Texas Has Quietly Become One of the Hardest States for a Member's Creditor
Two recent amendments changed what a Texas company agreement is worth. In 2023, Senate Bill 2314 added a sentence to Section 101.112(c) of the Business Organizations Code: a charging order lien may not be foreclosed on under this code or any other law. In 2025, Senate Bill 29 rewrote Section 101.401 so that a company agreement may expand, restrict or eliminate any duties, including fiduciary duties.
Read together they describe a state that has pushed almost everything into private contract. Section 101.052(a) already provided that the company agreement governs relations among members, managers and officers and the other internal affairs of the company, and subsection (c) allows almost any provision of the title to be waived or modified in it. Chapter 101 is what applies when there is nothing to read.
The document is never filed. The Secretary of State takes the certificate of formation and has no channel and no fee for a company agreement, and Texas limited liability companies file no annual report at all. General patterns are set out in the operating agreement essentials guide; the transactional page for this state is Texas operating agreement.
What Chapter 101 supplies when the agreement is silent
Money follows capital. Section 101.203 provides that distributions are made to each member according to the agreed value of that member's contribution as stated in the company records required under Sections 3.151 and 101.501. Texas is not an equal-shares state, but the rule depends entirely on records that many companies never create.
Votes do not follow capital. Section 101.354 gives each member an equal vote, and Section 101.355 makes the affirmative vote of a majority of those present at a meeting with a quorum the act of the members. Money is weighted, voice is not.
The certificate of formation decides who governs. Section 101.251(b) says that where the company agreement does not provide otherwise, the governing authority is the managers if the certificate states the company has managers, and the members if it does not. In Texas the public filing fills the gap, not the private one.
Some approvals are unanimous. Section 101.356(d) requires the affirmative vote of all members to amend the certificate of formation. Section 101.356(c) sends a fundamental business transaction to a majority of all members rather than a majority of those present.
There is no right to leave. Section 101.205 pays fair value to a member who validly exercises a right to withdraw granted under the company agreement. If the agreement grants no such right, there is no withdrawal to exercise and no payment.
One member, and a section that says so out loud
Section 101.112(g) provides that the section applies to both single-member limited liability companies and multiple-member limited liability companies. Subsection (c) says the charging order lien may not be foreclosed on, subsection (d) makes the charging order the exclusive remedy, and subsection (f) denies a member's creditor any right to reach company property. On its text, a Texas sole owner is in the same position as a member of a five-person company.
The protection assumes a company that is genuinely separate from the person who owns it. Section 101.052(f) helps: a company agreement is enforceable by or against the company regardless of whether the company signed or expressly adopted it, and subsection (g) binds a member whether or not the member signed. That makes the document usable evidence even where the signing was sloppy. Federal and banking treatment is in the single-member LLC guide, with state detail on the Texas single-member LLC page.
Ten Clauses, Drafted Against the Business Organizations Code
Section 101.054 lists what a company agreement cannot waive or modify, and it is short. Everything outside that list is negotiable, which puts more weight on the drafting here than in most states.
Texas at a glance
| Question | What the Business Organizations Code says |
|---|---|
| Governing act | Texas Business Organizations Code, Chapter 101 and Title 1 |
| Required by statute? | No. Section 101.052 is permissive and controlling |
| Form accepted | The Code does not require writing. Written is the only sensible option |
| Filed with the state? | Never. No form, no submission, no fee |
| Default voting | Each member has an equal vote, Section 101.354 |
| Default distributions | By agreed value of contribution as stated in company records, Section 101.203 |
| Withdrawal | Only if the company agreement grants the right, Section 101.205 |
| Charging order | Exclusive, and the lien may not be foreclosed on, Section 101.112 |
| Series | Series, protected series and registered series under Subchapter M |
| State fees you do pay | $300 to form. No annual report for a Texas LLC |
1. Members, percentages, and the records Section 101.203 relies on
List each member with a stated percentage, then create the record the distribution rule actually points at. Section 101.203 measures distributions by the agreed value of contributions as stated in the records required under Sections 3.151 and 101.501, so a company with no contribution schedule has disabled its own default rule.
