Texas LLC Operating Agreement Template

In Texas, your limited liability company (LLC) is not required to have an operating agreement in place. But it’s highly recommended, as an effective operating agreement can help avoid disputes and lawsuits that could threaten the stability of your LLC.  

What is an LLC Operating Agreement?

A Texas LLC operating agreement is an important legal document that details who owns the business and provides essential information pertaining to member duties. An LLC operating agreement establishes the financial relationship between members and the basics of the working relationships between those members and the managers who oversee daily operations. 

The operating agreement is not filed with the state, but instead remains private. It’s advisable to hire an attorney to ensure your operating agreement is thorough and legally binding.

What Should Your Texas LLC’s Operating Agreement Include?

Here are some key provisions to include in your Texas LLC’s operating agreement:

1. Basic Information: Include the company’s name, principal office address, the date of formation, and the purpose of the LLC.
2. Members and Ownership: List the names and addresses of all members, their ownership percentage, and initial capital contributions.
3. Management Structure: Specify whether your LLC will be member-managed or manager-managed, and outline the roles and responsibilities of each member or manager. If the LLC has a board of directors, the operating agreement will also include the role and responsibilities of the board members and how they are compensated. 
4. Voting Rights and Procedures: Define the voting rights of members, the necessary quorum for meetings, and the decision-making process for important company decisions.
5. Profit and Loss Distribution: Outline the process for distributing profits and losses among members, including the frequency and method of distribution.
6. Capital Contributions and Additional Contributions: Detail any requirements for additional capital contributions from members, and the process for making those contributions.
7. Member Withdrawal and Dissociation: Describe the process for a member to withdraw or dissociate from the LLC, including any buyout provisions, restrictions, or rights of first refusal.
8. Dissolution and Winding Up: Explain the circumstances that would trigger dissolution, as well as the process for winding up the LLC’s affairs, such as paying off debts, selling assets, and distributing remaining assets to members.
9. Recordkeeping and Financial Information: Establish the process for maintaining financial records, preparing annual reports, and conducting audits, if necessary.
10. Amendments: Outline the procedures for making amendments to the operating agreement, including the required vote or consent of members.
11. Dispute Resolution: Include a provision for resolving disputes among members, such as mediation or arbitration.
12. Governing Law: Specify that Texas law will govern the operating agreement and any disputes arising from it.
13. Miscellaneous Provisions: Include any additional provisions relevant to your specific LLC, such as non-compete clauses, confidentiality agreements, or indemnification of members and managers.

An LLC operating agreement provides legal and financial recourse for a number of situations. If conflicts arise between LLC owners pertaining to any of the above issues, the operating agreement will provide clarity. The specific language of the operating agreement lays out exactly how such conflicts will be resolved, how the business is structured, the dynamics of operations, and more. 

Though Texas has default rules on the books that address some of the issues that might arise between LLC members, your LLC operating agreement would override these default laws and give you greater control. 

Remember that the above suggestions are general guidelines and may not cover all aspects relevant to your specific business. It is always a good idea to consult with an attorney when drafting an operating agreement to ensure that it meets the unique needs of your Texas LLC.

How Much Does an Operating Agreement Cost? 

Creating an operating agreement is free if you just draw it up yourself. Alternatively, you can pay for guidance from an online business advisory like ZenBusiness.

This is an extremely important document, so it’s recommended that you hire a professional service or law firm. If you choose to use an attorney to help you create this document, the price will be around $500 for a single-member LLC and $2,500 for a multi-member LLC. 

Who Needs my LLC Operating Agreement?

One of the key reasons to have an operating agreement in place is that it makes your LLC more appealing to financial backers. Banks are likely to request to see your operating agreement when you apply for a loan. If you seek funding from investors, they will also want to see your operating agreement. 

Conclusion 

Though not legally required in Texas, an operating agreement is a crucial document for LLC operations, ensuring your company is able to access adequate financing and settle any disputes. Keep in mind, you do not need to file your operating agreement with any state body. You simply need to take certain steps to ensure it’s legally binding and keep it in your records. 

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