Texas LLC Operating Agreements

A Texas LLC operating agreement is the foundational legal document that governs how your LLC operates — who manages it, how profits are distributed, what happens when a member wants to leave, and how disputes are resolved. Texas law does not require an operating agreement, but every LLC should have one. Without it, your LLC is governed by default rules under the Texas Business Organizations Code Chapter 101 — and those defaults may not reflect what you actually want for your business.

Need an operating agreement drafted or reviewed? Call Holmes Law, PLLC at (832) 509-0445 for a free consultation.

What Is a Texas LLC Operating Agreement?

An operating agreement is a contract among the members of an LLC that establishes the rules for how the company will be run. Under Texas Business Organizations Code § 101.052, members of an LLC may enter into an LLC agreement governing the LLC’s affairs and the rights and obligations of its members. The operating agreement can override most of the Texas default rules, giving members significant flexibility to structure the company as they choose.

What Texas Default Rules Apply Without an Operating Agreement?

If your LLC has no operating agreement, Texas courts apply the default provisions of the Business Organizations Code. Some of these defaults are reasonable — but many are not what most business owners would choose if they thought about it explicitly:

• Equal management rights: Every member has equal rights in management regardless of ownership percentage — a 10% member has the same vote as a 90% member
• Unanimous consent for major decisions: Adding new members, amending the company agreement, or selling substantially all assets requires unanimous member consent
• Profit and loss allocated by contribution: Profits and losses are allocated based on the value of each member’s contribution — which may not match the arrangement you intended
• Member dissociation triggers dissolution: A member’s voluntary withdrawal, bankruptcy, or death can trigger dissolution proceedings
• No non-compete protection: Without an operating agreement, departing members may have the right to compete directly with the LLC immediately after leaving

None of these defaults are necessarily wrong — but they may not reflect your specific intentions, and discovering them in the middle of a dispute is far more expensive than addressing them upfront in a well-drafted agreement.

What Should a Texas LLC Operating Agreement Cover?

Ownership and Capital Contributions

The agreement should clearly state each member’s ownership percentage, the initial capital contribution each member has made or will make, and the process for making additional capital contributions in the future. It should also address whether members are required to make additional contributions if the LLC needs more capital, and what happens if a member fails to contribute as agreed.

Management Structure

Texas LLCs can be either member-managed (all members participate in day-to-day management) or manager-managed (designated managers — who may or may not be members — run the company). The operating agreement should clearly specify which structure applies, who has authority to sign contracts, open bank accounts, hire employees, and take on debt on behalf of the LLC, and what decisions require member approval versus manager discretion.

Profit and Loss Distribution

The agreement should specify how profits and losses are allocated among members and when distributions will be made. This is separate from salary — members who work in the business may receive compensation as employees or contractors regardless of ownership percentage. The distribution policy can be structured in any way the members agree to, including preferred returns for certain members, waterfall distributions, or pro-rata distributions based on ownership.

Membership Transfers and Buyouts

One of the most important provisions in any multi-member LLC operating agreement is the transfer restriction — what happens when a member wants to sell their interest, and what rights do the remaining members have? Common provisions include:

• Right of first refusal: Existing members have the right to purchase a departing member’s interest before it can be sold to an outsider
• Buy-sell provisions: Procedures and valuation methods for buying out a departing, deceased, or disabled member
• Drag-along and tag-along rights: Protections for majority and minority members in the event of a sale of the entire company
• Restrictions on transfers to competitors: Prohibiting members from transferring interests to competitors without member consent

Dissolution and Wind-Down

The agreement should address under what circumstances the LLC can be dissolved, what vote is required, how assets will be distributed after liabilities are paid, and who is responsible for winding up the company’s affairs. Without these provisions, a dissolution dispute can become expensive and contentious.

Dispute Resolution

Many operating agreements include provisions requiring disputes between members to be resolved through mediation or arbitration before litigation. Given the cost and time of business litigation, these provisions can save significant money and preserve business relationships. Holmes Law, PLLC offers mediation services for business disputes.

Operating Agreement FAQ

Is an LLC operating agreement required in Texas?

No. Texas does not require an LLC to have an operating agreement under the Business Organizations Code. However, every LLC with more than one member absolutely should have one — and even single-member LLCs benefit from one for liability protection purposes and to document the LLC’s operating rules for banks, investors, and courts.

What happens if my Texas LLC has no operating agreement?

Without an operating agreement, your LLC is governed by the default rules of the Texas Business Organizations Code Chapter 101. These defaults include equal management rights for all members regardless of ownership percentage, unanimous consent requirements for major decisions, and potential dissolution triggers on member departure. These defaults may not reflect your intentions and discovering them during a dispute is expensive.

Can I use a template operating agreement for my Texas LLC?

Free and low-cost operating agreement templates are widely available online, and a template is better than nothing for a simple single-member LLC. However, for multi-member LLCs, LLCs with unequal ownership percentages, LLCs bringing in outside investors, or any LLC where there is meaningful money or personal relationship at stake, a template is inadequate. The provisions that matter most — transfer restrictions, buyout valuations, dispute resolution, and management authority — require customization that templates cannot provide.

What is the difference between a member-managed and manager-managed LLC in Texas?

In a member-managed LLC, all members have the right to participate in management and can act on behalf of the company. In a manager-managed LLC, designated managers — who may or may not be members — have authority to manage day-to-day operations, while members have limited management rights. Manager-managed structures are common when passive investors are members or when professional management is needed. The operating agreement should clearly specify which structure applies and define the scope of manager authority.

Can an operating agreement be amended after the LLC is formed?

Yes. Operating agreements can typically be amended by the members according to the amendment procedure specified in the agreement itself. Most agreements require unanimous consent or a supermajority vote to amend, though the specific requirement depends on what the agreement says. If the agreement is silent on amendments, Texas default rules apply. Major changes — adding members, changing ownership percentages, modifying buyout terms — should always be documented in a formal amendment signed by all members.

Related reading: How to Form an LLC in Texas | Pros and Cons of an LLC in Texas | LLC Name Availability Texas | How to Dissolve an LLC in Texas