You don’t bring someone into your company expecting them to turn into dead weight or, worse, a threat. But when a shareholder starts making decisions that put the business at risk, creates unnecessary tension or blocks progress for the sake of control, you know something has to change.
In Texas, there are legal paths for removing a shareholder, but how you move forward depends on what’s actually happening and how your business is set up.
What behavior crosses the line?
You can’t remove a shareholder just because you don’t get along anymore. But when their behavior actively harms the business or violates their responsibilities to it, that’s another story. Look for patterns — are they misusing funds, refusing to vote on essential matters, disclosing confidential information or making decisions that serve themselves over the company?
These are not just bad habits; they may be serious violations that put your business in danger. If their actions have started to cause measurable harm, such as financial, operational or reputational, that’s when removal becomes a real option.
What legal options do you have in Texas?
Your options depend heavily on how your business is structured and what your governing documents say. If you have a buy-sell agreement written into your operating agreement or bylaws, you may already have a mechanism to force a buyout. In Texas, business owners in LLCs may also petition the court to remove a member whose actions are damaging the company or making it impossible to run the business together.
For corporations, things can get trickier, especially if the shareholder has significant voting power or if there’s no built-in removal clause. In some cases, if they also hold an officer or director position, you may be able to remove them from that role, depending on what your documents allow. If their behavior is causing serious harm, you might be able to bring a legal claim on behalf of the company to protect its interests.
What should you do before taking legal action?
Start by pulling out your company’s governing documents. These should tell you what steps you’re required to take before trying to remove a shareholder. Next, begin documenting the impact of their actions – save the emails, note the disruptions and keep track of how their behavior is affecting operations.
Courts need clear documentation, not just general claims. From there, consider whether the issue can be solved through negotiation. In some cases, a voluntary buyout might be the cleanest option, especially if both sides are open to cutting ties quietly.
If you’re at a breaking point, what now?
If it becomes clear that the shareholder isn’t going to change, and that keeping them in the business is causing more harm than good, it may be time to do something about it.
You don’t have to know exactly what that next step looks like just yet, but the longer you wait, the harder it gets to protect your company and the people who depend on it. Get clarity, get your documents in order and start figuring out how to move forward before the damage runs too deep.