An operating agreement, also called a “company agreement” in Texas, is the internal rulebook for your LLC. It governs how your business runs, how decisions get made and what happens when things change. Without it, state law steps in and makes decisions for you using default rules that may not match what you and your co-founders actually intended.
What should every Texas startup operating agreement include?
A solid operating agreement should cover:
- Ownership percentages — each member’s stake in the company and the contributions made to earn it
- Voting rights — how decisions are made, who gets a vote and how much weight each member’s vote carries
- Profit and loss distribution — how and when profits are distributed, and how losses are shared
- Management structure — whether the LLC is member-managed or manager-managed, and who has authority to act on behalf of the company
- Decision-making thresholds — which decisions require a simple majority, a supermajority or unanimous consent
- Member withdrawal — what happens when a member wants to leave, and whether they get paid out
- Buyout provisions — how a departing member’s interest is valued and transferred, including right-of-first-refusal language
- Death or incapacity — what happens to a member’s ownership interest if they die or become unable to participate
- Transfer restrictions — whether members can sell or transfer their ownership interest to outside parties, and under what conditions
- Tax elections — how the LLC will be taxed and who has authority to make tax elections on behalf of the company
- Dissolution — what triggers a wind-down and how the process works. Without an agreement, a voluntary dissolution defaults to requiring a majority vote of members under Texas law
Getting these provisions right from day one is far less expensive than sorting them out in court later.
What happens if you skip the operating agreement?
Skipping the operating agreement does not mean your LLC has no rules; it means Texas law writes them for you. Some defaults that may surprise you:
- Every member gets an equal vote, regardless of how much they own.
- Any member can force the company to dissolve.
- Profit distributions follow contribution values, not ownership percentages.
- There are no built-in protections if a member tries to sell their interest to an outsider.
These defaults can create serious problems, especially when co-founders disagree. Courts will apply state law if no written agreement exists, and that outcome may not match anyone’s original intentions.
Getting your operating agreement right from the start
An operating agreement is only as useful as the thought that goes into it. A document that skips key provisions or uses vague language can create as many problems as having no agreement at all. Working with a Texas business attorney to draft or review your operating agreement gives your startup a solid legal foundation before disputes have a chance to arise.
