Can You Remove a Business Partner?

One of your co-owners stopped doing the work but still expects distributions. Or is quietly competing. Or turns every decision into a standoff. The others want that person out of the company, and the first question they ask is whether they can simply vote them out.

This post is for owners of LLCs and general partnerships in Arizona, California and Texas who want to remove a co-owner, or who are the co-owner someone else wants to remove. It explains what the statutes allow when the owners' agreement says nothing, what a court can order, what the departing owner keeps afterward, and why the answer is so different for an LLC and a partnership. It is general information, not an opinion on any dispute. For what to do while the relationship is breaking down, see our partnership dispute guide.

The short answer

Not by a simple vote, unless your operating or partnership agreement says so. When the agreement is silent, the statutes let the other owners vote out a co-owner only in a few narrow situations that have nothing to do with misconduct, and in Arizona and California that vote must be unanimous.

For misconduct, the route is a court order: in an Arizona LLC (on application by the company or a member) or a California LLC (on application by the company), and in a general partnership in all three states, a court can expel an owner for wrongful conduct that materially harms the business, a willful or persistent material breach, or conduct that makes it not reasonably practicable to carry on with that person. A Texas LLC member cannot be expelled unless the company agreement allows it; a statutory court remedy there is an order winding up the company, which requires proof of the statute's grounds. Afterward, an expelled partner whose departure does not end the partnership is bought out under statutory rules that carry their own offsets, timing and exceptions, but an expelled Arizona or California LLC member keeps the economic interest as a transferee, meaning distributions without a vote, and dissociation by itself gives that member no statutory right to a buyout. The agreement is where owners settle all of this in advance.

People say "partner" for any co-owner; the statutes do not. If you formed an LLC, your co-owner is a member and the LLC sections below apply. If you run the business together and never formed an entity, you may be in a general partnership without knowing it, and the partnership section applies. The two sets of rules differ most on what the removed owner gets afterward.

Removing one owner is not the same as ending the company

The statutes keep two things apart. Removing one owner is "dissociation" in the Arizona and California statutes and "withdrawal" in the Texas partnership statute. Ending the company is "dissolution" and "winding up." Each has its own triggers and its own court remedy, and an owner who cannot get a co-owner expelled may still be able to ask a court to end the company.

In Arizona a court may dissolve an LLC on a member's application where, among other grounds, "[i]t is not reasonably practicable to carry on the company's activities and affairs in conformity with the articles of organization and the operating agreement," and in that proceeding "the court may order a remedy other than dissolution."⁷ California lets any member or manager seek judicial dissolution on five grounds, including that "[t]he management of the limited liability company is deadlocked or subject to internal dissension," and lets the other members avoid dissolution "by purchasing for cash the membership interests owned by the members so initiating the proceeding ... at their fair market value."¹⁸ In Texas a district court may order the winding up and termination of an LLC or partnership on an owner's application if "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," among other grounds.²⁹ Our post on the buy-sell agreement for 50/50 owners covers the deadlock side of these remedies.

Arizona and California LLCs: what the statute allows when the agreement is silent

Both states' LLC statutes list the events that dissociate a member. Two of them belong to the operating agreement: Arizona's statute says a person is dissociated when "[a]n event stated in the operating agreement as causing the person's dissociation occurs" or when "[t]he person is expelled as a member pursuant to the operating agreement," and California's says the same in substance.¹¹³ Those are two distinct paths, and each depends on its own language: with no agreed event causing dissociation there is no dissociation on that ground, and with no express expulsion provision there is no expulsion on that ground.

The statutes then let the other members expel a member without a court, but only in three situations: it has become unlawful to carry on the company's business with the person as a member (in Arizona's words, "unlawful to carry on the limited liability company's activities and affairs with the person as a member"); the person has transferred all of their transferable interest (other than as security or under a charging order); or the member is itself an entity whose existence or standing has ended. The entity ground carries conditions. In Arizona the company must notify the entity member that it will be expelled because it has filed a statement of dissolution, been administratively dissolved, had its charter revoked or had its right to conduct business suspended, and the vote is available only if, ninety days after that notice, the dissolution has not been withdrawn or the charter or right to conduct business has not been reinstated; a separate Arizona ground covers an unincorporated entity that has been dissolved and is winding up. California's corporation ground likewise requires notice from the company and a ninety-day failure to revoke the dissolution or reinstate the charter or right to conduct business, and its ground for a member that is an LLC or partnership requires that the entity has been dissolved and its business is being wound up.¹¹³ Discovering that a co-owner entity is dissolved or suspended does not by itself permit an immediate expulsion vote. The vote must be that of "all the other members" in Arizona and "the unanimous consent of the other members" in California.¹¹³ Misconduct, non-performance and disagreement are not on the list. A majority cannot vote out a minority owner under these defaults, and even a unanimous vote of the others reaches only the listed situations. In Arizona, "[i]n the event of a conflict between a provision of the operating agreement and this chapter, the provision of the operating agreement governs," so an expulsion clause can set a different vote and different grounds.⁶ California's statute likewise makes the operating agreement govern relations among the members, with the statute filling gaps.¹⁷

