LLC Operating Agreement in Texas: What Business Owners Should Include
Forming an LLC is an important step, but filing the paperwork does not answer every question about how the business will operate. Who can sign a contract? When can owners take money out? What happens if a partner wants to leave?
An LLC operating agreement in Texas helps owners address these questions before they become disagreements. Whether you are starting a family business, purchasing investment property, or bringing a partner into an existing company, clear written terms can make expectations easier to understand.
If you are still preparing your company, start with our guide to how to form an LLC in Texas.
What Is an LLC Operating Agreement in Texas?
An operating agreement describes the company's internal rules and the relationships among its owners and management. Texas law calls it a company agreement. It can address ownership, authority, finances, and procedures for important changes.
The certificate of formation creates the entity through a state filing. The operating agreement addresses how the owners intend to run it. These documents should work together.
Does Texas Require a Written Operating Agreement?
Texas does not generally require an LLC to have a written operating agreement. The statutory definition recognizes written, oral, and implied company agreements.
However, relying on conversations or assumptions can leave owners with different understandings. A written agreement creates a reference point for the decisions that matter.
Texas statutory rules govern issues the company agreement does not address. Although many rules can be modified, some legal requirements cannot be waived. An agreement should be drafted with those limits in mind.
What Should Your Operating Agreement Address?
Consider the following subjects when discussing an agreement with your attorney.
Ownership and contributions. Identify each owner's interest and what each person contributes. Address whether future contributions may be required and how additional money will be treated.
Management and signing authority. Explain who handles everyday operations and which decisions require owner approval. Consider spending limits, borrowing, hiring, and authority to sign contracts.
Voting and major decisions. Specify how decisions are approved. Owners may want different procedures for routine purchases and major actions, such as admitting an investor or selling a substantial asset.
Profits, distributions, and reserves. Address how financial benefits are allocated and when cash may be distributed. Plan for expenses and reserves, and coordinate tax provisions with a qualified tax adviser.
Transfers and owner exits. Discuss whether an owner may sell an interest, how a buyout would be valued, and how payment would work.
Disagreements and deadlock. Consider a process for resolving disputes. Two equal owners should discuss what happens when neither can obtain the approval needed to move forward.
These terms should reflect your business rather than assumptions borrowed from another company's document.
Why Equal Owners Should Discuss Deadlock Early
Imagine two friends forming an LLC to operate a small business. Each owns half. One wants to reinvest available cash; the other wants distributions. Later, they disagree about whether to sign a larger lease.
An agreement could address approval thresholds, a discussion or mediation process, and a possible exit mechanism. The goal is to decide on a workable process while the owners can still discuss their priorities productively.
Equal ownership deserves a conversation about decision-making. A percentage alone does not describe how owners want to handle every disagreement.
A written agreement can also be useful when there is only one owner. It can document management procedures and support planning for future changes, such as admitting a second member.
Texas law expressly recognizes company agreements with only one member. A single owner should still consider how the business would continue if the owner could no longer manage it.
For family businesses, coordinate that discussion with estate planning. Business documents and personal planning documents should reflect a consistent succession plan.
Operating Agreements for Real Estate Businesses
When an LLC will own or manage property, consider decisions specific to that investment:
Who may approve a purchase, sale, or refinance?
How will owners handle repair costs and unexpected expenses?
What reserves should remain available?
Who may approve leases or hire a property manager?
What happens if an owner wants to exit before a property is sold?
For example, owners buying a rental property together should discuss how they would respond to an expensive repair and a simultaneous request for a buyout.
An operating agreement also serves a different purpose from a lease. If your business rents commercial space, review our guide to commercial lease disputes in Texas.
Can You Use an Online Operating Agreement Template?
A template may help identify questions, but consider whether its answers match your arrangement.
Does it assume all owners contribute equal amounts? Does it explain what happens if one person stops participating? Does the proposed buyout procedure work financially for your business?
Before signing, make sure you understand the obligations you are accepting and how the document fits the company's formation documents.
When Should You Review Your Agreement?
Consider a review when you add an owner, change management, take on a significant investment, or revise your succession plans.
Keep revisions documented and follow the approval procedures that apply to your company. Avoid assuming that an informal conversation changes the written agreement.
Frequently Asked Questions
Is a company agreement the same as an operating agreement?
In the Texas LLC context, these terms commonly refer to the same internal governing agreement. “Company agreement” is the terminology used in Texas law.
Do you file an operating agreement with the Texas Secretary of State?
No. The Secretary of State does not accept internal company agreements for filing. Keep the agreement with the company's records.
Does an operating agreement automatically protect personal assets?
Do not treat the document as a guarantee of protection. Ask your attorney to evaluate the company's structure, contracts, and actual business practices.
Can you prepare an agreement after forming the LLC?
Yes. If you already operate a business, account for existing ownership arrangements, obligations, and prior agreements when preparing the document.
Discuss Your LLC Formation and Business Documents With Walter Law
Starting a business involves decisions about ownership, authority, and future changes. A clear agreement can help you approach those decisions with shared expectations.
Learn about Walter Law's LLC formation services in San Antonio, or contact Walter Law to discuss your business formation needs.
Related Resources
Commercial Lease Disputes in Texas: What Business Owners and Landlords Should Know
Texas LLC Mistakes to Avoid After Filing
This page provides general information and is not legal advice. The appropriate documents and terms depend on your business and circumstances.