What is a Texas LLC Operating Agreement? Do you own a business in Texas and need to know how an LLC operating agreement in Texas works? Well, you’re in the right place. This simple guide will walk you through everything you need to know about a Texas LLC Operating Agreement.
WHAT IS AN LLC OPERATING AGREEMENT?
An LLC Operating Agreement is a document that formally outlines how a company is to be run. It is a legally binding contract and must be agreed upon and signed by all members of an LLC.
It provides written clarity on all aspects of how the LLC will be run and is a useful tool for resolving disputes that may arise between mmebers. Writing an Operating Agreement allows the members of an LLC to decide how a company will be structured and operated.
It is an opportunity for the owners to choose a model that works best for them. If no operating agreement exists – the default state laws will kick in to resolve any legal matters. For more info see – What Is an LLC Operating Agreement?
TEXAS LLC OPERATING AGREEMENT REQUIREMENTS
Does your company need an LLC operating agreement in Texas? An operating agreement is not a legal requirement in the state of Texas. You can form and run an LLC without creating and filing an operating agreement with the Texas state authorities.
However, it is strongly advised that you create an operating agreement from the outset of forming your company. Operating agreements come with many benefits and are not difficult to create. You can follow the template below to help get your operating agreement up and running
HOW TO CREATE A TEXAS LLC OPERATING AGREEMENT
What are the requirements of an LLC operating agreement in Texas? Your document will cover the ownership structure and operating procedures of the company. Let’s take a look at what you need to cover, see below for our Standard Template for a Texas LLC Operating Agreement.
COMPANY STRUCTURE
This section will define and capture all the details of when the company was formed and who the LLC members are. An LLC owner is referred to as a member. It will also document how ownership is divided amongst the members. Company members can be assigned equal ownership shares – or individual members can be assigned specific ownership percentages.
MANAGEMENT STRUCTURE
Your LLC can be managed by its members or you can appoint someone to act as manager of the company. These options are known as member-managed or manager-managed. Document all the details of your company management structure in here once you have decided on your management structure.
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MEMBER RIGHTS & RESPONSIBILITIES
Use this section to define the rights, roles, and responsibilities of each member. In multi-member LLC companies it is common practice to assign certain roles to specific members. For example, if a member has been chosen to take care of the company’s legal affairs, it must be documented here.
VOTING RIGHTS
From time to time votes will need to take place to decide on a course of action for the company. The voting rights of each member needs to be tied down in here. For example, a company may decide that each member has one vote. Or, certain members may be chosen to have more voting power than others.
CAPITAL CONTRIBUTIONS
The capital contributions of each member need to be captured in detail here. This is the amount of money each member has invested in forming the business. You can also plan on the process of raising additional capital in the future.
COMPANY DISTRIBUTIONS
The distributions section will define how profits and losses will be divided among the company members. You can choose to distribute profits and losses evenly or weight them so different percentages are distributed to different members. Clearly defining distributions provides clarity for each member on how company profits will be divided.
CHANGES TO MEMBERSHIP
Changes to membership occur when a member retires from the company, sells their ownership interest, or dies. This section should clearly explain how a buy-in or sell-out should proceed. Clearly defining the rules on change of ownership will help prevent conflict between members when changes arise. Best to avoid ambiguity.
DISSOLUTION
Dissolution covers how a business is to be wound down if the situation is to arise in the future. A company can be wound up for a variety of reasons and defining how the process should proceed is an important part of an operating agreement. For example, the members of a company may decide they no longer want the company to do business and liquidate their assets.
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WHY YOU NEED AN OPERATING AGREEMENT
Although an LLC operating agreement is not required in Texas we strongly advise you create one. An operating agreement is easy to write and they come with many advantages. The document is a legal contract that defines your LLC procedures, policies, and ownership. And, they’re a great tool for resolution should any disputes arise.
If your LLC is a multi member company – then all members should be involved in the drafting of the document. The contract will define the roles, responsibilities, and ownership of each member. And, it will need to be agreed upon and signed by all members when finalized.
FORMING AN LLC IN TEXAS
Forming an LLC company in Texas is a simple process. There are six steps you need to complete and not all of these are legal requirements, see below.
1: CHOOSE A COMPANY NAME
You will need a unique name for your new company. When choosing a company name you need to check with the Texas Secretary of State to make sure your name is available.
2: APPOINT A REGISTERED AGENT
You must appoint a registered agent for your company – this is a legal requirement. This person will act as a point of contact for any issues that need to be resolved.
3: FILE A CERTIFICATE OF FORMATION
To create the company you will need to file a Certificate of Formation for a Limited Liability Company (Form 205) with the Texas Secretary of State.
4: OPERATING AGREEMENT
An operating agreement is not legally required under Texas state law. But, we highly recommend you create the document when you form a company.
5: GET YOUR COMPANY EIN
An EIN is an Employer Identification Number issued by the IRS and used for tax purposes. You can get an EIN by visiting the IRS website and applying online.
6: ANNUAL FRANCHISE TAX REPORTS
Your company will need to file annual franchise tax reports and pay state business tax. You will need to contact the Texas Secretary of State for details.
For more information see – How to Register an LLC in Texas.
FREQUENTLY ASKED QUESTIONS
DOES THE STATE OF TEXAS REQUIRE AN OPERATING AGREEMENT?
The state of Texas does not require an operating agreement. You are not legally obliged to create one – but we strongly advise that you do. Creating an LLC operating agreement is easy and it comes with many advantages.
WHAT DOES A TEXAS OPERATING AGREEMENT LOOK LIKE?
A Texas operating agreement looks similar to a standard LLC operating agreement. There are several areas you need to cover and you can follow a template to guide you through the process. If you need some help, check out our guide over here – How to Create a Texas LLC Operating Agreement.
DOES AN LLC OPERATING AGREEMENT NEED TO BE NOTARIZED IN TEXAS?
A Texas LLC operating agreement does not need to be notarized. Once it has been signed by all LLC members it becomes a legally binding contract.
WHAT HAPPENS IF AN LLC HAS NO OPERATING AGREEMENT IN TEXAS?
If an LLC has no operating agreement statutory state rules kick in for how the business is to be operated. The LLC members effectively are bound by Texas state laws. Failing to create an operating agreement means the LLC members have missed an opportunity to control how they want their company to be run.
CAN I BE MY OWN REGISTERED AGENT IN TEXAS?
Yes, you can be the registered agent of your own business in Texas. Any LLC member or employee can act as the registered agent of the company – as long as they are over 18 and have an address in the state of Texas.
WHAT IS THE COST OF A LLC IN TEXAS?
It costs $300 to form an LLC in Texas. This fee covers the formation and filing of the company with the Texas Secretary of State. The company will then have to pay an annual business tax – the amount of which will vary from one company to another.
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REGISTERED AGENTS
- WHAT IS AN LLC REGISTERED AGENT? – click here
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OTHER COMPANY STRUCTURES
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About the Author
Rachel Hall – LLC Specialist
Rachel joined the My LLC Guide team in the spring of 2021. She is a graduate of the McCombs School of Business at the University of Texas. She studied business administration and has a particular interest in strategic decision-making, risk management, and legal and regulatory business requirements.
She is a founding member of a business advisory company that she formed with a group of like-minded McCombs alumni. Outside of business, Rachel likes to volunteer at the Central Texas food bank where she helps prepare food donations for distribution. She is also a keen fan of music and dance and enjoys attending live performances.
If you don’t create an operating agreement in Texas your company will default to the state rules. Which may not be in your interest.