In Texas, an operating agreement isn’t required to form a limited liability company (LLC). However, business attorneys, accountants and advisors agree that no LLC should form without one. An LLC operating agreement is a legally binding document that defines critical aspects of the LLC. Operating agreements list LLC members and their ownership shares, roles and responsibilities and detail buy-in and sell-out terms, management structure, exit strategies and more. Operating agreements also help LLCs secure bank accounts, financing, investors and trade credit.
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What Is an LLC Operating Agreement?
An LLC operating agreement is a legal document compiled by the LLC members to detail key elements of their LLC business. Filing an LLC operating agreement isn’t a legal requirement in Texas. Despite this, business attorneys, advisors and accountants highly recommend crafting one to set expectations for the members, protect the LLC’s interests and give lenders and potential investors an understanding of the business.
How Much Does an LLC Operating Agreement Cost in Texas
You can create a legally binding LLC operating agreement for free. You can compile the agreement yourself or use a ready-made template to ensure you include the necessary information. As long as you cover the essential details and all members show agreement by signing the document, it’s legally binding.
However, it’s a good idea to use an attorney if certain members are making significant investments in the LLC or if the ownership, roles and responsibilities are complex. Ensuring these details are documented at formation helps protect the LLC and its members from potential lawsuits. Attorney costs vary but plan to spend at least $500 for a basic LLC operating agreement in most urban areas.
What To Include in a Texas LLC Operating Agreement
There’s no standard Texas LLC operating agreement form, but most include the following points.
- LLC member names
- Each member’s rights, roles and responsibilities
- Financial contribution and percentage of ownership per member
- Profit and loss allocations per member
- LLC management structure, such as member-managed or manager-managed
- Member buy-in and sell-out procedures
- LLC membership inheritance rules if a member dies
- Annual meeting goals and date
- Dissolution plan and asset distribution
- Sale of entity plan and profit distribution
Whether you compile the document yourself, use a template or hire an attorney, once each member signs the document, your LLC operating agreement is legally binding.
Free LLC Operating Agreement Template
For help creating your own Texas LLC operating agreement, templates can help save you time and money if a generic agreement is suitable for your needs.
Download Free LLC Operating Agreement Template PDF
Once signed, keep a hard copy of the agreement in the company files and provide a copy to each member. It’s also helpful to have a digital PDF copy of the agreement to send to potential investors or attach to bank account and credit applications.
What To Leave Out of an LLC Operating Agreement
Details such as the business vision and mission statement, market research, product sourcing, staffing and marketing strategies don’t belong in an LLC operating agreement. Instead, include this information in your business plan. This document helps build and guide the business but doesn’t act as a legal agreement among LLC members.
How To Change or Update an LLC Operating Agreement
Changes, additions and updates to LLC operating agreements are made via amendments. Along with the original document, all LLC members must sign the amendment to legally bind the stated changes or additions. Once signed, add the amendment to the original document in the company file and provide a copy to all members.
How To Form an LLC in Texas
Registering an LLC in Texas is a straightforward process. Here’s a look at the steps to take, plus a few details to know when selecting your LLC business name and setting up your Texas LLC.
Step 1. Name Your Texas LLC
Before filing your Texas LLC formation paperwork, you must choose a business name that meets the naming requirements for Texas LLCs.
- Business name must be unique: Texas doesn’t allow different businesses to operate under the same name. To avoid delays and filing correction fees, it’s essential to choose a business name that’s different from any other business registered in Texas. The free Texas taxable entity search website makes it easy to research available business names for your LLC.
- Business name must include an LLC term: All Texas LLCs must include approved LLC terms in the business name. Acceptable LLC terms include:
- Limited Liability Company
- Limited Company
- Ltd. Co.
- L.L.C. or LLC
- L.C. or LC
Step 2. Name a Texas Registered Agent
Every Texas LLC must have a registered agent who is a Texas resident with a physical address within the state of Texas. The agent must be regularly available at the physical address and agree to accept business-related paperwork and legal notices.
The registered agent can be an LLC member or an employee of the business. However, if no Texas residents are connected with the LLC, you can use a registered agent service to meet this requirement. Annual costs for Texas registered agent services typically range from $100 to $300.
Step 3. Complete and File Texas LLC Formation Documents
Once you have your new LLC business name and registered agent, you can complete the appropriate LLC formation document and file it with the Texas Secretary of State.
- Form 205 Certificate of Formation—Limited Liability Company: This form establishes a new LLC within the state of Texas. You can download the form and mail it in, or complete and submit it online through the Texas SOSDirect website. The filing fee for Form 205 is $300.
- Form 304 Application for Registration of a Foreign Limited Liability Company: This form is used by LLCs established outside of Texas that want to conduct business in Texas. This form is available for download to mail in or can be completed and submitted on SOSDirect. The filing fee for Form 304 is $750.
Step 4. Compile Your Texas LLC Operating Agreement
Once your LLC is filed and formed, it’s time to create an operating agreement. Texas doesn’t require you to file this document, so you won’t include it in your LLC formation application. However, that doesn’t mean it’s not business-critical.
Your LLC operating agreement details vital information about the LLC structure, member roles and responsibilities, ownership shares, transferability, assets, operating procedures and more. By signing this legally binding document, all LLC members agree to be bound to and protected by its terms and conditions.
Bottom Line
An LLC operating agreement isn’t a legal requirement for Texas LLC business formation. However, business attorneys, accountants and advisors overwhelmingly recommend having an operating agreement to legally protect the LLC and its members. Plus, most bankers and business lenders require an operating agreement to secure LLC bank accounts and lines of credit. Investors also consider operating agreements in their investment decisions.
Frequently Asked Questions (FAQs)
What should an operating agreement include?
Texas LLC operating agreements typically include member names, roles, ownership shares and financial and business responsibilities. Details, such as buy-in and sell-out guidelines, annual meeting dates, and business sale and dissolution plans, are also key elements of an operating agreement. All LLC members must sign the operating agreement to make the document legally binding, but it doesn’t need to be notarized or filed with the state.
Does an LLC operating agreement need to be notarized in Texas?
No, the member signatures on Texas LLC operating agreements don’t need to be notarized. As long as all LLC members sign the agreement, it’s legally binding. However, if questioned, notarization helps to prove that all members’ signatures are authentic.
Can I make my own operating agreement?
Yes, in Texas, you can compile an operating agreement yourself; you don’t need an attorney to draft the agreement for you. An LLC operating agreement template makes the process easy, plus ensures that you include critical details to meet legal standards. Texas doesn’t require an operating agreement for LLC formation, so there’s no official form to complete or file.
How much does a Texas LLC operating agreement cost?
A Texas LLC operating agreement can cost nothing or several hundred dollars, depending on whether you create your own or hire a professional to create it for you. Since an LLC operating agreement isn’t required by law in Texas, there’s no state-required form or filing fee for this document.