2. Contributions, and the value everyone agreed
Record the form, date and agreed value of every contribution, including services and promised future contributions. Section 101.151 governs enforceability of the obligation. The agreed value is not the tax basis and not the market price; it is what the members wrote down, and it is what the statute reads.
3. Management, and matching the certificate of formation
Section 101.251(b) defaults the governing authority from the certificate of formation. If the certificate says the company has managers and the agreement describes member management, the two documents disagree in public. Name the managers or the managing members, set terms and removal, and define who may sign for the company and up to what amount.
4. Weighting the vote, and setting the thresholds
Section 101.354 gives every member an equal vote regardless of ownership. If the members intend voting to track capital, that takes an express clause. Then set thresholds for the decisions that matter and note where the Code already requires more, including unanimity to amend the certificate of formation under Section 101.356(d).
5. Allocations, distributions and a tax draw
Separate the allocation of taxable income from the distribution of cash, add a mandatory tax distribution, and state the split expressly rather than relying on the contribution records. Section 101.204 bars a member from demanding a distribution before the governing authority declares one, so without a clause nobody is entitled to anything.
6. Transfers, and what the assignee gets
Set consent requirements, a right of first refusal, permitted estate transfers, and a mandatory purchase on death, divorce, bankruptcy or expulsion. Because Section 101.112(c) blocks foreclosure, a charging order creditor may hold a lien indefinitely, so the agreement should also address whether the company may redeem a charged interest and on what terms.
7. Withdrawal, admission, and the exit the Code does not supply
Texas gives no default right to withdraw. Section 101.205 pays fair value only where the company agreement grants the right, so silence means a member is locked in with no exit and no price. Decide deliberately: no withdrawal, withdrawal with a formula, or a put exercisable on defined events, and set the payment terms.
8. Dissolution, winding up, and the events you choose
Chapter 11 of the Code governs winding up. Section 101.552(c) carries the succession answer: an event requiring winding up because the last remaining member is gone may be cancelled if that member's legal representative or successor agrees to cancel it and to become a member, or to designate someone who will, effective as of the date the last membership terminated. Write that arrangement in rather than leaving it to an estate. The Texas dissolution filing also needs a Certificate of Account Status from the Comptroller, and a forfeited entity works through reinstatement.
9. Tax classification, and the Comptroller side of the file
Record the federal classification and test the allocations against it. Then keep the two agencies straight: the Secretary of State holds the entity record and the Comptroller handles franchise tax and the Certificate of Account Status. Texas LLCs file no annual report with the Secretary of State, and the Texas annual report page explains what stands in its place.
10. Duties, amendments, and the boundary in Section 101.054
Section 101.401 now allows the agreement to expand, restrict or eliminate any duties including fiduciary duties, so silence leaves common law duties in place and a clause can remove them. Decide consciously. Then set the amendment vote, because Section 101.053 otherwise requires every member of the company to consent to an amendment, and store the agreement with any Texas certificate of amendment.
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How the Texas Charging Order Works After the 2023 Amendment
Section 101.112 reads in a sequence worth following. Subsection (a) lets a court charge the membership interest of a judgment debtor. Subsection (b) limits the creditor to receiving any distribution the debtor would otherwise have received. Subsection (c) makes the charging order a lien and then, since 1 September 2023, states that the lien may not be foreclosed on under this code or any other law.
Subsection (d) makes the entry of a charging order the exclusive remedy for satisfying a judgment out of the interest. Subsection (f) denies the creditor any right to obtain possession of, or exercise remedies against, the property of the company. Subsection (g) applies all of it to single-member companies.
The practical effect is that a Texas creditor holding a charging order waits for distributions and can do very little else. That makes the distribution clause the centre of gravity. An agreement that mandates annual distributions hands the creditor a payment schedule; one that leaves distributions to the governing authority's discretion does not.
It also raises the value of the redemption question. Nothing in Section 101.112 authorises the company to buy out a charged interest, so if the members want that option it has to be written, with a valuation method and a funding source, before a judgment ever appears.
Veil Piercing in Texas, and the Actual Fraud Standard
Texas is unusual in having legislated the answer. Section 101.002(a) applies Sections 21.223 through 21.226 of the Business Organizations Code to limited liability companies and their members, with membership interests read for shares and the company agreement read for bylaws.
