The Morning Marcus Discovered He Had a New Business Partner
Marcus Webb and Daniel Salas had run their commercial HVAC company out of a rented warehouse in McKinney since 2014. They had met through a mutual contact at a Collin County Chamber event, discovered they had complementary skills — Marcus handled operations and client relationships, Daniel handled estimating and project management — and decided within six months to start a business together. They formed a two-member LLC, split ownership fifty-fifty, and over the next eleven years built a company that serviced commercial properties across Frisco, Plano, McKinney, and Allen. By 2025, the business carried annual revenues of approximately $2.8 million and employed fourteen technicians.
Daniel died of a myocardial infarction on a Tuesday morning in March 2025. He was 52 years old. He had been training for a half-marathon. He had no warning signs his cardiologist had ever flagged. He was gone before the ambulance arrived.
Marcus called Daniel's wife, Angela, from the hospital parking lot. It was the hardest conversation of his professional life. When the grief settled into the practical weeks that followed, Angela called Marcus back — this time with an attorney on the line. She explained, quietly but clearly, that Daniel's fifty percent interest in the business was part of his estate. She needed to know what it was worth, and she needed to know when she could receive that value. Her children had college starting in eighteen months. She was not interested in becoming a business partner. She was interested in liquidity.
Marcus agreed completely. The problem was that there was no mechanism — no written agreement between him and Daniel, no clause in their LLC's company agreement, no pre-arranged formula — that told either of them what Daniel's fifty percent interest was worth or what happened next. They each hired a business valuation expert. One said $440,000. The other said $870,000. Eleven years of partnership, two grieving families, and a $430,000 gap that nobody knew how to bridge.
The Assumption That Gets Texas Business Owners Into Trouble
Most business co-owners operate on an intuitive belief about what happens when a partner dies: the remaining owner takes over, the business continues, and the deceased partner's family receives something fair in exchange for the interest. That belief is not entirely wrong. But the part that is wrong tends to be catastrophic in practice.
What most Texas business owners have never read — and what their formation attorneys sometimes fail to raise at the moment of incorporation — is what Texas law actually says about who owns a membership interest when one co-owner dies, and what rights that ownership confers on the deceased owner's heirs. The answer is more complicated than most business owners assume, and it creates a structural problem that a buy-sell agreement is specifically designed to solve.
Texas has no automatic mechanism that transfers a deceased LLC member's interest to the surviving co-owner. A Texas LLC membership interest is personal property. It passes through the owner's estate like a bank account or a vehicle — to heirs designated in a will, or to intestate heirs if there is no will, under Texas Estates Code rules. The surviving business partner has no automatic claim on it. The interest belongs to the estate.
What Texas Law Says About Your New Involuntary Business Partner
The governing statute is Texas Business Organizations Code § 101.1115, which addresses the effect of death on a membership interest in a Texas LLC. Under that provision, a deceased member's heir or devisee can inherit the economic rights attached to the membership interest — the right to receive distributions, a share of profits, and a liquidation share — but they do not automatically become a member of the LLC. They become an assignee.
Under BOC § 101.106, an assignee of a membership interest acquires the economic rights of the interest but does not acquire the right to participate in management, vote on company decisions, or exercise the full rights of a member — unless the operating agreement provides otherwise, or unless all existing members consent to the assignee's becoming a member.
This is the legal nuance that most surviving business owners don't know until they need to. Marcus cannot be forced to take Angela as an active management partner. She cannot vote on business decisions or sign contracts on behalf of the company without his consent. But she is entitled to her share of every profit distribution Marcus takes. And Marcus cannot force her to sell the interest back to him at any price — because without a buy-sell agreement, there is no contractual obligation on either party to transact.
The result is a stalemate that can persist for years. Marcus wants to run the business. Angela wants liquidity. Neither has a legal mechanism to compel the other. The only resolution is a negotiated transaction — and without an agreed-upon valuation method, every negotiation starts from scratch, with competing experts and adversarial attorneys on both sides.
The Community Property Problem Nobody Explains at Formation
Texas is a community property state. Under Texas Family Code § 3.002, any property acquired by either spouse during the marriage — including a business ownership interest — is presumed to be community property, owned in equal, undivided shares by both spouses.
That means Angela's situation, legally speaking, may have been different from what Marcus understood for the entire life of their partnership. If Daniel acquired his fifty percent LLC membership interest during his marriage to Angela — which he did, in 2014 — then Angela held a community property interest in the economic value of that membership interest from the beginning. Not management rights. Not voting rights. But an ownership stake in the underlying economic value that predates Daniel's death by more than a decade.
When Daniel died, his half of their community estate passed through his estate to Angela, either under his will or under Texas intestacy law. Combined with the community property interest she already held in the economic value, the practical result is that Angela's economic claim on the business reaches the full value of Daniel's fifty percent. The business Marcus believed he owned with Daniel, he now effectively shares — economically — with Daniel's widow.
This is not an obscure legal technicality. It is the default result of Texas community property law applied to the most common fact pattern in small business partnerships: two people start a company, operate it for years, and never revisit the question of what happens to their interests when one of them dies.
What a Buy-Sell Agreement Does — and Why the Timing Matters
A buy-sell agreement is a contract between co-owners of a business — often incorporated into the LLC's operating agreement under BOC § 101.052, or executed as a standalone document — that establishes in advance what happens to an ownership interest when one of several trigger events occurs. The three most important triggers are death, disability, and departure (including voluntary exit, divorce, or bankruptcy of an owner).
A well-drafted buy-sell agreement answers the questions that Marcus and Angela could not answer without adversarial proceedings:
- Must the estate sell? A mandatory buyout provision obligates the deceased owner's estate to sell the interest back to the surviving owner or to the company at a predetermined price or formula. The estate cannot simply hold the interest indefinitely while collecting distributions.
