Business Law & Commercial Litigation
By the Business Attorneys at Smith & Garg, LLC, serving The Woodlands, Spring, Houston, Conroe, Humble, Kingwood, Tomball, Cypress, Huntsville, Westchase, Southwest, Sugar Land, West Oaks, Alief, Memorial, River Oaks, Stafford, Katy, and Missouri City.

Operating Agreements

In today’s business climate, having as much control over how your business is run can be key to productivity, profitability and the latitude to change your business model if the need arises. If you have a limited liability company (LLC), at the center of this is having a company agreement or an operating agreement that spells out specifically how your business will operate. Texas law allows for such under the Texas Business Organization Code, section 101.052. Company agreements govern issues such as the relations among members, managers, and officers of the company, assignees of membership interests in the company, and the company itself, and other internal affairs of the company provisions for the regulation and management of the affairs of the limited liability company not inconsistent with law or the certificate of formation. There are, however, certain provisions under the Code that cannot be waived. For a listing of specific non-waivable provisions, see Texas Business Organization Code, section 101.054. In order to conform to Texas law, it is advisable to consult a Woodlands business attorney to help ensure your operating agreement is in line with the law. In the absence of an operating agreement, an LLC’s legal activities are governed by Texas statute. 

An important issue contained in the operating agreement is how profits and losses are divided among the members. Additionally, having an operating agreement in place, even if you are the only member of the LLC, helps insulate you and the other members personally from the company’s liability. An LLC can have a single member. In this case, the operating agreement is more a declaration than agreement. If there are multiple LLC members, a well-drafted agreement puts all on notice of the rights, obligations and liability of the others. Most of the time, a member’s liability is limited to the percentage of his individual investment. Another issue covered by these types of agreements is the amount of distributive shares that are allotted to each member. Generally, the amount of shares distributed to any one member will correspond to the percentage of investment in the LLC.  To get perspective on what should be contained in an operating agreement, consult a Smith & Garg, LLC Houston business attorney.

A member or manager of an LLC is not personally liable for a debt, obligation, or liability of a limited liability company, including a debt, obligation, or liability under a judgment, decree, or order of a court, except as and to the extent the company agreement specifically provides otherwise. Sometimes, however, creditors will require an LLC member to be personally liable for the debt. In a case like this, the credit agreement will include a personal guarantee provision. To determine if making a member personally liable for the company’s debt is the right course of action, consult a Woodlands business attorney.

It is advisable to include in the operating agreement provisions related to purchase of members’ shares. It is likely that, given enough time, membership in an LLC will vary. In the event of the death of a member or any other situation that would tend to cause the number of members to change, there should be some provision for a buyout of that members’ share. Additionally, without provisions for the withdrawal or expelling of a member, Texas law states that withdrawal or expelling of a member cannot happen. Consulting with a Woodlands business attorney is crucial in making sure your operating agreement includes the necessary provisions necessary to make sure that your business.

Call Smith and Garg today at 281.210.0010 or complete our Contact Form and let us assist you with your business law services and litigation needs.