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The Basics of an Operating Agreement

When forming a limited liability company (LLC), one of the most important steps to establish a clear and effective operating agreement. An operating agreement is a document that sets out guidelines regarding the way that the business is going to be run. While Texas Law does not require an LLC to have a written operating agreement, failure to have one can result in significant problems, particularly if disputes arise between LLC members. In many cases, these kinds of disputes can lead to expensive and disruptive litigation that would have been completely avoided had the members consulted with an attorney and formed an operating agreement during the process of forming an LLC.

Additionally, when there is no operating agreement, there are default laws that govern the way that an LLC operates. In many cases, these rules reference the agreement between the members, and if no agreement exists, it creates ambiguity that can often only be resolved through litigation.

What Should Your Operating Agreement Include?

The way that LLC operate is largely left to their members. For this reason, an LLC’s operating agreement should be clear, thorough, and comprehensive as to the roles of its various members. At a minimum, an LLC’s operating agreement should address the following issues:

  • Allocation of equity interests
  • Capital contributions
  • Management roles
  • Voting rights
  • Limitations of liability
  • Terms regarding the dilution of interests
  • Buyout procedures
  • Transfer restrictions
  • Dissolution procedures
  • Governing law
  • Choice of venue
  • Dispute resolution clauses

The Role of an Attorney in Creating an Operating Agreement

As the list above should make clear, an LLC operating agreement is a complicated legal document that should address a wide range of issues. For this reason, it is important to have an attorney’s assistance in creating an operating agreement. A lawyer familiar with LLC formation in Texas will take the time to fully understand your goals and the way that you want your business to operate and craft an agreement that effectively and accurately reflects your wishes. Having an operating agreement from the start can help ensure that everyone involved is on the same page, making it less likely that disputes will arise in the future. Should a member dispute arise anyhow, a well-written, clear, and comprehensive operating agreement can often help settle disputes without the need to resort to litigation, typically saving the LLC and its members time and money.

Call a Houston Business Attorney Today to Learn More

If you are considering forming an LLC, it is in your best interest to speak to an attorney about establishing an operating agreement. Failing to do so could result in avoidable conflict and potential litigation at a later date, both of which could affect your business’s profitability or ability to continue operating. Attorney Andrew Weisblatt has been practicing law for more than 25 years and is qualified to assist entrepreneurs and established businesses at every stage of growth. To schedule a consultation with a business lawyer in Houston, call our office today at 713-352-0847 or send us an email through our online contact form.

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