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What you need to know about operating agreements

On Behalf of | Aug 11, 2022 | Business Formation |

There are many different routes that you can take in order to form a new business in Texas. One of the most common, popular, and cost-effective will be to form a Limited Liability Corporation (LLC). This is an arrangement that comes with a wide variety of perks. If you decide to form an LLC, you will first need to have an operating agreement (sometimes called a “company agreement”).

The basic elements of an operating agreement

An operating agreement should be one of the most basic elements of your LLC business formation. The operating agreement will set forth rules and regulations that each member of the company must abide by. This agreement can contain rules regarding the various titles, roles, duties, and profit shares that each member will have access to.

The operating agreement that you sign is a good way to minimize potential legal issues down the road. Each detail of your day-to-day, as well as long-term, operations can be covered in the agreement. This will help to resolve a potential issue before it has the chance to get out of hand and cause a conflict or dispute (which might otherwise divert time, energy, and money from your core business).

An operating agreement can protect your status

An operating agreement can do even more good for your company than simply resolving any business disputes that may arise. This type of agreement helps protect you from being held personally liable for the obligations of your LLC.

Without an operating agreement, a court could determine that your company is operated more like a sole proprietorship or partnership, than an LLC. If this should occur, your protection from personal liability for the company’s obligations could be at risk. An operating agreement that is well-written and followed goes a long way towards maintaining this protection.