Section 21.223(a)(2) bars liability for a contractual obligation on an alter ego theory or on a theory of actual or constructive fraud or similar. Section 21.223(a)(3) bars liability for failing to observe any formality, including a failure to comply with the code, the certificate of formation or the governing documents. Section 21.223(b) then provides the exception: liability survives where the obligee shows the owner caused the company to be used for the purpose of perpetrating, and did perpetrate, an actual fraud on the obligee primarily for the owner's direct personal benefit. Section 21.224 makes that regime exclusive and preempts common law.
The consequence is a narrow contract-side door and a wide tort-side one, since the statute addresses contractual obligations. It also means that in Texas, unlike most states, a missed meeting is not evidence of anything. What remains decisive is commingling, undercapitalisation and personal benefit, and those are answered by the same file: a contribution ledger, a separate account, declared distributions and a written authority clause. A current certificate of status is the cheapest evidence that the entity is being maintained.
Five Mistakes Texas Owners Keep Making
Two of these come from the two agencies. Three come from assuming Chapter 101 fills gaps the way other acts do.
Mistake 1: Using a uniform act template in a state that never adopted one
Texas wrote its own code and uses its own vocabulary: company agreement, not operating agreement; certificate of formation, not articles; governing authority, not managers. A template built on the revised uniform act will promise an equal-shares distribution rule, a default right to dissociate and a fair value buyout, and Texas has none of the three.
Mistake 2: Skipping the agreement because there is one member
Section 101.112(g) extends the charging order protection to single-member companies, which is a strong position that assumes a company exists as something separate from its owner. Section 101.052(f) also makes the agreement enforceable against the company whether or not the company signed it, so the document does work here that no other record does.
Mistake 3: Relying on records that were never created
Section 101.203 measures distributions by the agreed value of contributions as stated in the company records required under Sections 3.151 and 101.501. A company that never created a contribution schedule has no stated values, which turns the default distribution rule into an argument rather than an answer.
Mistake 4: Confusing the Secretary of State with the Comptroller
Entity filings go to the Secretary of State. Franchise tax and the Certificate of Account Status come from the Comptroller. The company agreement goes to neither: there is no form, no channel and no fee. Texas charges $300 to form the company and no annual report fee at all, which is exactly why the governance file goes unopened for years.
Mistake 5: Leaving Section 101.401 unaddressed after the 2025 amendment
Section 101.401 now permits a company agreement to expand, restrict or eliminate any duties, including fiduciary duties. Silence is a choice that leaves common law duties running. Founders who intend managers to be free to pursue competing ventures, and founders who intend the opposite, both need a clause, and neither should discover the answer in litigation.
Three Texas Companies and the Clause That Decided It
Composite cases built from the patterns that recur under Chapter 101.
Example 1: A Houston equipment rental company and a creditor who could only wait
A member of a three-member rental business had a $560,000 personal judgment entered against him. The creditor obtained a charging order and then discovered that Section 101.112(c) barred foreclosure and subsection (f) barred any route to the fleet. The company agreement made distributions discretionary and the governing authority declared none for two years. The creditor held a lien on an interest producing nothing.
Example 2: An Austin software studio where votes and money parted company
Four members formed a product studio. One contributed $600,000, the others contributed code and time. Because they never adopted a company agreement, Section 101.203 pointed distributions at contribution values that had never been recorded, while Section 101.354 gave each of the four an equal vote. The funding member could be outvoted three to one on whether a distribution happened at all, and had no records to prove the split when one did.
Example 3: An El Paso logistics group and a series shield that never existed
An owner set up a company intending each of five trucking operations to sit in its own protected series. Separate records were kept and each operation had its own account. When a claim arose against one, the claimant pointed at Section 101.602(b), which conditions the liability shield on a statement in the company agreement and a notice in the certificate of formation. Neither had been done, so the assets of all five stood behind the claim.
The Financial Consequence of Relying on Chapter 101
Texas imposes no penalty for having no company agreement. There is no fine, no filing and no annual report to prompt one. These are the amounts the defaults move.
