Texas LLC Operating Agreement

Your Texas LLC operating agreement is the governing document of your business. While not technically required by law, it should be considered a necessary document for your business. An operating agreement lays out the ownership of your company and basic management structure. No matter how many (or how few) members your LLC has, an operating agreement is an essential legal document all businesses should have. This is why we provide a free operating agreement with every LLC formation order. Our Texas operating agreement templates have been drafted by our attorneys and are ready to use! They can also be customized to suit your business needs.

Get Texas LLC Formation + Free Operating Agreement: $135 + State Fees

Do I Really Need an Operating Agreement?

Yes. An operating agreement lays out the expectations for all members of your Texas LLC, their roles, rights and responsibilities. By writing your operating agreement early, this ensures that all your business members are clear about who will do what and how disagreements or conflicts of interest will be solved.

Not having your own operating agreement means you’d be relying on the default rules the State of Texas has for LLCs. The state would be deciding how your member disputes would be resolved, how you assets would be divided, etc.

Furthermore, it is your operating agreement that determines ownership of your LLC. In this respect, the operating agreement is crucial. If there were ever a legal question concerning ownership of your company, a court would look to your operating agreement to determine who owns what and who is entitled to what. If there is no operating agreement, then the court will decide who owns your company and what shares they are entitled to.

Finally, your operating agreement is a valuable asset when it comes time to open a business account. Bank managers often need to see this document in order to open your account. Make sure it includes the names and addresses of all of your members, as the bank will need to see proof of ownership.

What Should an Operating Agreement Include?

The kinds of rules and regulations you can add to your operating agreement are virtually limitless! However, there are some basic areas that should be addressed in each one: organization, management structure, initial capital contributions, profit sharing, changes in membership, and dissolution terms.

Our Texas LLC Operating Agreement attends to all the basics to start your business on solid legal ground. It is divided into 9 articles detailed below:

Article 1: Company Formation

This article contains 11 sections that declare-

• this entity is a Texas LLC subject to the laws of the State of Texas
• where basic information like principal address, registered agent office, business purpose, and term of the LLC can be found
• member rights, voting terms and how the business can be dissolved or picked up by other members
• how new members can be added & how members can leave

Article 2: Capital Contributions

This article deals with the money, assets, and/or other property the members agree to give to the LLC upon startup. The total dollar value is added up and declared in section 2.01 of this operating agreement. The remaining sections in this article deal with how capital and/or assets are withdrawn, returned, or partitioned (divided up). There are also sections that address how members can make additional contributions and what can be done if a member fails to contribute their share of capital.

Article 3: Profits, Losses, and Distribution

Arguably the most important section, this is where all members find out how and when they get paid. Profits and losses are shared by all members according to their percentage of ownership. After the bills get paid, whatever is left can be distributed as income to members at any time. This section also speaks to members who wish to “cash out” and sell their percentage of ownership back to the company.

Article 4: Management

This section makes it clear how decisions are made for the LLC. If there are areas of this section that you do not agree with, you can change it! This is your operating agreement, and as long as all members agree to the changes, you can structure the management of your LLC however you like. Getting the help of a business lawyer is recommended if you want to make major structure changes. Topics in this section include:

• how decisions are made and by whom
• how the Chief Executive Member (CEM) and other officers are chosen, and their powers and responsibilities
• powers and duties of members
• how disputes are made and resolved
• “good faith” protection for members and permitted transactions
• member access to company information
• exculpation and indemnification clauses to protect members acting in good faith from the expense of legal actions

Article 5: Compensation

This section covers how out-of-pockets expenses are reimbursed to members and how members will be paid for services they render. For example, if one of the members is a professional mechanic and agrees to fix the company car, all members would vote on how much to pay them for that service.

Article 6: Bookkeeping

Each member will be responsible for keeping their own financial records. They will need to each prepare an end-of-the-year statement to submit to the CEM, who will them deliver it to whoever is in charge of the LLC’s financials, like preparing the quarterly or year end taxes.

Article 7: Transfers

If a member wants to leave the LLC (aka: dissociate) and be cashed out for their percentage of the company, this is referred to as “transferring” their interest (their ownership percentage). This operating agreement lays down 3 rules for transferring a member’s interest:

1. Assignment- other members have “first dibs” on buying out that member’s interest
2. Valuation of Dissociating Members Interest- all members of the LLC agree to the worth of the percentage up for sale
3. Distribution of Dissociating Members Interest- how the member who is leaving will receive payment from the LLC for their interest if a buyer can’t be found, and how the LLC will distribute that percentage among other members

It’s important to note that this section also declares that any new member to the LLC must be approved unanimously by all existing members. This keeps control of the LLC in the hands of current members and prevents outsiders from taking over.

Article 8: Dissolution

No one likes to think about having to dissolve their LLC, especially when just getting started. It’s important to consider dissolution in case of personal emergencies, natural disasters, or other events you have no control over that can affect your business. This section makes it clear that all members must agree to dissolve the business. All the LLC’s debts must be paid before assets, capital or money is paid out to the members.

Article 9: General Matters

This section covers some smaller, though no less important, areas for your LLC. For example, it states that this operating agreement is a legally binding document subject to Texas law, and it addresses how the agreement may be amended or updated. It also says that many signed copies of the operating agreement may exist, so it’s okay if each member would like a copy.

Certification of Members

This last section is where all members sign and date in acknowledgment of the articles set forth in this operating agreement. There is also a place by their signature where they agree to the percentage of ownership (interest) assigned to them.

We also include some extras, like a Capital Contributions list and an LLC Resolution to Open a Bank Account form. Use the Capital Contributions list to record the amount of cash or value of assets each member has given to help start the business. Take the LLC Resolution to Open a Bank Account, along with a completed copy of the operating agreement, to the bank when when you open your business account.

