Operating Agreement LLC Texas

A Texas Limited Liability Company (LLC) Operating Agreement serves as the internal document that outlines how the company will function. It explains the relationship among members, sets out the rules for management, and records the ownership interests of everyone involved. Some business owners refer to it as a Texas Operating Agreement or Texas LLC Company Agreement. Regardless of the name, it remains the core internal record that guides the company’s governance.

While some LLCs draft this agreement during formation, others create it later to better reflect the needs of the business. It is not filed with the state but is kept as part of the LLC’s internal records.

Is a Texas Operating Agreement Required?

Texas does not mandate Operating Agreements for LLCs. The Texas Business Organizations Code allows an LLC to function without one. Despite this, most attorneys, accountants, and industry professionals strongly recommend creating a written agreement. Without one, the LLC automatically follows the default provisions contained in the Business Organizations Code. These default rules may not match how the members want to manage the company or share financial responsibilities.

Why a Texas Operating Agreement Matters

Maintains limited liability protection

A clear and detailed Operating Agreement helps reinforce that the LLC is separate from its owners. Courts look at how well the business observes internal formalities when evaluating limited liability protections. For single member LLCs, having a written agreement is particularly important because it creates documented proof of separation between the individual and the business.

Establishes internal rules and expectations

Texas law provides general guidelines for LLC operations, but these rules are broad and may not fit the specific structure of a particular company. A customized Operating Agreement allows members to determine how decisions will be made, how responsibilities will be divided, and how the business will be managed.

Required by financial institutions and third parties

Banks and lenders frequently request to review an Operating Agreement before opening accounts or extending credit. The document helps confirm ownership, identify who can act on behalf of the company, and establish how financial matters are handled within the LLC.

Key Provisions to Include

A Texas Operating Agreement typically includes the following:

Basic Company Details

• LLC name
• Business purpose
• Principal office
• Duration
• Federal tax classification

Registered Agent and Office

• Identifies the Texas registered agent responsible for receiving legal notices
• Any change must be filed with the Texas Secretary of State

Member Information

• Names and addresses of all members
• Ownership percentages
• Initial contributions

Capital Contributions

• Cash, property, or services contributed by each member
• Statement that members are not automatically entitled to interest on contributions

Management Structure

• Whether the LLC is member managed or manager managed
• Description of each role’s authority and responsibilities

Profit and Loss Allocation

• How profits and losses will be allocated
• How and when distributions will be made
• Confirmation that distributions may not be made if the LLC cannot pay its debts

Tax Election

• Federal tax classification selected by the LLC
• Clarification that certain tax elections require additional IRS filings

Voting Procedures

• Voting rights
• Quorum requirements
• Decision making thresholds. Many Texas LLCs base voting on ownership percentages unless stated otherwise.

Transfers of Interest

• Procedures for adding or removing members
• Rules for transfers due to withdrawal, death, or expulsion
• Buyout procedures

Records and Bookkeeping

• Method for maintaining financial records, meeting notes, and tax filings
• Explanation that Texas LLCs do not file annual reports but must maintain internal records

Compensation

• How members, managers, or officers will be compensated if compensation is provided

Dissolution

• Events that may trigger dissolution
• Steps for winding up the LLC
• Filing termination documents with the Texas Secretary of State

Amendments

• How the Operating Agreement may be amended. Most Texas LLCs require written member approval for changes.

Management Options for Texas LLCs

Member Managed

In a member managed LLC, the members themselves control daily operations. This structure is common in smaller businesses where all owners participate in running the company. Members may bind the company through approved actions and decisions.

Manager Managed

In a manager managed LLC, members appoint one or more managers to oversee daily operations. The managers may be members or outside individuals. Members retain authority over major company decisions but do not manage daily tasks unless specifically authorized.

Creating and Maintaining the Texas Operating Agreement

Drafting and Signing

The Operating Agreement becomes effective once it is signed by the members. Texas does not require notarization of the document, but some LLCs choose to notarize it to reinforce formality. Filing with the Secretary of State is not required.

Recordkeeping

The agreement should be stored with the LLC’s permanent records at its principal office. Members should each retain a full copy. Because Texas does not require annual LLC reports, maintaining an accurate internal record is essential.

Amending the Agreement

If the LLC needs to update the Operating Agreement, the members should prepare the new version, review it, and sign it according to the amendment rules outlined in the agreement. If an amendment changes information in the Certificate of Formation, such as the registered agent or management structure, the LLC must file an update with the Texas Secretary of State.