Forming a limited liability company (LLC) in Texas is a popular choice for entrepreneurs and small business owners who want liability protection and operational flexibility. However, many LLC owners in the Dallas-Fort Worth area ask the same question: Do I really need an operating agreement?
At Ryan G. Cole Law, PLLC, we advise clients throughout North Texas on the essential steps to protect and grow their businesses. While Texas law does not require LLCs to have an operating agreement, having one in place can be one of the smartest decisions you make.
What Is an Operating Agreement?
An operating agreement is a legal document that outlines how your LLC will be managed, how profits and losses will be distributed, and what happens if a member leaves, dies, or the business dissolves. It serves as the internal rulebook for your business, helping to reduce the risk of conflict among members.
Operating agreements typically cover:
- Ownership percentages and capital contributions
- Voting rights and decision-making authority
- Member roles and responsibilities
- Distribution of profits and losses
- Procedures for adding or removing members
- Dissolution and buyout provisions
Is an Operating Agreement Legally Required in Texas?
No, Texas does not require a written operating agreement to form or maintain an LLC. However, this does not mean you should skip it. Without a written agreement, your LLC will be governed by the default rules under the Texas Business Organizations Code (BOC), which may not reflect your business goals or arrangements.
In practice, courts and financial institutions often expect a formal agreement to exist. It can also be critical in resolving disputes or defending your limited liability status in legal proceedings.
Key Benefits of Having an Operating Agreement
Clarifies Ownership and Responsibilities
Disagreements often arise when LLC members have different understandings of their roles or profit shares. A well-drafted operating agreement puts everything in writing, which reduces the risk of confusion or conflict.
Protects Your Limited Liability Status
If your LLC is ever sued, courts may examine whether you are truly operating as a separate legal entity. Having a signed operating agreement is one way to demonstrate that your business is distinct from your personal finances.
Prepares for Future Changes
Whether you’re admitting new members or handling a member’s exit, your operating agreement outlines the process, ensuring smooth and legally compliant transitions.
Overrides Default Texas Law
Without an agreement, Texas default rules will apply, which may not align with your business model. For example, profits and voting rights are typically split evenly unless otherwise agreed.
Helps with Banking and Financing
Many banks and lenders require an operating agreement to open business accounts or secure financing. Investors also want assurance that your business is properly structured and managed.
Single-Member LLCs Also Benefit
Even if you’re the sole member of an LLC, an operating agreement is still a good idea. It helps reinforce your liability protection, provides clear documentation for banks and partners, and prepares your business for future growth.
Common Mistakes to Avoid
- Using a generic template that doesn’t reflect your specific needs
- Failing to update the agreement as the business changes
- Not having all members sign the document
- Ignoring buyout or succession planning
At Ryan G. Cole Law, PLLC, we draft customized operating agreements that reflect your business goals and legal needs. We also help review existing agreements to ensure they remain enforceable and effective.
Let Us Help You Build a Strong Foundation
Whether you’re forming a new LLC or refining your current business structure, an operating agreement is a vital tool. At Ryan G. Cole Law, PLLC, we work with business owners across Dallas-Fort Worth to create clear, enforceable agreements that support long-term success.
Contact us today to schedule a consultation. Let us help you protect your LLC and move forward with confidence.