You may choose a limited liability company (LLC) as your business structure. If you decide to set up an LLC, you must draft an LLC operating agreement.
An LLC operating agreement is a written contract between all LLC members. The operating agreement includes detailed information about all aspects of the LLC.
Basic information
It is important to know what information to include in your operating agreement. First, the agreement should include basic information about your LLC.
Some of this information includes the LLC name, effective date and the purpose of the LLC. Information on the duration of your LLC and tax structure should also be included.
Ownership interest and capital contributions
Next, your LLC operating agreement should contain a list of all LLC members and how much interest they have. LLC ownership is typically expressed through a percentage.
When you form an LLC, you will open an LLC bank account and each LLC member will contribute money into that account. This is called an initial capital contribution. Your agreement should contain the amount of each LLC member’s initial capital contribution.
Voting rules
The rules of LLC member voting are another item to include in your operating agreement. Make sure you choose whether to have a member-managed operating agreement or a manager-managed operating agreement.
A member-managed operating agreement means each member’s voting power is proportionate to their LLC interest. A manager-managed operating agreement has the same rule but allows the members to elect one or more managers who can make decisions for the LLC without a member vote.
Meetings, dispute resolution and exit strategies
Outline the management structure of your LLC. Detail how often meetings will be held and their format. Include a section on the process for resolving disputes among LLC members.
Do not forget about dissolution procedures or exit strategies. Include buy-sell provisions if an LLC member wants to leave. List conditions under which the LLC can be dissolved and define how assets will be distributed during dissolution. Discuss and include how the valuation process will be done in case your LLC is bought out.
Compliance with Texas laws
Finally, review your terms to ensure they comply with Texas state law. Texas has specific laws involving topics such as business structures, liability terms and taxes. Making sure your operating agreement is in accordance with Texas state law will provide you with added protection and security as you begin your business venture.
After you complete your LLC operating agreement, provide a copy to all LLC members and keep a copy for yourself in a safe place.
Review and revise when necessary
The operating agreement is meant to be a living, breathing document. Review the agreement regularly with LLC members to determine if any of the terms need to be updated.
As the external business environment changes, so do the needs of your business. Regular reviews and updates to your operating agreement will increase your chance of running a successful Texas business.