- Must the surviving owner buy? A corresponding obligation on the surviving owner — or on the company itself — ensures that the estate receives fair value and that the business interest does not remain in contested limbo.
- What is the price? Buy-sell agreements specify a valuation method in advance: a fixed price reviewed and updated annually, a multiple of EBITDA, a formal appraisal process, or a formula based on book value. When the trigger event occurs, the price is determinable by agreement. Nobody hires competing valuation experts. Nobody litigates a $430,000 gap.
- How is it funded? For death triggers, most buy-sell agreements are funded with life insurance — each co-owner insures the life of the other in an amount sufficient to cover the anticipated buyout price. When one owner dies, the insurance proceeds become immediately available, creating liquidity on the day it is most needed.
Questions about business formation? A WG Law attorney can walk you through your options.
Cross-Purchase vs. Entity Redemption: Two Structures for the Same Problem
Buy-sell agreements generally take one of two structural forms, and the choice between them has tax and administrative consequences that matter for Texas business owners.
In a cross-purchase structure, co-owners insure each other individually. When Daniel dies, Marcus receives the insurance proceeds personally and uses them to purchase Daniel's interest from his estate. Marcus's cost basis in the purchased interest equals what he paid — the full insurance payout — which in a rising-value business provides meaningful capital gains protection when Marcus eventually sells his own interest. Cross-purchase agreements are generally preferred for businesses with two to four owners.
In an entity redemption structure, the LLC itself owns insurance policies on each member's life and uses the proceeds to redeem the deceased member's interest directly from the estate. The company — not the surviving owners individually — makes the purchase. Entity redemption is simpler to administer in partnerships with many owners, but the surviving owners do not receive a corresponding step-up in their cost basis, which can create tax exposure on a future sale of the business.
A third option — the wait-and-see agreement — gives the surviving owners and the company an option to purchase, with a structured sequence of rights, before the interest can pass to outside buyers. This flexibility is useful in partnerships where ownership structure or the financial position of the company may change meaningfully before a trigger event occurs.
The right structure depends on the number of owners, the relative tax positions of the business and its members, the size and structure of existing insurance policies, and the owners' long-term exit intentions. Selecting a structure without careful tax analysis can produce outcomes that maximize immediate liquidity while creating material liability years later — precisely the kind of outcome Carla Alston's LL.M. in Taxation from NYU School of Law is built to identify before it happens.
Disability: The Trigger Nobody Plans For
Death is the trigger that prompts most conversations about buy-sell agreements. But statistically, a business owner under the age of 65 is significantly more likely to experience a long-term disability than to die during their working years. A co-owner who becomes unable to work — due to illness, injury, or cognitive decline — creates a version of the same problem as death, with one additional complication: the disabled owner is still alive, still holds their interest, still has legal capacity to resist a buyout they believe is undervalued, and still expects income from the business while contributing nothing to its operations.
Buy-sell agreements should include disability triggers with defined terms: what constitutes a qualifying disability, how long the disability period must continue before the buyout obligation activates, and how the buyout is funded. Disability buyout insurance — a separate product from life insurance — provides the funding mechanism for living buyouts and is routinely overlooked in the initial business formation conversation. An operating agreement that addresses death but not disability leaves half the risk uncovered.
Back to McKinney — and What Happened Next
Marcus and Angela settled. It took fourteen months, two rounds of competing expert valuations, mediation in Dallas, and legal fees on both sides that neither of them had budgeted. The agreed price fell between the two competing figures — $655,000. Marcus borrowed the funds against the business's assets. The interest burden affected the company's cash flow for three years running.
Life insurance on Daniel's life, in an amount calibrated to the business's value, would have created that liquidity on the day Daniel died — without valuation disputes, without mediation, without fourteen months of uncertainty. The annual premium cost on a cross-purchase policy for two healthy men in their forties would have been a few thousand dollars per year. The total lifetime premium across eleven years would have been a fraction of the legal fees and debt service Marcus ultimately paid.
Marcus now has a buy-sell agreement. It was drafted after the settlement and updated his company agreement under Texas Business Organizations Code § 101.052 to include transfer restrictions that prevent any future membership interest from passing to an unintended party without the surviving member's consent — a provision that, had it existed in 2014, would have contained the entire problem.
If You Own a Business With a Partner in Texas
At WG Law, Carla Alston brings 39 years of legal practice, an LL.M. in Taxation from NYU School of Law, and experience in the tax consequences of business ownership transfers to every business succession engagement. Her background — including in-house tax counsel experience and decades of private practice — means she approaches buy-sell structures not just as contract drafting, but as tax planning. Philip Burgess works alongside business owners in McKinney, Southlake, and across Collin County on entity formation, operating agreement drafting, and the ongoing legal infrastructure that keeps growing businesses protected. Together, they help Texas business owners build the framework that prevents a business from becoming a casualty of an event a partner never planned for.
If you own a business with partners and do not have a buy-sell agreement in place — or if you have one that hasn't been reviewed since formation — call 214-250-4407 or contact WG Law to request a consultation. We serve business owners throughout McKinney, Frisco, Plano, Allen, Celina, Southlake, and the greater DFW Metroplex from our offices in McKinney and Southlake.
For related reading, see our articles on choosing between an LLC and a corporation in Texas, how Texas community property law affects what you own, and why beneficiary designations can override your entire estate plan.
This article is provided for general informational purposes only and does not constitute legal advice. Texas business law and estate planning are fact-specific, and outcomes depend on individual circumstances. For guidance tailored to your situation, consult a licensed Texas business attorney.