Is an Operating Agreement Required for a Texas LLC?

An operating agreement is not legally required for a Texas LLC. You can file your certificate of formation, pay the $300 fee, and start operating without one.¹ What you can’t skip is the consequence of not having one: your LLC will run on a set of generic state default rules that probably don’t match what you and your co-owners actually agreed to, and that mismatch is where expensive disputes come from.

What Texas Law Says

The Texas Business Organizations Code uses the term “company agreement” rather than “operating agreement,” but they mean the same thing. Section 101.052 provides that the company agreement governs relationships among members, managers, officers, and the company, along with all other internal affairs. The statute never says you must have one. When the agreement is silent on a topic, the Code’s default rules fill the gap.²

One detail catches many owners off guard. Texas defines a company agreement as any agreement among members, and it can be written, oral, or implied.³ So if you and your co-owners have been operating on verbal understandings, Texas considers that a company agreement. The problem is proving what someone verbally promised three years ago during a breakup. A written document eliminates that risk.

The agreement is not filed with the Texas Secretary of State.⁴ It stays in your internal records. The only formation document the state needs is the certificate of formation (Form 205).

What Happens Without One: The Default Rules

If your LLC has no operating agreement, or has one that’s silent on a particular topic, the Business Organizations Code fills the blanks. The defaults are written to cover the broadest possible range of LLCs, which means they fit almost no specific LLC particularly well.

Profits and Losses

Under Section 101.201, profits and losses are allocated based on the agreed value of each member’s capital contributions as recorded in the company’s required records.³ Distributions follow the same formula under Section 101.203. That sounds reasonable until you consider the common setup where one member contributes cash and another contributes time, expertise, or client relationships. Under the default, the member who contributed sweat equity with no recorded capital contribution could end up with nothing on paper.

Management

Your certificate of formation determines whether the LLC is member-managed or manager-managed. Section 101.251 makes the governing authority the managers if the certificate says so, and the members if it does not.⁵ But that only sets management in broad strokes. It says nothing about day-to-day authority, spending limits, hiring, or which choices require a vote.

Transfers of Membership Interests

Texas law lets a member assign an interest, but the assignment alone doesn’t give the buyer voting or management rights. Without transfer restrictions in an operating agreement, a member can assign their economic interest to anyone. You could end up sharing profits with someone you never agreed to be in business with.

What a Texas Operating Agreement Should Cover

An operating agreement can address virtually any aspect of how the LLC runs. Section 101.052(d) allows any provision for regulating and managing the LLC’s affairs that isn’t inconsistent with law.² At minimum, cover the topics below.

Ownership and Capital Contributions

Spell out each member’s ownership percentage and what they contributed: cash, property, services, or a commitment to contribute later. This section drives each person’s share of profits and voting weight, so vagueness here causes the most damage. If the LLC might need additional funding, add a capital call provision explaining how contributions are requested, the vote needed to approve them, and what happens if a member can’t or won’t contribute.

Profit Allocations and Distributions

Define how profits and losses are split and when distributions happen. Many LLCs distribute enough cash each year to cover members’ tax obligations on pass-through income, even when the company wants to reinvest most earnings. If you want that, write it in. Otherwise you could owe taxes on income you never received. You can also split profits in ways that don’t match ownership percentages, which is often useful when contributions are uneven.

Management Authority and Voting

Clarify whether the LLC is member-managed or manager-managed, consistent with the certificate of formation.⁴ Then go further. Specify which decisions a single manager or member can make alone (signing contracts under a set dollar amount, hiring), which require a majority, and which need unanimous agreement (taking on debt, selling major assets, admitting a new member). Spending authority limits are one of the most overlooked and most important provisions.

Transfer Restrictions and Buy-Sell Terms

Most owners don’t want a co-owner selling a stake to a stranger. Transfer restrictions typically give the LLC or remaining members a right of first refusal before any interest can be assigned outside the group. Buy-sell provisions go further, setting the triggers for a required buyout (death, disability, retirement, bankruptcy) and how the interest is valued. Without a written valuation method, the buy-sell becomes a fresh negotiation at the worst possible time.

