If you’re thinking about forming a limited liability corporation (LLC) in Texas, you might be wondering if an operating agreement is necessary. The short answer is no, Texas law does not mandate operating agreements for LLCs. However, having one could be advantageous for the LLC and its participants.
A legal document known as an operating agreement spells out an LLC’s ownership structure, management, and operational procedures. In essence, it serves as the company’s bylaws. Having an operating agreement, even though it is not required by Texas law, can assist members avoid conflicts and give clarity on crucial matters including profit distribution, management roles, and decision-making procedures.
An operating agreement can also assist the LLC in keeping its standing as a distinct legal entity. Without one, the LLC can be deemed to be a sole proprietorship or partnership, which could expose the members to personal liability.
The requirement for an operating agreement may be less obvious for single-member LLCs. Despite not being mandated by law, possessing one can still be advantageous for the same reasons stated before. However, other clauses, such as those pertaining to member votes and meetings, might not be required for a single-member LLC.
Since there are no other members to control, an operating agreement is not required if you are a solo proprietor thinking about founding an LLC. However, it could be a good idea to have an operating agreement in place if you intend to add more members in the future.
The single-member’s intention to contribute capital to the LLC must also be taken into account. If so, this and any other clauses relating to capital contributions should be included in the operating agreement.
In conclusion, even though an operating agreement is not mandated by Texas law, it can be advantageous for LLCs of all sizes. It can assist in preventing conflicts between members, maintaining independent legal status, and providing clarity on crucial topics. Even though single-member LLCs may not require an operating agreement for all provisions, maintaining correct records is still crucial.