Forming an LLC in Texas is an exciting milestone for business owners and entrepreneurs, but an often overlooked part is drafting an operating agreement. Even though Texas doesn’t legally require one, skipping this document can jeopardize your personal liability protection.
Our guide below breaks down what a Texas LLC operating agreement is, why it matters, and how to get it right. When you hire Lone Star Registered Agent to start your Texas LLC, we include a free attorney-drafted operating agreement.
What is a Texas LLC operating agreement?
An LLC’s operating agreement (sometimes called a company agreement in Texas) is an internal handbook for how your LLC works. It lays out everything from how the LLC will function on a day-to-day basis to how the LLC will handle extraordinary situations, including dissolution. Among other things, an operating agreement in Texas can cover:
- Operational Roadmap: This is how the company does things like enter contracts and, if necessary, hir employees.
- Decision-Making and Voting: Voting rights are typically determined based on percentage of membership interest.
- Management Hierarchy: This determines who manages the organization and makes day-to-day operational decisions.
- Financial Structure: The company determines how profits and losses are allocated, as well as the initial contributions made by each member.
Unlike formation documents, you do not have to file a copy of your operating agreement with the state, but it’s still one of the most important internal documents at your company.
Do I need an operating agreement for my LLC?
There is no law that compels you to have an operating agreement in Texas. However, just because you don’t need one legally doesn’t mean you should disregard an operating agreement altogether.
For one thing, if you don’t have an operating agreement, you’ll be forced to follow Texas’ default laws for LLCs. There’s nothing wrong with the Texas Limited Liability Code, but it does mean you’re surrendering some control in how your LLC works.
Here are three more key benefits.
- Clear Communication
If members are in a dispute over, say, voting procedures, it’s much easier to just consult the operating agreement for the definitive answer than to let them keep arguing. If a member wants to leave the company, the operating agreement should also lay out a process for that rather than just leaving everyone to figure it out on the fly.
In short, an operating agreement helps your company run like a professional organization rather than a comedy improv troupe.
- Limited Liability
The operating agreement can bolster your claim of limited liability if your business gets sued. No one wants to end up in court, but if you do, you’ll want as much evidence as possible that your LLC is operating as its own separate legal entity that’s distinct from its owners.
- Business Bank Account
Another key part of separating your personal life and your business life is opening a business bank account where you keep your business funds. To open such an account, you’ll most likely need to show the bank a copy of your operating agreement.
What Should My Operating Agreement Include?
Your operating agreement can include anything that’s not already covered by Texas state statutes (as long as it doesn’t break the law, of course). The strongest operating agreements typically include the following:
- What the dissolution process will look like
- How membership interests are transferred
- How voting rights and decision-making powers work
- Initial contributions and rules for future contributions
- Profits, losses, and distributions
- Compensation
- Bookkeeping procedures and tax classification
- Events that can trigger company dissolution
You can include your company’s favorite lunch order if you want, but there’s probably no need for that.
Does a single-member LLC need an operating agreement?
While not legally required, even a single-member LLC should have an operating agreement. You might not anticipating arguing with yourself that much, but it still shields your business from legal liability and helps you do things like open bank accounts.
How do I write an operating agreement for my Texas LLC?
Before you start, make sure you have information like member names, initial contribution percentages, bank account information, and your business’ principal address ready to go.
After that, creating an operating agreement can be intimidating, even if you know what kind of information to include. When you hire us, we’ll help create an operating agreement that makes sense for your company.
Sign up with us and we’ll give you paperwork help and access to our long library of forms.
Texas LLC Operating Agreement FAQs
Is an operating agreement legally required in Texas?
It’s not required by law, but without one, you’ll be subject to Texas’ default laws for LLCs.
Can I write my own operating agreement?
You could try, but it’s a complex document with a lot of legal language. You’re better off getting a lawyer to help. When you hire us, we’ll provide with a template that’s been drafted by our attorneys.
Why should an LLC with only one member still have an operating agreement?
You may think, “I’ll never disagree with myself,” and that’s probably true! But you still need to have a written agreement to make it clear that your LLC is separate from you as a person. This is important from a legal liability standpoint, and you’ll also likely need an operating agreement to do things like open a business bank account.
Can an oral agreement replace a written operating agreement in Texas?
Texas state law does say an operating agreement can be oral, but a written agreement is much easier and simpler to enforce. Otherwise, two members could have vastly different memories of what was in the oral agreement.
Do I need to file my operating agreement with the Texas SOS?
No, your operating agreement is an internal document. Make sure you have copies of it at your business address if you need it, but there’s no need to send it to the Texas Secretary of State.