Dissolution and Wind-Up

Define what triggers dissolution (a vote to close, death or withdrawal of a member, expiration of a set term) and how assets get distributed and debts paid. Texas has defaults here too, but they leave practical questions unanswered, including whether remaining members can continue the business rather than wind it up.

What You Can’t Override

Freedom to customize has limits. Section 101.054 lists statutory provisions that cannot be waived or modified.³ Among other things, the agreement cannot eliminate the requirement that the LLC have at least one member, cannot override the rules on prohibited distributions, and cannot waive mandatory record-keeping. It also cannot restrict third-party rights granted by the Code without that third party’s consent. Provisions that cross these lines are unenforceable and can undermine confidence in the rest of the document if challenged.

Deadlock in a 50/50 LLC

A two-member LLC split 50/50 with no tie-breaking mechanism is a ticking clock. When the owners disagree on a fundamental question and neither has the votes to act, the business stalls. Operating agreements earn their keep here. Common deadlock tools include designating a neutral third party (an advisor, mediator, or arbitrator) to cast a deciding vote, requiring mediation or arbitration before either side can sue, and including a buy-sell “shotgun” clause that lets one member offer to buy the other out at a stated price, with the receiving member allowed to flip the offer and buy the offering member’s stake at that same number. That mechanic forces both sides to name a fair figure.

If the agreement is silent on deadlock, the remaining option is court. A judge may appoint a custodian to run the business temporarily, order specific performance of a contract term, or in extreme cases order the judicial expulsion of a member. None of those outcomes is fast, cheap, or predictable.

Practical Uses Outside Disputes

Banks routinely ask for the operating agreement when you open a business checking account, especially for multi-member LLCs, because the agreement shows who is authorized to sign and transact. Lenders often want to review it before extending a loan or line of credit for the same reason. Showing up without one won’t automatically disqualify you, but it introduces friction and makes the LLC look less established.

Taxes are the other practical angle. A single-member LLC is typically treated as a disregarded entity for federal purposes, with income and expenses flowing to the owner’s personal return. A multi-member LLC is generally taxed as a partnership. The operating agreement’s provisions on profit allocation and distributions directly shape each member’s tax liability. When those provisions are unclear or missing, members can end up disagreeing not just with each other but with the IRS about who owes what.

Liability protection is another reason to keep the document current. An LLC’s core benefit is that members are not personally liable for business debts, but courts can disregard the LLC’s separate existence when members treat the company as an extension of themselves. In Texas, this usually requires a showing of actual fraud. A clear operating agreement, along with separate bank accounts and proper records, demonstrates that the LLC operates as a real business. Single-member LLCs especially benefit, because without a co-owner to keep things formal, the temptation to blur personal and business finances is stronger.

Drafting, Signing, and Updating

There is no required format. You can draft one yourself, use an attorney-reviewed template, or hire a lawyer to build one from scratch. The complexity of the LLC should drive that choice. A single-member LLC with straightforward operations is a different animal from a four-member LLC pooling cash, expertise, and equipment.

Every member should sign the final version. Under Section 101.052(g), members and managers are bound by the company agreement even if they haven’t signed it, but signatures eliminate any argument about whether someone actually agreed to the terms.²

Build in an amendment procedure. Typically that means a specified vote threshold (majority, supermajority, or unanimous) for different types of changes. Review the agreement whenever the LLC’s circumstances shift: a new member joins, someone leaves, the business pivots, or a major financial change occurs. An agreement written for a two-person startup doing $200,000 in revenue won’t serve a six-person company doing $3 million without updates along the way.

1
Office of the Texas Secretary of State. Certificate of Formation – Limited Liability Company
2
State of Texas. Texas Business Organizations Code BUS ORG 101.052 – Company Agreement
3
State of Texas. Texas Business Organizations Code Title 3 Chapter 101 – Limited Liability Companies
4
Office of the Texas Secretary of State. Selecting a Business Structure
5
Justia Law. Texas Business Organizations Code Title 3 Chapter 101 – Limited Liability Companies