Membership Interest
The ownership interest of a member in a Texas LLC, consisting of economic rights (a share of profits and losses and the right to receive distributions). By statute it does not include the member's right to participate in management, which the member holds as a member.
A membership interest is the ownership interest of a member in a Texas LLC. The Texas Business Organizations Code defines it to include economic rights (a share of profits and losses and the right to receive distributions) and to exclude the member's right to participate in management. § 1.002(54). Governance rights (voting, management in a member-managed LLC, and other rights reserved to members) attach to membership itself, which is why an assignee can hold the economic rights without them. This distinction is fundamental to Texas LLC law.
Personal property classification
Under § 101.106(a), a membership interest is personal property. A member or assignee does not have an interest in any specific property of the LLC. § 101.106(b). This classification is significant for:
(1) Estate planning. Membership interests pass under the member's will or by intestacy as personal property, not as real property even if the LLC's principal assets are real estate.
(2) Asset protection. The membership interest is the asset reachable by the member's personal creditors; the LLC's underlying property is not.
(3) Marital property. In Texas community-property analysis, the membership interest (rather than the LLC's underlying assets) is the property characterized as separate or community.
(4) Tax basis. For an LLC taxed as a partnership, a member has a basis in the membership interest that is separate from the LLC's basis in its assets. A single-member LLC disregarded for tax purposes is treated as owned directly by its owner, so the owner's basis is in the assets.
The economic-rights / governance-rights split
Under §§ 101.108–101.110, a member may assign the economic rights associated with the membership interest without automatically transferring the governance rights. The transferee (called an "assignee") receives the right to share in the assigned distributions and allocations, but does not automatically become a member with voting and other governance rights. By default the assignee becomes a member only on the approval of all of the company's members, § 101.109(b), and the company agreement may set a different procedure.
Charging-order limitation
Under § 101.112, a judgment creditor of a member who obtains a charging order has only the right to receive distributions to which the member would otherwise be entitled, but does not become a member, does not have governance rights, and cannot foreclose on the membership interest. This is the principal asset-protection feature for membership interests. See Charging Order.
Transfer restrictions
The TBOC's default transfer rules under §§ 101.108–101.110 are routinely modified by the company agreement. Common restrictions include rights of first refusal, mandatory buy-back provisions, transfer prohibitions, and admission-of-assignee restrictions. These are typically among the most important provisions of any Texas LLC company agreement because they determine the member's effective exit options.
Death and other events affecting members
Under § 101.1115(a)(2), on a member's death, the surviving spouse, heirs, devisees, personal representative, or other successor become assignees of the membership interest to the extent of their respective interests. On a member's divorce, the spouse is an assignee to the extent of the spouse's membership interest, if any. § 101.1115(a)(1). Assignees hold economic rights, not membership, unless admitted as members, and the statute does not impair a buy-sell agreement triggered by death or divorce. § 101.1115(b).
The economic-rights / governance-rights split is the conceptual foundation of Texas LLC asset protection. Properly understood, it explains why a creditor with a charging order has limited remedies, why an assignee of a membership interest is in a structurally weaker position than the original member, and why company-agreement provisions on transfers, deaths, and divorces matter. For Texas business owners contemplating succession planning, marital-property division, or asset-protection structures, the first analytical step is to identify what the member owns (a personal-property interest carrying economic rights, held alongside the member's governance rights, not the LLC's underlying assets), and then identify the rules and contractual restrictions that govern how each component of that interest may be transferred.
Companion article: Raising Capital in Texas
Full entry: Membership Interest