The Texas limited liability company (LLC) operating agreement is a legal document that defines how the company will be operated on a daily basis and determines each member's initial contribution, rights, and duties.
The LLC operating agreement, or business operating agreement, can include any provisions members agree to as long as they are in line with federal and state laws and requirements.
This enables the parties to customize the operating agreement according to their specific business model.
Is an Operating Agreement Required in Texas?
No, the operating agreement is not required in Texas. Still, so many parties choose to create this document when forming an LLC in Texas.
The main reason for this is that the operating agreement will optimize their business and minimize potential disputes between the company members.
4 Main Types of Operating Agreements
Here, you can find the four main types of operating agreements used in Texas:
Variety of Operating Agreements
Single-member LLC operating agreement: Used for companies with only one member. It is often used to differentiate the identity of the LLC from the identity of its members as individuals.
Multi-member LLC operating agreement: This type of operating agreement is used in companies with two or more members. It regulates their mutual relationship and provides rules on how the company will be operated.
Member-managed LLC operating agreement: Here, the operating agreement provides the managerial rights and duties of members who decide to personally manage the company.
Manager-managed LLC operating agreement: Used when the managers decide to delegate their decision-making powers to a professional manager. The document then defines the rights and duties of a manager.
Laws and Legal Requirements for LLC Operating Agreements in Texas
Title 3, Chapter 101 of the Business Organizations Code of Texas regulates the status of LLCs in Texas.
Moreover, there are a few sections of this chapter that regulate the status of operating agreements in Texas:
Sections of Status Regulation
Sec. 101.001(1) provides a definition of an operating agreement as follows:
“‘Company agreement’ means any agreement, written or oral, of the members concerning the affairs or the conduct of the business of a limited liability company. A company agreement of a limited liability company having only one member is not unenforceable because only one person is a party to the company agreement.”
How to Form a Limited Liability Company (LLC) in Texas
Here, you can see the step-by-step process for establishing an LLC in Texas.
#1. Choose a Business Name For Your LLC
First, you should choose a business name for your company. The name should be distinguishable from other business names registered in Texas. Failing to do so can result in your business registration application being rejected.
To make sure your business name is distinguishable, you should conduct a preliminary business name search.
#2. Choose the Type of LLC
Here, you have two options:
Types of LLCs
If your company is established and registered in Texas, you should opt for a domestic LLC.
If your company was initially established outside of Texas and you want to expand your business and register it in Texas, you should opt for a foreign LLC.
#3. Nominate an Agent
The last step before submitting your application is to nominate an agent who will receive official notices and documents on behalf of the LLC.
An agent should be an individual with a registered address in Texas or an entity with the authority to operate in Texas.
#4. File the Formation Documents
If you are registering a foreign LLC, you should file the Application for Registration. You can also file this document online or fill out Form 304. Foreign LLCs should also submit the Certificate of Existence, issued by the authority of the state of the company’s initial jurisdiction.
#5. Pay the Required Fee
The application fee is $300 for domestic LLCs and $750 for foreign LLCs.
If you are submitting your application online, you will be able to pay the application fee with your credit card. If you are submitting your application via mail, you should fill out the check, attach it to the application documents, and send it to the following address:
P.O. Box 13697, Austin, Texas, 78711-3697
#6. Create your LLC Operating Agreement
After registering your company, you should draft the operating agreement. This document doesn’t have to be registered with any state authority, but you should keep it in your possession after all the members have signed it.
#7. Apply For an Employer Identification Number (EIN)
This number will enable you to open a company bank account.