As a business owner in Texas, you may be wondering if your company requires an operating agreement. While it is not required by law, having an operating agreement is highly recommended and can greatly benefit your business.

What is an Operating Agreement?

An operating agreement is a legal document that outlines how a limited liability company (LLC) will be managed. It typically includes details such as member responsibilities, ownership percentages, voting rights, profit and loss distribution, and dissolution procedures.

Does Texas Require an Operating Agreement?

Texas state law does not require LLCs to have an operating agreement. However, it is important to note that without one, your business will default to the state’s default rules and regulations. This means that if there is no agreement in place, the state will dictate how your business is managed.

Why You Should Have an Operating Agreement

There are several reasons why it is wise to have an operating agreement even though it is not a legal requirement in Texas. First, it allows you to customize how your business is run and provides a clear understanding for all involved parties. This can help to prevent misunderstandings and potential disputes in the future.

Second, it provides protection for your personal assets. Without an operating agreement, the LLC may be considered a sole proprietorship, which means that the members are personally liable for any debts or legal issues that arise. An operating agreement can help protect your personal assets and limit liability.

Third, having an operating agreement can help you secure financing and obtain business licenses. Many lenders and licensing agencies require proof of an operating agreement before they will approve a loan or business license.

Conclusion

While an operating agreement is not required by law in Texas, it is highly recommended for any LLC. It allows you to customize how your business is managed, protects your personal assets, and can even help you secure financing. If you have questions about creating an operating agreement for your business, it is recommended to consult with an experienced attorney.