputes: Deadlock, Buyouts, and Dissolution Under Texas Law

By Hank FasthoffJuly 6, 2026

When business co-owners can't agree, the business can't function. A 50/50 LLC where the two members disagree on every decision is paralyzed. A closely held corporation where the majority shareholder diverts profits to personal compensation while the minority receives nothing is oppressive. A partnership where one partner is secretly competing with the partnership while using partnership resources is a breach of fiduciary duty wrapped in a dissolution dispute. In each case, the question is what legal mechanisms can resolve the breakdown without destroying the business.

Texas law provides several remedies for ownership disputes, ranging from contractual buyouts (the best outcome, if the governing documents address it) to judicial dissolution (the most drastic, reserved for situations where nothing else can resolve the impasse). Where a dispute falls on that spectrum depends on what the operating agreement or partnership agreement provides, how the co-owners have conducted themselves, and whether the business can survive the dispute.

What the Governing Documents Provide

Start with the operating agreement (for LLCs), partnership agreement (for partnerships), or shareholders' agreement (for corporations). A well-drafted governing document anticipates deadlock and provides contractual mechanisms to resolve it.

Buyout provisions give one owner the right (or obligation) to purchase the other owner's interest upon the occurrence of specified triggering events (deadlock, breach, death, disability, voluntary withdrawal). A buy-sell agreement with a predetermined valuation method (formula-based, appraised fair market value, or a fixed price updated periodically) allows the buyout to proceed without litigation.

Put/call options give one owner the right to sell their interest to the other owner (a "put") or the right to buy the other owner's interest (a "call") at a price determined by the agreement's valuation methodology. A Texas shoot-out (or shotgun buyout) allows either owner to name a price at which the other must either buy the offering owner's interest at that price or sell their own interest at that price, which incentivizes a fair valuation because the naming party doesn't know which side of the transaction they'll be on.

Mediation and arbitration clauses require the owners to submit disputes to mediation, arbitration, or both before resorting to litigation. While these clauses can't resolve every deadlock (an arbitrator can decide a disputed issue but can't force co-owners to work together), they provide a faster and less expensive forum than district court for many business disputes.

Dissolution triggers allow the operating agreement or partnership agreement to specify events that cause the entity to dissolve and wind up without judicial intervention (a member's withdrawal, the expiration of a defined term, the failure to achieve a specified performance benchmark, or mutual agreement to dissolve).

If the governing document addresses deadlock, the contractual mechanisms control. Courts won't impose judicial remedies when the parties have a contractual process they haven't exhausted.

When the Governing Documents Don't Help

Most ownership disputes arise from governing documents that either don't address deadlock at all or provide mechanisms that are incomplete, ambiguous, or unworkable. When the contractual remedy fails, Texas law provides statutory remedies.

LLC and Partnership Dissolution Under TBOC § 11.314

Under Texas Business Organizations Code § 11.314, a district court in the county where the LLC's or partnership's registered office or principal place of business is located may order winding up and termination if the court determines that one of three tests is satisfied.

Economic purpose test (§ 11.314(1)). The entity's economic purpose is likely to be unreasonably frustrated. This test doesn't require the business to be failing financially. A profitable entity whose finances are manipulated by the controlling owner to the detriment of the minority owner may have its economic purpose "unreasonably frustrated" even though the business itself remains solvent.

Owner conduct test (§ 11.314(2)). 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. This test focuses on a specific owner's behavior (self-dealing, misappropriation, competition, exclusion of co-owners from management) rather than on the entity's overall condition. It's the closest analog to traditional shareholder oppression analysis, applied to LLCs and partnerships.

Reasonable practicability test (§ 11.314(3)). It's "not reasonably practicable to carry on the entity's business in conformity with its governing documents." This is the most commonly applied test. It evaluates whether the LLC or partnership can function as its governing documents contemplate. A deadlocked management board is the textbook example: if two equal members can't agree and the operating agreement doesn't provide a tiebreaker, the entity can't make decisions, and dissolution becomes the only available remedy as a matter of law. "Not reasonably practicable" doesn't mean impossible. Courts evaluate whether the management is unable or unwilling to pursue the company's purposes, whether the members have reached an inability to work together, whether deadlock exists and whether the operating agreement provides a mechanism to break it, and whether the entity can continue to function in a manner consistent with its governing documents.