The series shield that was never switched on. Section 101.602(b) makes the internal liability shield conditional on three things: separate records, a statement in the company agreement, and a notice in the certificate of formation. A group holding five operations worth $400,000 each has $2 million exposed to a single claim if the company agreement is silent, and the drafting that fixes it costs a fraction of one truck.
The locked-in member. With no withdrawal right in the agreement, a twenty-five percent member of a business worth $2.4 million holds roughly $600,000 of value with no mechanism to realise it. The usual resolution is litigation over an involuntary winding up, and that is a six-figure argument before anyone is paid.
The distribution nobody can prove. Where contribution values were never recorded, Section 101.203 gives a court nothing to work with. On a company distributing $400,000 a year, a disagreement about whether the split is sixty-forty or equal is $40,000 a year and an evidentiary fight about a schedule that does not exist.
The costs the state does charge. Formation is $300 and there is no annual report, so franchise tax filings with the Comptroller are the only recurring prompt. A certificate of status pulled for a closing is often the first review in years, and a company trading elsewhere adds foreign qualification and a second calendar.
How File.Business Drafts a Texas Company Agreement
The intake starts with the certificate of formation, because Section 101.251(b) makes it the fallback for who governs, and because a series structure only works where the certificate carries the notice required by Section 101.602(b). The second pass is the contribution schedule, since Section 101.203 depends on stated values that most companies never create.
From there the work runs through voting thresholds against the equal-vote rule in Section 101.354, an express withdrawal decision because the Code supplies none, redemption authority for a charged interest, and a deliberate answer on Section 101.401 duties after the 2025 amendment. Delivery includes a member and contribution schedule formatted for a bank's beneficial ownership file, signature pages and an adopting consent. Adjacent work runs alongside: registered agent coverage, agent changes and assumed name certificates. The flat fee is $99 and no state fee attaches, because there is no filing.
Template or drafted document
A single-member company with no series and no outside capital can run on a careful template written to Chapter 101, provided the distribution clause is discretionary and the contribution schedule is real. Every multi-member company earns a drafted document, and so does any company that intends to use series.
The test takes one search. Open the template and look for the word withdraw. Texas grants no default right to leave, so if the document neither grants one nor refuses one, the members have agreed to a permanent lock-in without deciding to.
Texas Company Agreement FAQ
Does Texas require an LLC company agreement?
No. Section 101.052 of the Business Organizations Code provides that the company agreement governs the internal affairs of the company and that provisions of the title may be waived or modified in it, but nothing requires one. Texas calls the document a company agreement rather than an operating agreement.
Do I file the company agreement with the Texas Secretary of State?
No. There is no form, no filing channel and no fee, because it is a private contract. The Secretary of State takes the certificate of formation, which costs $300, and a Texas limited liability company files no annual report.
Can a creditor foreclose on a Texas LLC membership interest?
No. Section 101.112(c) provides that a charging order constitutes a lien on the judgment debtor's membership interest and that the lien may not be foreclosed on under this code or any other law. Subsection (d) makes the charging order the exclusive remedy.
Does Texas charging order protection apply to a single-member LLC?
Yes. Section 101.112(g) states that the section applies to both single-member limited liability companies and multiple-member limited liability companies, so the no-foreclosure rule and the exclusive-remedy rule cover the sole owner.
How are distributions split in a Texas LLC with no company agreement?
By contribution value. Section 101.203 provides that distributions are made to each member according to the agreed value of that member's contribution as stated in the company records required under Sections 3.151 and 101.501. Voting is different: Section 101.354 gives each member an equal vote.
Can a Texas company agreement eliminate fiduciary duties?
Yes. Section 101.401, as amended in 2025, provides that the company agreement may expand, restrict or eliminate any duties, including fiduciary duties, and related liabilities that a member, manager, officer or other person owes to the company or to a member or manager.
What does a Texas series LLC need in its company agreement?
A liability statement. Section 101.602(b) conditions the internal shield on separate records for each series, a statement in the company agreement to the effect of the limitations, and a notice of those limitations in the certificate of formation. A registered series also needs a certificate of registered series filed with the Secretary of State.
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