What Is a Manager Managed LLC Operating Agreement Texas?
A manager-managed LLC Operating Agreement Texas refers to a document that details the operational structure and processes of a manager-managed LLC in Texas.3 min read
Updated November 23, 2020:
A manager-managed LLC Operating Agreement Texas refers to a document that details the operational structure and processes of a manager-managed limited liability company (LLC) in Texas. While an Operating Agreement is not a requirement for forming an LLC, it is an important document that can help you run your LLC smoothly and avoid errors and misunderstandings in the future. Since a manager-managed LLC and a member-managed LLC operate differently, their Operating Agreements differ in a number of ways.
Understanding the Management Structure of an LLC
In most states, an LLC is member-managed by default, but Texas and some other states require an LLC's owners, also known as members, to state in the Certificate of Formation whether their company will be member-managed or manager-managed.
When an LLC is member-managed, all its members will participate in the management of the company. In a manager-managed LLC, the members will surrender all management responsibilities to one or more managers. The manager elected to manage an LLC can be someone else other than a member. The managers in a manager-managed LLC are similar to the directors of a corporation.
Main Reason to Opt for a Manager-Managed LLC
If an LLC has silent investors or investors who will not be part of the daily operations of the company, it should be manager-managed. If you want to form an LLC but need five family members to contribute money to set it up, you can list your family members and yourself as members and be the only manager. This way, your family members will not get in your way as you run your LLC.
The members of an LLC are the ones who will elect the manager, so they can replace the manager anytime they want. However, as stated in the Operating Agreement, the members have to vote to replace a manager, formalize the replacement in writing, and sign the document, which adds a layer of formalities to the process.
If your LLC is member-managed and you and your family members are all members, it is highly likely that disputes will arise. For instance, you and your family members have an argument during a Thanksgiving dinner, and suddenly two members decide to close the bank account. They can easily do so if your LLC is member-managed. However, if your LLC is manager-managed, they need to go through the manager, replace you as the manager, or vote for someone else to become the manager in order to make the change.
Difference With the Operating Agreement of a Manager-Managed LLC
Usually, the main difference between the Operating Agreement of a manager-managed LLC and that of a member-managed LLC is the added complexity of preventing members from getting involved in the manager's operational duties. Also, the members will need strict guidelines for assigning membership percentages, breaking up the LLC, and buying members out. When creating an Operating Agreement for a manager-managed LLC, you should give the authority to run the company only to a manager.
Writing an Operating Agreement for an LLC
Generally, a manager-managed LLC contains the following sections and information:
Step 1 – Name of LLC
- Name of the LLC at the top of the document
Step 2 – The Agreement
- Effective date of the Operating Agreement
- Full name and business address of each member of the LLC
Step 3 – LLC's Name and Principal Place of Business
- Name under which the LLC has been registered
- Full address of the LLC
- City where the business is located
- Date on which the LLC was formed
- Purpose of the LLC
- Term of the LLC
- Name and contribution amount of each member of the LLC
- Each member's name and percentage interests
Step 4 – Books, Records, and Tax Returns
- Bank accounts
- Management of the LLC
- Appropriate limits agreed upon by the LLC's members
Step 5 - Titled Sections
- Date for annual meeting of members
- Ownership of company property
- Assignment of interests
- Right of first refusal
- Withdrawal events
- Admission of new members
- Dissolution and liquidation
- Representations of members
- Name of the LLC and its effective date
Step 6 – Signatures
- Execution date of the Operating Agreement
- Signature of the LLC's representative
- Signature of each member
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