Key Takeaways

  • A Texas LLC operating agreement outlines ownership, management structure, profit distribution, and decision-making procedures for your business.
  • Texas does not legally require LLCs to have an operating agreement, but having one protects owners from personal liability and prevents internal disputes.
  • The agreement should define roles of members and managers, capital contributions, voting rights, and procedures for adding or removing members.
  • Single-member LLCs and multi-member LLCs both benefit from having an agreement tailored to their specific structure and business goals.
  • Updating your Texas LLC operating agreement is essential when ownership, operations, or business structure change.

A sample LLC operating agreement in Texas is a legal document used by business entities to outline the policies and procedures of the business as well as any other aspects of the operation of the company.

Information About a Texas LLC Operating Agreement

Why a Texas LLC Operating Agreement Matters

While Texas law does not require a limited liability company to have an operating agreement, it is one of the most important internal documents for protecting your business. A Texas LLC operating agreement defines how the company is managed, outlines the rights and responsibilities of members, and sets procedures for handling profits, losses, and disputes.

Without an operating agreement, your LLC will be governed by default provisions in the Texas Business Organizations Code, which may not reflect your business’s specific needs. For example, Texas defaults to equal voting and profit sharing among members regardless of ownership percentage—something that may not suit all companies.

Having a written agreement ensures clarity among members and proves to lenders, investors, and courts that your LLC operates as a legitimate business entity, separate from your personal finances.

General Information

  • An operating agreement is not a requirement by the State of Texas to do business within the state. It is advisable for owners and members to consider creating the document. 
  • Unlike other documents of formation, the operating agreement is not filed with the state. It is an internal document meant to be part of your business records
  • An operating agreement may also be referred to as LLC Bylaws, LLC Setup Agreement, Limited Liability Company Operating Agreement, and LLC Operations Agreement. 
  • An operating agreement is used to define the terms of the business. It can be created when you're ready to form the LLC or after the business is up and running.
  • Completion of an operating agreement provides protection to the members and owners of the LLC who are contributing to the company or are managing members of the company.  
  • With the operating agreement in place, the financial accounts and personal assets of owners and members are protected. The business remains liable to satisfy any claims.
  • If an operating agreement is not in place, should the business be faced with litigious activity, members and owners would be financially liable if the court ruled in favor of the claimant.
  • A copy of an LLC's operating agreement may be necessary for several reasons: 
    • if you are applying for financial funding from a lender
    • if you are purchasing real estate a title company may request a copy
    • if you are requesting the services of an accountant or tax professional
    • if you are seeking legal advice from lawyer
    • if you are presenting information to  potential investors who have an interest in the LLC
  • If you are summoned to court for a legal action brought against the LLC, the court will most likely request a copy of the operating agreement for your LLC. The agreement serves as proof to the court that the LLC is a well-organized business entity that can handle issues that arise.

Key Elements to Include in a Texas LLC Operating Agreement

A comprehensive Texas LLC operating agreement should clearly describe how your business functions and how members interact. Common sections include:

  • Company Formation Details: Include your LLC’s name, purpose, principal office, and registered agent information.
  • Ownership and Capital Contributions: Define each member’s ownership percentage, contribution type (cash, property, or services), and value.
  • Management Structure: Indicate whether your LLC is member-managed or manager-managed and describe the authority of each role.
  • Voting and Decision-Making: Establish how votes are allocated and what percentage of votes is required for major business decisions.
  • Profit Distribution: Clarify how profits and losses will be divided—whether proportional to ownership or based on another agreed method.
  • Recordkeeping and Banking: Outline requirements for maintaining accurate business records and managing company finances.
  • Dissolution Procedures: Describe how the LLC may be dissolved and how assets will be distributed.

Including these provisions minimizes misunderstandings and helps your LLC comply with Texas business law while allowing flexibility in managing operations.

