Texas LLC Operating Agreement: Everything You Need to Know
A Texas LLC operating agreement is the legal paperwork used to delineate a company's procedures, policies, and other features. 3 min read
2. How to Write an Operating Agreement
3. Texas LLC Annual Report
4. Business Licenses and Permits
Updated October 30, 2020:
A Texas LLC operating agreement is the legal paperwork used to delineate a company's procedures, policies, and other features. Although this document is not required for companies doing business in Texas, without an operating agreement in place, the members could be held financially liable in the event of a lawsuit. Filing an operating agreement ensures the LLC owners' personal assets will be protected from business liability.
In Texas, an LLC operating agreement should include the following key elements:
- Formation details of the LLC.
- The name and Texas address of a registered agent, who is designated to receive legal documents on behalf of the business.
- The term of the LLC.
- The purpose of the business.
- The business location.
- The process for admitting new owners (also called members).
- The percentage of membership interests of each member and the method of valuation.
- The process for members to exit the LLC.
- The names of all managers and members.
How to Form an LLC in Texas
In Texas, an LLC structure can be used to manage a company or to hold assets such as vehicles, aircraft, real estate, or boats. To form an LLC in Texas, first do a business search on the Secretary of State website to make sure your desired LLC name is available. Your name must be amended with:
- Limited Liability Co.
- Limited Liability Company
- Ltd. Liability Co.
- Ltd. Liability Company
- Limited Company
- Limited Co.
- Ltd. Co.
When you find a name that is available, you should also purchase the domain name.
You must appoint a registered agent for your LLC, which can be either an organization or individual based in Texas. The registered agent must sign Form 401A, Consent to Serve.
File the Certificate of Formation if your LLC will be based in Texas (domestic). Alternatively, you may have to file the Application for Registration, along with a copy of your Certificate of Existence, if your LLC is based elsewhere but will do business in Texas. These forms can be filed online or mailed in duplicate along with a filing fee of $300 for domestic and $750 for foreign applications. Mailed applications should be sent to: PO Box 13697, Austin, TX 78711-3697.
After your application is approved, you can file the optional Operating Agreement if you choose. You can also apply for an Employer Identification Number (EIN), which is used like a Social Security Number to identify your business with the Internal Revenue Service (IRS). You'll need the EIN to:
- File taxes
- Open business bank accounts
- Hire and pay employees.
U.S. residents can apply online or through the mail for a free EIN. Foreign residents and LLCs owned by another LLC cannot apply online and must submit Form SS-4 via mail or fax.
How to Write an Operating Agreement
The following is a guideline to help you compose your operating agreement:
1. Download the operating agreement form from the Texas Secretary of State website and enter your company name.
2. Enter the document's effective date.
3. Enter the state of location and the full name and business address of the owner(s).
4. For a multiple-member LLC, enter the capital contribution amount for each member.
5. State the distribution percentages for each member if the LLC has multiple members.
6. Detail procedures for:
- Annual meeting and date
- Interest assignments
- Company property ownership
- New member admission
- Right of first refusal
- Withdrawal events
- Liquidation and dissolution
- Member representation
7. Each member and the company representative must sign the document. The company must keep the document on file.
Texas LLC Annual Report
All Texas LLCs must file an annual Public Information Report and Franchise Tax with the Office of the Comptroller, regardless of whether the business conducted activities or earned income during the year. The franchise tax is typically 1 percent of gross receipts over $1 million, but it varies by industry. This report is due by May 15, and the forms can be downloaded from the website of the Comptroller.
Business Licenses and Permits
Consult with the municipality where your LLC is located to find out whether your business needs a license or permit to operate. These regulations vary for each town or city.
If you need help with your Texas LLC operating agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies such as Google, Menlo Ventures, and Airbnb.