Texas at a glance
Partnership law
RUPA (revised)
LLC default split
Proportional to capital
Operating agreement
Not required
Community property
Yes
Formation cost
$300
Annual cost
Franchise tax (most small businesses pay $0)
Texas has no state income tax but imposes a franchise tax (margin tax) on businesses. Most small businesses with revenue under $2.47 million pay $0 in franchise tax. Texas is a community property state where income from a separately owned business is treated as community property, giving the non-owning spouse a claim. Texas launched a new Business Court system in 2024 for complex commercial disputes. Senate Bill 29 (2025) allows Texas LLCs to eliminate fiduciary duties in their governing documents, following Delaware's lead.
Default partnership rules in Texas
Texas adopted RUPA, treating partnerships as separate entities. Profits and losses are shared equally by default. Partners have equal management rights and owe fiduciary duties of loyalty and care. Texas is one of the largest states for small business formation, and the RUPA default of equal profit sharing surprises many Texas partners who assumed their larger contribution would entitle them to more.
The most important takeaway: profits are split equally by default in Texas, regardless of capital contributions. If you and a partner start a business and one of you invests $100,000 while the other invests $5,000, you still split profits 50/50 without a written agreement. This is true in every US state, including Texas.
LLC defaults in Texas
Texas allocates LLC profits and losses in proportion to capital contributions by default. An operating agreement is not required. Texas does not have a state income tax, but it imposes a franchise tax (also called a margin tax) on businesses. Most small businesses with total revenue under $2.47 million owe $0 in franchise tax, effectively making it free for most small LLCs. Senate Bill 29 (2025) now allows Texas LLCs to eliminate fiduciary duties through their governing documents, similar to Delaware.
Texas defaults to proportional distributions based on capital contributions, which aligns better with many founders' expectations than equal-split states. However, capital contributions alone rarely tell the full story. A founder contributing time and expertise may receive nothing if they didn't invest cash. An operating agreement can account for all types of contributions. Our equity calculator can help you determine a fair arrangement.
What happens when a partner leaves in Texas
Under Texas's RUPA, a partner's departure does not dissolve the partnership. The partnership continues, and the departing partner is entitled to a buyout at fair value. Texas's new Business Court system (launched 2024) provides specialized judges for complex commercial disputes, which can include partnership and LLC disputes over dissolution and buyouts.
A written partnership agreement should still address departure terms specifically, including how the buyout value is calculated, the payment timeline, and any non-compete provisions. While RUPA provides a default framework, the details of a buyout can still lead to disputes if not spelled out in advance. Understanding the concept of dead equity is important for managing these situations. Learn more about how dead equity affects businesses.
Marriage and business equity in Texas
Texas is a community property state, and critically, income from a separately owned business is treated as community property. This means the non-owning spouse has a claim to half of the business income earned during the marriage, even if the business was started before the marriage. This is one of the most aggressive community property rules in the country. Texas founders should strongly consider prenuptial or postnuptial agreements to protect their business interests. The distinction between separate and community property in Texas is complex and has been the subject of extensive litigation.
Critical for Texas business owners: Income from your separately owned business is community property in Texas. Your spouse has a claim to half of the business income earned during the marriage, even if they have no involvement in the business. A prenuptial or postnuptial agreement is strongly recommended to protect business interests.
Formation and cost considerations in Texas
| Formation cost | $300 |
| Annual/recurring cost | Franchise tax (most small businesses pay $0) |
| State income tax | No |
| Partnership law | RUPA (revised) — partnership continues after departure |
| LLC default distributions | Proportional to capital contribution |
| Operating agreement | Not required (strongly recommended) |
Frequently asked questions
How does Texas community property affect business income?
In Texas, income from a separately owned business is community property. The non-owning spouse has a claim to half of the business income earned during the marriage, even if they had no involvement. This is more aggressive than states like California, where business income from separate property stays separate. Texas founders should strongly consider prenuptial agreements.
Do Texas LLCs pay franchise tax?
Texas imposes a franchise tax (margin tax) on businesses, but most small businesses with total revenue under $2.47 million owe $0. Above that threshold, the tax rate is 0.375% for businesses that qualify for the retail or wholesale rate, or 0.75% for others. There is no state income tax.
Can Texas LLCs eliminate fiduciary duties?
Yes. Senate Bill 29 (2025) allows Texas LLCs to eliminate fiduciary duties through their governing documents, following Delaware's lead. This gives Texas LLC members greater flexibility to customize their governance arrangements, though it also creates risks if members are not fully informed.
What is the Texas Business Court?
Texas launched a new Business Court system in 2024 with specialized judges for complex commercial disputes. This court handles high-value business litigation, including partnership and LLC disputes, providing more consistent and predictable outcomes than general courts.
Related resources
- Equity calculator: find a fair split for your business
- Does your small business need an equity agreement?
- Equity for small businesses: the complete guide
- Dead equity calculator: how much is yours costing you?
- Slicing Pie calculator
- What is an operating agreement?
- All 50 states: partnership and LLC default rules
Partnership laws in neighboring states
Disclaimer: This page provides general information about Texas partnership and LLC default rules and is not legal advice. Laws change, and the information here may not reflect the most recent amendments. The formation costs and annual fees listed are approximate and may vary. Consult a qualified attorney licensed in Texas for advice specific to your situation. Equity Matrix is a software tool for tracking contributions and calculating equity; it does not provide legal services.
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