Judicial expulsion of an LLC member

The remaining path runs through court. In Arizona, on application by the company or by a member in a direct action, a court may expel a member on three grounds: wrongful conduct that has affected, or will affect, the company's business "adversely and materially"; a material breach of the operating agreement or of the member's statutory duties committed "wilfully or persistently"; or conduct "that makes it not reasonably practicable to carry on the activities and affairs with the person as a member."¹ California's grounds are the same in substance, and its statute provides for judicial expulsion "[o]n application by the limited liability company," so the applicant the statute names is the company itself.¹³

A member expelled by judicial order before the completion of the company's winding up (Arizona) or before the company's termination (California) has dissociated wrongfully, and a person who wrongfully dissociates "is liable to the limited liability company and, subject to section 29-3807, to the other members for damages caused by the dissociation" in Arizona, and "to the limited liability company and to the other members for any damages caused by the dissociation" in California.²¹⁴

What the expelled member keeps

This is the part that surprises owners. In both states, dissociation ends the person's right to participate as a member in management (in Arizona's words, that right "terminates"; in California's, the right "to vote or participate" terminates), but any transferable interest the person owned "is owned by the person solely as a transferee."³¹⁵ A transferee is the statute's word for someone who holds the right to distributions but is not a member: no vote, no say in management and no general right to the books. A transferee "has the right to receive, in accordance with the transfer, distributions to which the transferor would otherwise be entitled," without management rights or general access to records.⁴¹⁶ Dissociation does not of itself discharge the person from debts, obligations or other liabilities incurred while a member.³¹⁵

Arizona says it directly: "A person's dissociation does not entitle the person to a distribution."⁵ California's dissociation sections (§§ 17706.01 to 17706.03) leave the dissociated member with the transferee status described above and attach no purchase obligation to the dissociation; the dissolution-avoidance purchase described earlier is an election that belongs to the members who did not file the dissolution suit and is exercised in that suit, not a right of an expelled person to demand a purchase.¹⁵¹⁸ An operating agreement, or another proceeding in a particular dispute, may still produce a purchase; dissociation alone does not. The practical result of expelling a member without a buyout clause is a silent economic owner who collects distributions for as long as the company makes them, which is often the opposite of what the remaining owners wanted. An operating agreement can provide a purchase price, a payment schedule and a release instead; our post on why your LLC needs an operating agreement explains what else belongs there.

Texas LLCs: no expulsion unless the agreement says so

Texas starts from a different rule: "A member of a limited liability company may not withdraw or be expelled from the company."²⁵ The company agreement can change that. The agreement governs relations among members and may waive or modify any provision of the LLC title except those on a statutory list, and § 101.107 is not on the list.²⁶ The statute itself contemplates a contractual exit: a member "who validly exercises the member's right to withdraw from the company granted under the company agreement is entitled to receive, within a reasonable time after the date of withdrawal, the fair value of the member's interest in the company as determined as of the date of withdrawal."²⁷ Chapter 101 provides no court procedure for expelling an LLC member. The statutory court remedy is different in kind: on application by an owner, a district court may order the winding up and termination of the company under § 11.314, which sits in a chapter the company agreement cannot waive,²⁶²⁹ and only on proof of one of that section's grounds, for example that 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." Difficulty alone is not one of the listed grounds, and winding up ends the company for everyone. Whether other relief is available in a given dispute depends on the facts and on law outside Chapter 101. A voluntary winding up takes "[a] majority vote of all of the members."³⁰

One more Texas feature matters when the plan is to buy out the economic interest and leave the person as a non-voting owner: a member who assigns a membership interest "continues to be a member of the company and is entitled to exercise any unassigned rights or powers of a member of the company until the assignee becomes a member of the company," and an assignee becomes a member only "on the approval of all of the company's members."²⁸ A Texas company agreement that wants expulsion, withdrawal, a buyout formula or a loss of voting rights has to say so.

General partnerships: expulsion usually comes with a buyout

Partnership law in all three states follows the same pattern as the LLC statutes on how a partner can be expelled, then diverges on what happens next.

