Texas LLC Operating Agreement — Why You Need One

Texas calls the operating agreement a "company agreement" under the Texas Business Organizations Code. While Texas does not legally require you to have a written company agreement to form your LLC, operating without one means statutory defaults in the BOC govern your LLC — and those defaults may not match what you and your co-owners intend. This is one of the most important steps after filing your Certificate of Formation.

What an Operating Agreement Does

The operating agreement is a private, internal document (not filed with the state) that governs:

• Ownership structure — each member's percentage interest and capital contributions
• Profit and loss allocation — how income and losses are divided (does not have to match ownership percentages)
• Management authority — who makes decisions and what requires a vote
• Voting rights — how votes are weighted and what decisions require majority, supermajority, or unanimous consent
• Member changes — procedures for admitting new members, member withdrawal, and transferring interests
• Distributions — when and how profits are distributed to members
• Dissolution — what triggers dissolution and how assets are distributed upon winding up

Texas-Specific Considerations

Why Texas defaults may not work for you:

Under the Texas Business Organizations Code, without a written company agreement, your LLC operates under the statutory default rules in the Texas Business Organizations Code. Key defaults that often surprise members:

• Equal sharing — Profits and losses are shared equally among members regardless of capital contributions . If one member invested $100,000 and another invested $10,000, they split profits 50/50 unless your agreement says otherwise.
• Per-capita voting — Each member gets one vote regardless of ownership percentage unless your agreement establishes voting in proportion to contributions.
• Unanimous consent for admission — Adding a new member requires consent of all existing members under the Texas Business Organizations Code, which can create deadlocks.
• Member-managed default — Unless your Certificate of Formation specifies manager-managed, the LLC is member-managed and every member has authority to bind the LLC.

Texas enforcement:

Texas courts strongly enforce operating agreements. Under the Texas Business Organizations Code, a properly drafted operating agreement supersedes statutory defaults.Community property implications:

Texas is a community property state. If a married person uses community funds to invest in an LLC, the non-member spouse may have a community property interest in the membership interest. A well-drafted operating agreement addresses this by:

• Requiring spousal consent for membership interest transfers
• Clarifying whether membership interests are separate or community property
• Including provisions for what happens if members divorce

Key Provisions to Include

For single-member LLCs:

• Capital contributions
• Tax election preferences (disregarded entity vs. S-corp)
• Dissolution triggers
• Successor provisions (what happens if the sole member dies or becomes incapacitated)
• Statement that the LLC is intended to be treated as a separate legal entity (strengthens liability protection)

For multi-member LLCs:

• All provisions above, plus:
• Ownership percentages and how they are determined
• Profit/loss allocation (often tied to contributions but can be customized)
• Distribution timing and preferences
• Management structure and decision-making authority
• Buy-sell provisions (what happens if a member wants to exit)
• Rights of first refusal on membership interest transfers
• Non-compete and non-solicitation clauses
• Deadlock resolution mechanisms (for 50/50 LLCs)
• Dispute resolution (mediation/arbitration vs. litigation)

Operating Agreement vs. Certificate of Formation

Common Mistakes

1. Skipping it for single-member LLCs — Without an operating agreement, courts may find it easier to "pierce the veil" and treat the LLC as the member's alter ego, defeating liability protection.
2. Using a generic template without customization — Texas-specific provisions (community property, BOC default overrides) matter. A template from another state may miss these.
3. Not addressing death or incapacity — If a member dies without succession provisions, the LLC may face dissolution or lengthy probate proceedings.
4. Conflicting with Certificate of Formation — If your operating agreement says "member-managed" but your certificate says "manager-managed," the certificate controls for third-party interactions. Keep them consistent.

FAQ

Does Texas require filing the operating agreement with the state?

No. The operating agreement is a private document. You do not file it with the Secretary of State, Comptroller, or any other agency. Keep it with your business records and provide copies to members and your bank.

Can I create an operating agreement after forming my LLC?

Yes. You can adopt an operating agreement at any time. However, it is best practice to have one in place before the LLC begins operations — especially before taking on members, opening bank accounts, or entering contracts.

Can a single-member LLC have an operating agreement?

Absolutely, and it is strongly recommended. A single-member operating agreement: (1) reinforces the legal separation between you and your LLC for liability protection, (2) establishes management procedures, (3) defines what happens if you become incapacitated, and (4) is often required by banks to open a business account.

How do I amend the operating agreement?

Follow the amendment procedure specified in your operating agreement itself. Most agreements require written consent of members holding a majority (or specified supermajority) of membership interests. No state filing is needed — just update the document and have all required parties sign.

Do I need a lawyer to draft my operating agreement?

Not legally required, but recommended for multi-member LLCs with significant assets, unequal contributions, or complex management structures. For simple single-member or 50/50 two-member LLCs, a well-researched template specific to Texas can work.