Limited liability companies (LLCs) are a popular business structure because of the liability protection they provide for business owners. Starting a Texas LLC is an exciting step toward business success, but without a well-drafted operating agreement, you could be setting yourself up for future legal headaches.
Here’s how to create a rock-solid operating agreement for your Texas LLC.
What Is an Operating Agreement?
An operating agreement is a legal document that outlines the ownership structure and management framework of an LLC. It also includes operational rules for your business and acts as a governing document. If you lack an operating agreement, default Texas LLC laws will apply to any disputes.
Want to learn more about the importance of an operating agreement for Texas LLCs? Call (713) 666-1981 for a 30-minute free phone consultation with Weisblatt Law Firm.
What Your LLC Operating Agreement Needs to Include
When drafting an operating agreement, including the following key elements will help protect your business.
Ownership Structure and Membership Rights
Your operating agreement needs to outline each person’s ownership percentage and what contributions each member makes. The ownership structure also outlines how profits and losses are allocated.
Management Structure
There are two main membership structures that you can use for your LLC — member-managed and manager-managed. The member-managed approach means that all members participate in daily operations and decision-making. The manager-managed approach designates one or more managers to handle operational decision-making.
Voting Rights and Decision-Making
An operating agreement also addresses how the LLC makes decisions. It should outline the number of votes necessary for major decisions. Some decisions may require unanimous consent, while others could be based on ownership percentage.
Buyout and Exit Strategies
Dissolving your business is probably the last thing on your mind when forming a new LLC. However, it’s important to consider that some members may want to leave the partnership. With that in mind, you need to address the following in your operating agreement:
- Process when a member leaves
- Buy-sell provisions
- Death or incapacity clauses.
You want to ensure that the business can move forward if a partner exits.
Dispute Resolution
Having a process in place for dispute resolution can help prevent costly litigation. The two most common options are mediation and arbitration. Mediation gives you and the other party an opportunity to reach an amicable solution. However, the resolution is not legally binding. Arbitration agreements are enforceable, giving you recourse if the other party fails to uphold their end of the agreement.
If you are not sure which option is the right fit for your LLC, speak with a business attorney. Weisblatt Law Firm can help you identify the appropriate dispute resolution approach for your business.
A solid operating agreement can help you minimize the risk of disputes and resolve them quickly when they arise. However, it’s vital to have experienced legal representation in your corner so you can protect your interests during business disputes. Weisblatt Law Firm has received countless positive reviews and testimonials from satisfied business clients who turned to our team for assistance with dispute resolution.
Does Texas Require Operating Agreements for LLCs?
You don’t have to submit an operating agreement when forming an LLC. However, having one in place is the best way to minimize the risk of disputes and keep all stakeholders on the same page when disagreements arise.
3 Benefits of Having a Solid Operating Agreement
Creating an operating agreement provides:
1. Legal Protection
A properly structured operating agreement helps protect your personal assets by reinforcing the LLC’s status as a separate legal entity. Without one, you could face additional liability for the company’s debts or any lawsuits that may arise.
2. Expedited Dispute Resolution
If a dispute arises, dispute resolution clauses within your operating agreement will help you achieve an expedient solution. However, it’s still important to consult with an experienced Texas dispute lawyer so you can choose the best path forward for your business.
3. Reduced Conflicts
An operating agreement can prevent many conflicts before they begin. The document outlines each member’s responsibilities and helps set clear expectations for decision-making. When everyone has a clear understanding of how decisions are made, there is a lower likelihood of major disputes.
Best Practices for Drafting a Strong Operating Agreement
When you are drafting an LLC operating agreement, following these best practices can support the long-term success and stability of your business.
Work With an Experienced Business Attorney
There are plenty of templates online for creating an operating agreement. While it may be tempting to use a template, it’s important to consider that these documents are rarely tailored to Texas laws. As a result, they may omit critical details or provisions that expose your LLC to undue risk.
A Texas business attorney can draft an operating agreement that is enforceable and compliant with state business laws. Additionally, an experienced lawyer can provide insights on what provisions to include in your operating agreement in the event of future conflicts.
Weisblatt Law Firm has handled a wide range of business disputes and knows how to proactively mitigate many conflicts before they negatively impact your organization. Contact our firm for assistance in drafting your operating agreement and other important business documents.
Be Specific and Detailed
Vague clauses can be left open to interpretation. The more detailed your operating agreement, the fewer disputes you’ll face. Make sure your document clearly outlines every decision-making process and how disputes are handled. By doing so, you can avoid costly litigation or unwanted state intervention.
Plan for Conflicts and Departures
Your business is going to evolve. Some of those changes will be positive. Others may involve members who exit due to conflicts or disagreements about the direction of the business. For these reasons, your agreement must allow for:
- Adding or removing members
- Modifying ownership percentages
- Changing the management structure.
The requirements for each of these processes must be clearly outlined. Identify how many votes are necessary to add or remove members or modify ownership percentages. Generally, you will want membership decisions to be unanimous.
Need Help Drafting an Ironclad Operating Agreement?
At Weisblatt Law Firm, we exclusively focus on business law and can help you create a tailored operating agreement that safeguards your business interests. Whether you’re forming a new LLC or revising an existing agreement, our firm is here to help. Don’t wait for a conflict to arise. Be proactive as you protect the continuity of your business.
Call (713) 666-1981 for a free 30-minute phone consultation with Weisblatt Law Firm. Our experienced legal team can help you protect your interests when starting an LLC.
Attorney Andrew Weisblatt
Mr. Weisblatt has practiced continuously since becoming licensed in 1992 and has represented businesses ranging in size from one person start-up ventures to multi-national corporations employing hundreds of people in multiple countries. From 2005 through 2009 Mr. Weisblatt was in-house counsel and chief operating officer of a multi-national corporation in the steel products industry. That in-house position provided valuable insight into how businesses work and what they actually need from their lawyers – both in-house and outside counsel. Attorney Bio