Courts approach judicial dissolution with caution. Dissolving a viable business is a drastic remedy that destroys value for all parties. Before ordering dissolution, courts look for alternatives (buyouts, appointment of a receiver, restructuring of management) and may fashion equitable remedies under their broad discretionary powers.

Corporate Receivership Under TBOC § 11.404

For corporations, Texas provides a receivership remedy under TBOC § 11.404. A court may appoint a receiver for the property and business of a domestic corporation if the governing persons are deadlocked and shareholders can't break the deadlock and irreparable injury is being suffered, the directors or those in control of the corporation are acting in an illegal, oppressive, or fraudulent manner, the corporate assets are being misapplied or wasted, or the shareholders are deadlocked and have failed to elect successors to directors whose terms have expired.

In Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014), the Texas Supreme Court held that § 11.404 provides an "extremely limited remedy" and that no separate common law cause of action exists for shareholder oppression in Texas. The court declined to create a judicially mandated buyout right, holding that the receivership statute provides the exclusive statutory remedy for minority shareholder disputes in corporations (as distinct from LLCs and partnerships, which have access to § 11.314).

Post-Ritchie, minority shareholders in Texas corporations can't simply ask a court to order a buyout. They must either pursue receivership under § 11.404 (which requires proof of deadlock, illegality, oppression, or waste), rely on contractual buyout provisions in a shareholders' agreement, or pursue derivative claims for breach of fiduciary duty, fraud, or conversion that produce damages remedies rather than structural relief.

Valuation Disputes

Whether a buyout is contractual or court-ordered, the price depends on how the departing owner's interest is valued. Valuation is the most contested issue in almost every ownership dispute.

Fair market value is the price at which the interest would change hands between a willing buyer and willing seller, neither under compulsion. Fair value (used in some statutory contexts) may differ from fair market value because it may exclude discounts for lack of marketability and minority interest.

Discounts are where valuation disputes intensify. A minority interest in a closely held business is less valuable than a proportional share of the total enterprise because the minority owner can't control the business (minority discount) and can't readily sell the interest to a third party (marketability discount). Applying both discounts can reduce the minority interest's value by 25 to 40 percent compared to a pro rata share of the total enterprise value. Whether discounts should apply depends on the governing document, the applicable statute, and the circumstances of the dispute. If the majority owner's misconduct forced the buyout, applying discounts to penalize the minority for the majority's wrongdoing produces an inequitable result, and some courts refuse to apply discounts in oppression cases.

Valuation methods include income approach (discounted cash flow or capitalization of earnings), market approach (comparable company transactions), and asset approach (net asset value). Each method can produce substantially different values for the same business, and disputes over which method is appropriate, what assumptions to use, and how to project future earnings consume significant litigation resources.

Practical Recommendations

Draft governing documents that address deadlock before it happens. Buy-sell agreements, put/call options, mediation clauses, and dissolution triggers are far less expensive to draft than they are to litigate. Every multi-owner LLC and partnership operating agreement should include a buyout mechanism with a defined valuation methodology and triggering events.

Don't wait until the relationship is irreparable to act. If a co-owner is self-dealing, competing, diverting assets, or excluding you from management, document the conduct, send a written demand for an accounting, and consult an attorney before the misconduct causes irreversible harm to the business.

If dissolution is necessary, understand that courts prefer alternatives. Filing for judicial dissolution under § 11.314 signals the court that the business can't function, but the court may order a buyout, appoint a receiver, or impose management restructuring rather than dissolving the entity. Be prepared to propose alternatives that preserve the business while protecting your interests.

Hire a valuation expert early. If the dispute involves a buyout (contractual or court-ordered), the valuation of the departing owner's interest will be the most contested issue. A credible valuation expert who understands the business, applies a defensible methodology, and can withstand cross-examination is worth the investment.

Evaluate fiduciary duty claims alongside dissolution claims. If the controlling owner's misconduct includes self-dealing, usurpation of opportunities, or diversion of assets, breach of fiduciary duty claims can produce disgorgement and damages remedies that dissolution alone doesn't provide. Filing both types of claims provides the court more tools to fashion an equitable resolution.