Types of LLC Operating Agreements

  • A multi-member operating agreement is used when a business has more than one member to establish company policies and procedures and to agree on protection for the LLC's members. For tax purposes, the Internal Revenue Service will tax a multi-member LLC the same way it taxes a partnership.
  • A single-member operating agreement is used by the single owner to establish procedures that will protect their assets both financially and personally. The Internal Revenue Service will tax a single-member LLC as a sole proprietorship. 

Customizing an Operating Agreement for Texas LLCs

Every business is unique, and your Texas LLC operating agreement should reflect your specific goals and structure.

  • Single-Member LLCs: The agreement mainly focuses on establishing the company as a separate legal entity for liability protection. It should also address succession planning and clarify that company assets are distinct from personal ones.
  • Multi-Member LLCs: These agreements should focus on voting rights, capital contributions, profit allocations, and procedures for admitting or removing members.
  • Manager-Managed LLCs: Define the manager’s authority, compensation, and how members can remove or replace them.

Texas LLCs can further tailor their agreements to include non-compete clauses, buy-sell provisions, or indemnification terms to protect against future disputes.

About the Operating Agreement Form

  • An operating agreement serves as a working document and should be designed to be fluid, allowing for any changes necessary as the business grows.
  • To complete the form requires specific information that is readily available on your formation documents. Information needed includes the formation date of the LLC, the purpose of the LLC, name and address of the registered agent, the percentage of ownership of each member, and the names and addresses of each member.
  • Download a copy of an operating agreement form. Fill in all applicable sections.
  • Once the operating agreement has been completed, the owners and members should carefully review it to ensure they understand the terms, conditions, rules, regulations, policies, and procedures.
  • The agreed-upon operating agreement must be dated, signed by the company representative, and have the signature of each member.
  • Each member or owner should retain a copy of the operating agreement for their records.
  • For businesses that have complex ownership agreements, multiple investors, a large number of members, or require industry-specific management, it is recommended to consult with an attorney.
  • If there is any confusion about the verbiage and there is not a clear understanding of the operating agreement by members or owners, consider consulting an attorney to clarify the steps and/or complete the operating agreement form. 
  • The operating agreement for an LLC does not need to be notarized.
  • If you make changes to the operating agreement once it has been agreed to by all members/owners, retain the original copy and save the changes as a new version.

How to Create and Maintain a Texas LLC Operating Agreement

When drafting your Texas LLC operating agreement, begin with the company’s certificate of formation filed with the Texas Secretary of State. You can use a sample form as a reference, but always customize it to your business’s size and goals.

Steps to create your operating agreement:

  1. Identify key members and roles. List each member and their percentage of ownership.
  2. Define management and voting rules. Decide whether your LLC will be member-managed or manager-managed.
  3. Outline capital contributions. Specify what each member contributes and how profits will be distributed.
  4. Include dispute resolution procedures. Establish whether mediation, arbitration, or court action will be used for disagreements.
  5. Review with a Texas business attorney. Legal guidance ensures compliance with the Texas Business Organizations Code and protects your interests.

Regularly review and update the agreement when ownership changes, new members join, or your business operations evolve. All members should sign and date the updated agreement, keeping both printed and digital copies for reference.

Frequently Asked Questions

  1. Is a Texas LLC operating agreement legally required?
    No. Texas law does not mandate an operating agreement, but it’s highly recommended to protect members and ensure the LLC operates according to your chosen rules.
  2. Can a single-member LLC in Texas have an operating agreement?
    Yes. A single-member LLC should still have an agreement to show separation between personal and business assets and to maintain limited liability protection.
  3. What happens if a Texas LLC doesn’t have an operating agreement?
    The LLC will default to Texas state laws, which may not align with your preferences on ownership, voting, or profit sharing.
  4. Does a Texas LLC operating agreement need to be notarized or filed?
    No. The agreement is an internal document. It does not need to be notarized or filed with the Texas Secretary of State.
  5. When should I update my operating agreement?
    Update the document whenever membership, management structure, or profit distribution terms change to ensure it reflects your current business operations.

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