Creating an Operating Agreement for Your Texas LLC

 

These agreements are a contract in writing between members of an LLC. The contract should include specifics about management and ownership of the LLC.

 

Texas LLC Operating Agreement

 

Essential Information

In the operating agreement, you should find basic and essential information regarding your Texas LLC. Most of this information will also be included in the Certificate of Formation for your LLC, such as:

* Name

* Effective Date

* Purpose

* Duration

* Registered agent

* Taxation

Ownership of an LLC

In your operating agreement, you’ll list the percentage of the LLC each member owns. The agreement will need to be signed by all members.

Terms like units, percentage, and ownership are all used when describing how much of an LLC a member owns. It’s most common to see ownership indicated via a percentage. LLCs don’t utilize teams such as shareholders or shares.

Contributions

Once the Texas Secretary of State has approved your LLC filing, every member of the LLC will need to make their initial contribution of capital. These contributions will need to be included in your operating agreement. If your LLC only has a single member, the contributions will still need to be listed.

The term “capital contribution” described an LLC member depositing funds into the bank account for the LLC. The easiest way to do this is to have every member make out a check to the LLC. This method also ensures that there is a record of the financial transaction. If you follow the operating agreement template located below, you’ll want to have the initial contribution for members match the percentage of ownership that they have.

As an example, if an LLC has two members, and they each have 50% ownership, both members should deposit equal amounts of funds. The actual amount isn’t important. Members could deposit $100 or $10,000. What matters is that both members deposit the same amount. If the ownership is 70/30 or 60/40, that ration should also be reflected in the deposits.

How Profits are Distributed

The template for an operating agreement below also specifies that, when money is removed from an LLC bank account and profits are distributed to members, it is referred to as a “capital distribution.”

One of the best ways to handle this is to have an LLC member make out a check from the LLC bank account to themselves. This provides a clear record of the transaction. Other types of transfer that provide a record include bank wires and digital transfers.

If a Texas LLC has multiple members, capital distributions will need to be proportionate to the percentage of the LLC that the individual owns.

Taxes

An operating agreement should also include a short statement about taxation for the LLC.

Membership Voting Rules

The operating agreement for your Texas LLC should specify rules regarding membership voting. The template below indicates that voting powers are equal to the percentage of an LLC a member holds. For example, if the operating agreement specifies that a majority vote should be held, only the member or members with 50% or more ownership will be eligible to vote.

If you’re an LLC’s only member, this won’t be a problem. You’ll have the majority vote and unanimous votes as well.

If you follow the template for a manager-managed operating agreement, voting powers will still be equal to ownership percentages. Through a majority vote, members will agree on a manager. Once elected, the manager will have the authority to make certain decisions regarding the LLC without calling for a vote from members. Still, there are some things, such as adding a new member to the LLC, that will require the current LLC members to vote. The manager won’t have any say in this scenario.

About Single-Member LLCs

Operating equipments aren’t just necessary for LLCs with more than one member.

It doesn’t matter if you’re the only member of your Texas LLC. It’s smart to have an operating agreement for single-member LLCs as well.

If you wind up in court in the future, an operating agreement can provide evidence that your LLC is being operated as a separate entity. This can protect your personal assets and keep you safe from creditors.

Does the Operating Agreement for a Texas LLC Need to be Sent to the Texas Secretary of State?

It’s not necessary to send the operating agreement for a Texas LLC to the state or another government agency.

Your operating agreement will serve as an internal document. It belongs in your business records and does not need to be formally filed.

Who Should Have a Copy of Your LLC Operating Agreement?

A copy of the operating agreement for your Texas LLC may need to be provided to:

* Title companies

* Banks and other lenders

* Potential investors

* Tax professionals, accountants, and attorneys

* Court officials if you end up in court

Of course, this isn’t an exhaustive list. It’s likely that others will also ask for a copy of the operating agreement for your Texas LLC.

It’s Not Necessary to Notarize Operating Agreements

You don’t have to have the operating agreement for your Texas LLC notarized.

Once all of the LLC’s members have signed the documents — or just you have signed it, if it is a single-member LLC, the document is legally binding.

Customized Agreements for Your Texas LLC

If you’d prefer to create a customized operating agreement rather than using a template, your best option is to talk to a business lawyer. They’ll be able to draft an agreement that meets the specifications of all of the members of your Texas LLC.

Ensure That Every Member Has a Copy

After the operating agreement for your Texas LLC has been finalized, you’ll want to distribute a copy to every member.

You’ll also want to ensure that there are copies in your business records.

Additional Resources