As you can see, operating agreements are incredibly important in protecting you and all LLC members from legal disagreements, misunderstandings, and changes in membership. Take advantage of our LLC formation service and get access to this document for free!

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Do Single-Member LLCs Need an Operating Agreement?

Yes, even if you are the only member of your LLC, it is still a good idea to have an operating agreement. One of the reasons why you’re starting an LLC is for the legal separation and protection of your personal assets from that of your business. An operating agreement reinforces this division and clearly defines the LLC as separate from you. Even though you’re a single member LLC, the bank you choose will may want to see that you have an operating agreement before they will open a business account with you.

Furthermore, it can help you keep from mixing your personal income and assets with that of your business. Mixing personal and business finances can seriously complicate things when it comes time to pay taxes, and can result in the loss of the protection an LLC gives your personal assets.

How Do I Make Changes to My Operating Agreement?

You can make changes and updates to your operating agreement anytime! The process for making an amendment should already be stated in your agreement, which in general says that all members must agree to the changes being made. You can draft an amendment statement that all members would sign, then add that to the top of your original document. By keeping the original document, and adding all amendments to it separately, you are keeping an accurate history of your business. This is important to have in case a dispute should arise and you have to prove what changes were made and when.

Whether you write your own amendment form, or use one of our template forms, you won’t need to file a change to your operating agreement with the state. Operating agreements are not filed or sent to the state in any manner. Your operating agreement is an internal document your LLC should keep on record.

That being said, if you made any changes to the member names or addresses, principal or mailing address, or anything else the state does keep track of, you will need to inform the state of these changes. This can be done for free with the Texas Public Information Report (PIR).

Quick & Easy Texas LLC Formation Service

Getting your LLC up and running in Texas as quickly as possible is our priority! We have filing experts who work with the state every day and know how to get it done right the first time. There are many advantages to using our service:

• Address Privacy- Use our registered agent address, instead of your own, on public state record.
• Expert Filing Service- Hire us to form your LLC so you can focus on running your business.
• Texas Business Presence Package- Try our business website, email, and phone service free for 90 days. We’ll even throw in a free domain name for the first year (up to $25 value)!
• FREE Operating Agreement templates – Texas-specific LLC operating agreements for single-member, multi-member, and manager-managed LLCs. Store your operating agreement in your secure client portal.
• FREE Forms Library- Download and submit any state filing on your own, complete with instructions.
• FREE Access to Texas Business Experts- Call us with all your Texas business questions, and we’ll help you find what you need.

We know what it means to want to grow and develop a business. We strive to grow and develop new ways to support our client’s businesses every year! Let’s work together to give your business the best beginning and the support it deserves.

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FAQ Section

Still have some questions? Check out our FAQ below, and if you still need help, give us a call during business hours at (512) 318-2199. Our Texas business experts can help you find the answers you need.

Can I write my own operating agreement?

Yes, you can write your own operating agreement. There are no state laws requiring you to have a lawyer, or anyone else, write one for you. There is a lot of information online for how to write an operating agreement, and many suggestions for what this document should include. If you have the time and the patience to do the research, you could write a perfectly acceptable operating agreement on your own. It is also a good idea to have a business lawyer review your work to make sure the wording is clear and no important topics have been left out.

Is my operating agreement filed with the state?

No, the state does not ask LLCs to file an operating agreement with them. The only institutions that would be interested in viewing or having your operating agreement on file would be banks, lending companies, or possible government organizations that help small businesses get loans.

What’s the difference between a Certificate of Formation and an operating agreement?

The Certificate of Formation is the document you file with the Texas Secretary of State to officially create your LLC. This document contains basic information about your LLC, including your LLC name, registered agent and registered office, and the initial members or managers of your LLC. However it doesn’t cover other important information about your LLC, such as each owner’s percentage of membership interest, voting procedures, or what happens if the LLC dissolves. These nitty gritty details need to be established in your operating agreement. Otherwise, you’re LLC will be governed by Texas’ default LLC laws.

The operating agreement is a contract between the member(s) of the LLC that establishes the rules and processes the company willl follow. While it’s not legally required in Texas to have a written operating agreement, it’s an important document for avoiding and resolving disputes between members. Following the policies in an operating agreement can also help you demonstrate that your LLC is a distinct legal entity, which may help your LLC keep its limited liability status in case of a lawsuit.

Does my operating agreement need to be notarized?

It is not generally required to have your LLC operating agreement notarized. As long as each member has read through the document and signed in agreement, that is all that is required. Some banks or lending institutions may ask that you provide a notarized copy, but that is their own internal requirement. If the bank or lending institution asks you to have your operating agreement notarized, ask if they have a public notary on staff that can perform this service for you for free.

Are LLC operating agreements legally binding?

Yes, LLC operating agreements are legally binding as long as each member is over the age of 18 and willingly signs it. Even if the operating agreement is hand-written on restaurant napkins, if the members sign it and agree to its terms, it is legally binding.

What if I lose my operating agreement?

If you lose track of your original operating agreement, you may need to write a new one. This newer operating agreement will override the older one, and will need to be signed and dated by all members.

You can also check with the other members of your LLC to see if they have a copy. If you are in a legal dispute with the other member(s) of the LLC, you will need to get your lawyer to submit a subpoena requiring them to provide you with a copy.

The bank you used to open your business bank account may also have a copy. Or, if you hired a service to form your LLC on your behalf, they may also have an original copy of your agreement. When you form your LLC with us, your operating agreement will be stored in your client account, where you can access it from anywhere.

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