How a partner is dissociated (in Texas, withdrawn). A partner is dissociated by expulsion under the partnership agreement; by a vote of the other partners in narrow situations like those that apply to LLC members (for example, that it is unlawful to carry on the business with that partner, or that the partner has transferred all or substantially all of the partner's interest; Texas also lists entity-status grounds, such as an entity partner whose charter has been revoked and, ninety days after the partnership's notice, not reinstated), which must be unanimous in Arizona and California and a vote of "a majority-in-interest of the other partners" in Texas, where "majority-in-interest" means the partners in the relevant group, here the other partners rather than the partner being expelled, "who own more than 50 percent of the current percentage or other interest in the profits of the partnership" held by that group, a profits-based measure rather than a headcount or a share of capital;³⁵ or by judicial determination, on application by the partnership or another partner, for wrongful conduct that adversely and materially affected the business, a willful or persistent material breach of the agreement or of the duties owed to the partnership, or conduct that makes it not reasonably practicable to carry on the business with that partner.⁸¹⁹³¹ Our post on what happens when there is no written partnership agreement explains how people end up governed by these defaults without knowing it.

The buyout. A dissociated partner's management rights end in Arizona and California, and a withdrawn Texas partner "ceases to be a partner,"^19373136 but the partner does not become a silent economic owner the way an expelled LLC member does. In Arizona and California, if the partnership continues rather than dissolving (Arizona's buyout applies to a dissociation that does not result in a dissolution and winding up; California's does not apply to "any dissociation that occurs within 90 days prior to a dissolution"), it "shall cause the dissociated partner's interest ... to be purchased for a buyout price" based on the greater of the firm's liquidation value or its value as a going concern (measured "without the continuing services of any of the partners" in Arizona and "without the dissociated partner" in California), less damages for wrongful dissociation and other amounts the partner owes. If no agreement is reached within 120 days after a written demand, the partnership must pay its own estimate in cash, with a statement of assets and liabilities and an explanation of the calculation; where a deferred payment is authorized (see below), the partnership may instead tender a written offer stating the time, security and terms of payment.¹⁰²¹²² In Texas, "[a] partnership continues after an event of withdrawal," and the withdrawn partner's interest "automatically is redeemed by the partnership as of the date of withdrawal" at "the fair value of the interest on the date of withdrawal," unless an event requiring winding up occurs within sixty days.³²³³

Wrongful dissociation. In Arizona and California, a judicial expulsion by itself makes a dissociation wrongful only in a partnership for a definite term or particular undertaking, and only where the expulsion occurs before the term expires or the undertaking is completed; separately, and in any partnership, a dissociation in breach of an express provision of the partnership agreement is also wrongful. Where the dissociation is wrongful because it occurs before the term expires or the undertaking is completed, the partnership may defer paying such a partner until the term ends or the undertaking is completed unless the partner establishes to the court's satisfaction that earlier payment will not cause material hardship (Arizona) or undue hardship (California) to the business. A deferred payment bears interest in both states, but the security duty differs: Arizona says it "shall be adequately secured by partnership assets if and to the extent reasonably practicable," while California says it "shall be adequately secured."^9201021 In Texas a partner "expelled by judicial decree" has always withdrawn wrongfully and "is liable to the partnership and to the other partners for damages caused by the withdrawal"; a partner who wrongfully withdraws from a term partnership receives the lesser of fair value or the liquidation amount.³²³³

What the agreement cannot change. California's partnership statute says the agreement may not vary a partner's power to withdraw, "the right of a court to expel a partner" on the statutory grounds, or the requirement to wind up on judicial dissolution.²³ Texas's list is similar: the agreement may not vary the power to withdraw or "the right to expel a partner by a court."³⁴ Arizona's non-waivable list protects a partner's power to withdraw.¹²

Three timing traps. In Arizona, an at-will partnership is dissolved when it has notice of a partner's "express will to withdraw as a partner," so a partner who sees an expulsion coming can dissolve the partnership by withdrawing first.¹¹ In California, an at-will partnership dissolves on the express will "of at least half of the partners," and the statutory buyout does not apply to "any dissociation that occurs within 90 days prior to a dissolution."²²²⁴ In Texas, a partner's request to wind up an at-will partnership takes effect on the sixtieth day "unless a majority-in-interest of the partners deny the request for winding up or agree to continue the partnership."³⁵ Our post on ten ways to protect yourself in a 50/50 partnership covers the structures that keep these rules from being the only ones that apply.

What the agreement should say

Because the statutory defaults give the other owners no vote to remove a co-owner for misconduct, leave removal for misconduct to a court order in an Arizona or California LLC and in a general partnership in all three states, and, in an Arizona or California LLC, attach no buyout to dissociation itself, the operating or partnership agreement does the real work. Terms worth settling while everyone still gets along:

1. Grounds and events. Which conduct or events allow removal: a material breach after notice and a cure period, a felony conviction, loss of a required license, disability, competing, failing to perform defined duties.
2. The vote. Who decides, by what percentage, and whether the member in question votes.
3. Price and payment. A valuation method or appraisal process, a payment schedule, security for deferred payments, and offsets for amounts the departing owner owes.
4. The departing owner's status. Whether the person is bought out entirely or keeps an economic interest, and what information rights go with it.
5. Protections that survive. Confidentiality, non-solicitation of customers and employees, return of property, and a release. Customer and employee non-solicitation terms need separate state-law and transaction-specific review, especially in California, before anyone relies on them; listing them here does not mean they will be enforced.
6. For Texas LLCs, an express clause. Because the statute forbids both withdrawal and expulsion unless the agreement provides otherwise, silence means neither is available.
7. A deadlock path. Two equal owners who cannot expel each other need a tie-breaker, a shotgun clause or a sale process; our posts on the founders' agreement and 50/50 founders who use profit sharing instead of equity describe the choices.

If you want a co-owner out now

1. Read the agreement first. It may already contain an expulsion clause, a buyout formula, a notice-and-cure step or a mediation requirement that controls everything that follows.
2. Keep the records. The judicial grounds in all three states turn on material harm, willful or persistent breach, or conduct that makes continuing impracticable. Preserve the agreement, the correspondence, the financial records and the minutes so that an attorney can assess where the facts fall; that is record-keeping for an evaluation, not the preparation of a lawsuit.
3. Avoid self-help. Changing passwords, cutting off distributions or locking a co-owner out can create claims against the owners who did it; our partnership dispute guide explains why.
4. Negotiate the exit. A purchased interest with a release avoids the result an expulsion order produces on its own in an Arizona or California LLC: a former member who holds the economic interest as a transferee and keeps the right to distributions, if and when the company makes them. Our post on what happens when a co-founder leaves covers the terms of a negotiated separation.
5. Keep roles and ownership separate. Removing a co-owner from a manager or officer role, or from day-to-day duties, is a separate question from removing them as an owner and is outside this post.
6. Know where court fits. Judicial expulsion and judicial dissolution exist on the grounds described above, and an owner may seek legal help promptly rather than working through the points above in order; the steps above are not a required sequence. Each of those judicial remedies has its own applicant, grounds and procedural requirements, and an agreement's own notice, cure or dispute-resolution terms may also govern the timing.

Questions to settle before you sign the agreement

1. Does the agreement say when and how an owner can be removed, or does it leave removal to the statutory defaults described above?
2. What vote removes an owner, and does the owner in question get to vote?
3. Is a removed owner bought out, and at what price, on what schedule, and with what offsets?
4. If not bought out, what rights does the former owner keep as a transferee or assignee?
5. For a partnership, is it at will or for a term, and do the owners understand what their own withdrawal would trigger?
6. For a Texas LLC, does the company agreement expressly permit withdrawal and expulsion?
7. What happens to confidentiality, the departing owner's guaranties and loans, and any non-solicitation term (which needs its own state-law review, particularly in California)?

What this post does not cover

This post does not cover corporations and their shareholders, limited partnerships or limited liability partnerships, terminating a co-owner's employment or officer role, the tax consequences of a buyout, which are handled with our of-counsel tax attorney, or the measure of damages for wrongful dissociation. It does not say whether any particular owner can be removed. For the structural choices behind these rules, see our posts on partnership versus LLC and LLC versus corporation.

How we can help

Accord & Shield Legal drafts operating and partnership agreements with removal, buyout and deadlock terms, negotiates buyouts and separations on behalf of a company or one of its owners, and advises owners in Arizona, California and Texas who want a co-owner out or who are the co-owner facing removal, starting with the agreement and a written proposal. The firm does not handle litigation; if a matter has to go to court, it is referred to litigation counsel. To better understand the scope of your matter, you can schedule an initial consultation. The consultation is evaluation-only; no legal advice is provided. Representation begins only after an engagement agreement is signed and any required retainer is received. Please do not send confidential or sensitive documents before we confirm that we can assist.

This article is general information, not legal advice. Reading it does not create an attorney-client relationship. Whether a co-owner can be removed depends on the entity, the agreement, the conduct and the governing law; consult an attorney about your situation.

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