Texas LLC Operating AgreementThe 'company agreement' under Texas Business Organizations Code
What Texas Calls It and Why It Matters
Texas uses the term "company agreement" rather than "operating agreement" throughout the Business Organizations Code. The two terms refer to the same thing: the internal document governing relations among the members and between the members and the LLC. Outside Texas, "operating agreement" is the universal term, and Texas LLC company agreements are routinely labelled "operating agreement" without legal consequence. The statute does not require any particular title.
BOC § 101.052 gives the company agreement broad authority. It may govern almost every aspect of the LLC's operations, including member voting, profit allocation, management structure, transfer of interests, and dissolution. The statute lists only a short set of nonwaivable items: the duty of good faith and fair dealing, the right to inspect company records, and the right to wind up after dissolution. Everything else is contractually negotiable.
The agreement does not need to be filed with the Texas Secretary of State. It is held in the LLC's books and records. The Secretary only sees the Certificate of Formation (Form 205) and the annual Public Information Report. Banks, lenders, the Texas Comptroller (for franchise tax), and any litigant will, however, ask to see the company agreement when needed.
Default Rules Under Tex. BOC
If the company agreement is silent on a topic, the Texas BOC defaults govern. The Texas defaults differ from most other states in profit allocation: while RULLCA states default to equal allocation regardless of capital, Texas defaults to allocation based on the agreed value of contributions.
| Topic | Default Rule | Statute |
|---|---|---|
| Profit allocation | Based on agreed value of contributions (per § 101.201) | Tex. BOC § 101.201 |
| Voting | Per-capita unless agreement provides otherwise | Tex. BOC § 101.355 |
| Management | Member-managed unless Certificate states manager-managed | Tex. BOC § 101.251 |
| Member admission | Unanimous consent of existing members | Tex. BOC § 101.103 |
| Distributions | On member request, subject to solvency | Tex. BOC § 101.203 |
| Member withdrawal | Permitted; withdrawing member has limited rights | Tex. BOC § 101.107 |
| Dissolution | Majority of members in interest unless agreement requires more | Tex. BOC § 11.057 |
The Texas profit allocation default under BOC § 101.201 is unusual. Profits and losses are allocated "on the basis of the agreed value, as stated in the company's records, of the contributions made by each member to the extent the contributions have been received by the company and have not been returned." This is closer to capital-proportional allocation than the per-capita default used in California or New York, but it depends entirely on what the company records say about agreed value. Without a clear capital ledger, disputes are common.
Series LLCs in Texas
Texas BOC § 101.601 et seq. authorises series LLCs. A series LLC is a single LLC that contains multiple "protected series," each treated as a separate entity for liability purposes if the structure is established correctly. Series LLCs are common for real estate investors holding multiple properties, where each property is placed in its own series so that liability arising from one property does not reach the others.
To establish a valid Texas series LLC, three things must be true: the Certificate of Formation must affirmatively state that the LLC may have one or more series; the company agreement must establish the series structure and set out the rights of each series; and each series must maintain separate books and records sufficient to identify its assets and liabilities. Failure on any of the three conditions can collapse the liability shield between series.
Texas series LLCs are often compared favourably with Delaware series LLCs because of lower ongoing costs. Texas charges a single $300 formation fee covering all series. Delaware charges $90 per Certificate of Formation but requires a $300 annual franchise tax per series in some interpretations, depending on series structure. For real estate operators with 10+ properties, the cost differential favours Texas materially.
Texas series LLC: structural requirements
| Element | Description | Source |
|---|---|---|
| Liability isolation between series | Each series is treated as a separate entity for liability purposes | BOC § 101.602 |
| Single state filing fee | One $300 Certificate of Formation covers all series | BOC § 101.602(b) |
| Series-specific operating agreement | Each series can have its own members, managers, capital structure | BOC § 101.604 |
| Series-specific records | Each series must maintain separate books and records | BOC § 101.602(b)(2) |
| Real estate use case | Common for real estate LLCs holding multiple properties | Practitioner usage |
Sample Texas-Specific Clauses
The clauses below address Texas-specific drafting issues. Each is illustrative only.
Forming a Texas LLC: The Six Steps
- Choose and check a name. Search the Secretary of State business name database. Names must include "Limited Liability Company", "Limited Company", or an abbreviation (LLC, L.L.C., LC, L.C.).
- Appoint a registered agent. Required under Tex. BOC § 5.201. Must be a Texas resident or a registered corporate agent with a Texas physical street address.
- File Certificate of Formation (Form 205). $300 filing fee. Filed online via SOSDirect or by mail with the Texas Secretary of State. The form specifies whether the LLC is member-managed or manager-managed.
- Adopt the company agreement. Not legally required but strongly recommended. Sign and retain in company records.
- Obtain EIN and register with the Texas Comptroller. EIN is free from the IRS. Comptroller registration is required for franchise tax filings, even if no tax is owed.
- File the first Public Information Report by 15 May of the following year. Annual filing thereafter. