When you form a limited liability company in Texas, the state doesn’t legally require you to create an operating agreement. Your LLC can exist and operate with just your Articles of Organization filed with the Secretary of State. But this is one of those situations where what the law allows and what you should actually do are two very different things.
A Texas LLC operating agreement is the internal rulebook for your business. It outlines how decisions get made, how profits are distributed, what happens if a member wants to leave, and countless other operational details. Even though Texas law doesn’t mandate one, nearly every successful LLC has one because it prevents misunderstandings, protects your liability shield, and makes your business look legitimate to banks and partners.
Required vs. Recommended in Texas
Texas Business & Commerce Code Section 3.005 allows LLCs to be formed with the minimum paperwork—essentially just your Articles of Organization. Unlike some states, Texas has minimal statutory filing requirements for LLC formation.
However, the absence of a legal requirement doesn’t mean you should skip creating an operating agreement. Here’s the distinction: Texas law is permissive, meaning the state sets a baseline framework that governs your LLC if you don’t create your own rules. When you don’t have an operating agreement, Texas default rules apply automatically. These defaults might not match how you actually want to run your business.
For example, without an operating agreement, Texas assumes that:
- All members have equal voting rights regardless of ownership percentage
- All members can make binding decisions
- Profits are split equally, not according to capital contributions
- Any member can dissolve the LLC
If your actual intention is different—say, one member owns 70% and should have decision-making power proportional to their stake—you need an operating agreement to document that.
What an Operating Agreement Actually Does
An operating agreement is fundamentally a contract between the LLC members (and between the members and the LLC itself). It creates clarity where the law leaves room for interpretation.
The agreement does several critical things. First, it defines member rights and responsibilities. It specifies voting rights, distributions, and capital contributions. Second, it establishes management structure. You can choose member-managed (all members participate in decisions) or manager-managed (designated managers run the business while other members are passive investors). Third, it sets operational procedures like meeting requirements, amendment processes, and conflict resolution.
Perhaps most importantly, an operating agreement demonstrates your LLC legitimacy to the IRS and creditors. When a bank requests your operating agreement before extending credit, or when the IRS examines your LLC’s structure during an audit, having a detailed, professionally-drafted agreement shows you treat your LLC as a serious business entity, not just a legal technicality.
Key Sections Every Texas LLC Operating Agreement Should Cover
A comprehensive operating agreement includes several essential components:
LLC Name and Formation Details establish the legal entity being governed. This section confirms the LLC’s name, formation date, and the state where it’s organized.
Member Information lists all members, their ownership percentages, and capital contributions. This prevents future disputes about who owns what portion of the business.
Management Structure specifies whether the LLC is member-managed or manager-managed. If manager-managed, it names the managers and delineates their authority. A single-member LLC managing their own business still needs this section for clarity.
Capital Contributions and Distributions detail what each member contributes (cash, property, services) and how profits and losses are allocated. These don’t have to be equal.
Voting Rights and Decision-Making specify which decisions require unanimous approval, which need a majority, and which individual managers can make alone. Major decisions like admitting new members or dissolving the LLC typically require unanimous consent, while routine business decisions might fall to managers.
Transfer of Interests establish whether members can freely sell their ownership stake or if other members have a right of first refusal. Most agreements restrict transfers to protect the LLC’s stability.
Dissolution and Buyout Provisions explain what happens if a member wants to leave, dies, or becomes incapacitated. Does the remaining member buy them out? At what price? How quickly?
Dispute Resolution can include arbitration clauses or mediation requirements before litigation, potentially saving time and legal fees.
Meeting Requirements specify how often the LLC meets and how decisions are documented. Annual meetings and written consent forms demonstrate professionalism and create a paper trail if liability is ever challenged.
Single-Member vs. Multi-Member LLC Agreements: Key Differences
Single-member LLCs (owned by one person) still need operating agreements, though they’re often simpler. The agreement outlines how the sole member will manage the business, handle distributions, and plan for succession if they become unable to operate the LLC. It also clarifies the LLC’s independent status separate from the owner’s personal finances—critical for maintaining liability protection.
A single-member agreement focuses on documenting the member’s intention to maintain the LLC as a separate entity. This is especially important if you’re the sole employee, as it demonstrates to the IRS that you’re conducting legitimate business operations, not just using the LLC as a tax shelter.
Multi-member LLCs require more detailed agreements because multiple parties with potentially different interests are involved. These agreements must clearly address how voting works when members disagree, how profits are split if contributions were unequal, and what happens if one member wants to exit while others want to continue.
Multi-member agreements often include more detailed dispute resolution language and specific procedures for adding or removing members. If you have a business partner, you absolutely need a comprehensive agreement that covers “what if” scenarios—what if one partner wants to leave? What if one partner becomes incapacitated? What if the partnership dissolves?
How an Operating Agreement Protects Your Personal Assets
The LLC structure itself provides liability protection—called the “corporate veil”—that separates your personal assets from business liabilities. If your LLC is sued or accrues business debts, your personal bank account and home are generally protected.
However, courts can “pierce the veil” and hold you personally liable if you don’t maintain proper corporate formalities. An operating agreement is one of the most important documents demonstrating that you treat your LLC as a legitimate, separate business entity.
Specifically, an operating agreement shows:
- You intentionally created formal business rules
- You document decisions and follow procedures
- You maintain the LLC’s finances separately from personal finances
- You take the business seriously
If a judgment creditor comes after you personally for an LLC debt, having a detailed operating agreement in your records strengthens your defense that the LLC was a genuine business structure, not a personal shell.
Additionally, when members have disputes, an operating agreement with clear conflict resolution procedures prevents situations where hurt feelings turn into messy litigation that damages the business. A buyout provision, for instance, lets a departing member exit cleanly rather than threatening to tie up the company in court.
When Banks and Partners Ask for Your Operating Agreement
Banks regularly request your operating agreement before approving business loans. They want to verify that you have a legitimate business structure and understand your own authority to borrow on behalf of the LLC. A detailed agreement gives the bank confidence that the loan proceeds will be used properly.
Investment partners and vendors may also request your operating agreement. If you’re bringing in an outside investor or establishing a major supplier relationship, the other party wants documentation that shows:
- The LLC’s structure and decision-making process
- Who has authority to make agreements on behalf of the LLC
- How distributions work
- What restrictions exist on membership transfers
When you can’t produce an operating agreement on demand, it signals to potential partners that your business is disorganized or informal. This can cost you favorable loan terms, supplier relationships, or investment opportunities.
Additionally, if you ever need a Small Business Administration (SBA) loan, the lender will require your operating agreement as part of the application package.
DIY Templates vs. Attorney-Drafted vs. Formation Service Documents
You have three basic options for obtaining an operating agreement:
DIY Templates from online sources or AI tools are the cheapest option, often costing nothing. However, they come with significant risks. Generic templates might not address Texas-specific rules, may include irrelevant provisions, and often lack customization for your specific situation. If a dispute later arises and your template operating agreement is unclear or contains contradictory provisions, you could face expensive litigation to interpret your own rules.
Attorney-Drafted Agreements are created specifically for your LLC by a lawyer who understands your business structure, state law, and your intentions. These cost more—typically $500 to $2,000 depending on complexity—but they’re tailored to your situation, comply with Texas law, and are much less likely to create problems later. For multi-member LLCs or complex structures, this investment is worthwhile.
Formation Service Documents fall somewhere in between. Services like ZenBusiness, LegalZoom, and Rocket Lawyer offer pre-made operating agreements as part of their formation packages. These are more sophisticated than basic templates and often Texas-specific, but still standardized documents that might not perfectly fit your situation.
Which Formation Services Provide Operating Agreements
If you’re comparing Texas LLC formation services, the quality and completeness of their operating agreement templates varies significantly. Some services include comprehensive agreements while others offer basic templates that need substantial supplementation.
When evaluating formation services, check whether their agreement includes member voting rights, manager authority provisions, distribution schedules, and transfer restrictions—not just bare-bones basics.
Many of the best formation services have invested in developing state-specific operating agreements that comply with Texas law and include common business scenarios. These are reasonable options for straightforward LLCs with clear ownership structures. For more complex arrangements—especially multi-member LLCs with unequal ownership or unique profit-sharing arrangements—consider supplementing a formation service agreement with attorney review.
For a detailed comparison of different formation services and their offerings, check out our guide to the best LLC formation services in Texas.
Establishing Your Operating Agreement After Formation
If you’ve already filed your Articles of Organization but don’t have an operating agreement yet, you’re not locked into using a specific template. You can create an operating agreement at any time. Some people do this immediately upon forming the LLC, while others add it later when they’re ready to bring in investors or apply for financing.
The agreement should be dated and signed by all members. For maximum clarity, have all members sign acknowledging they’ve read, understood, and agree to be bound by the terms.
Where Your Operating Agreement Fits in Your LLC Paperwork
Your operating agreement works alongside other LLC documents. When you file your Texas LLC Form 205 with the Secretary of State, you’re creating your LLC’s public foundation. The operating agreement is your private rulebook.
Additionally, you should maintain records of member meetings, capital contributions, profit distributions, and any amendments to your operating agreement. These documentation practices reinforce that your LLC is a legitimate business entity, not just a tax structure.
If your LLC has annual filing requirements like the Texas Franchise Tax Public Information Report, your operating agreement supports your compliance efforts by clearly defining the LLC’s structure and operations.
FAQ: Your Operating Agreement Questions Answered
Is an operating agreement legally required for a Texas LLC?
No, Texas law does not require an operating agreement. However, operating without one means Texas default rules govern your LLC, which may not match your actual intentions for the business.
Can a single-member LLC benefit from an operating agreement?
Absolutely. Single-member LLCs benefit significantly from operating agreements because the agreement documents the member’s intent to maintain the LLC as a separate legal entity. This documentation strengthens liability protection if the LLC is ever sued.
What happens if my LLC has no operating agreement and a dispute arises?
Without an operating agreement, Texas law provides default rules that may not reflect what members actually intended. Courts interpret multi-member LLCs under the statutory framework, which could lead to unexpected distributions, voting results, or management authority. Litigation to resolve these disputes becomes more expensive and less predictable.
Do I file the operating agreement with the Texas Secretary of State?
No, you do not file your operating agreement. It’s an internal document that you maintain in your business records. You only file the Articles of Organization to create your LLC.
Can I write my own operating agreement or do I need a lawyer?
You can write your own if your LLC is straightforward and uncomplicated. However, having an attorney review even a DIY agreement is often worthwhile—typically $100-300 for review—to catch problems before they become expensive issues. For multi-member LLCs or unusual structures, attorney-drafted agreements are strongly recommended.
Conclusion: Don’t Skip This Step
Even though Texas doesn’t require a Texas LLC operating agreement, creating one should be near the top of your LLC formation checklist. The document exists to prevent problems: clarifying who makes decisions, how profits are distributed, what happens when members leave, and how disputes get resolved.
Whether you use a DIY template, a formation service document, or hire an attorney to draft a custom agreement, you need this document in place before you accept investment, apply for a loan, bring in partners, or encounter any disagreement among members.
Your operating agreement costs a small fraction of the legal fees you’ll pay if members dispute how the LLC should be run, if a bank won’t lend without one, or if a creditor challenges your liability protection because you haven’t documented your LLC’s independent structure.
Take the time to get this document right from the beginning. Your future self—and any partners you bring on—will appreciate the clarity and protection it provides.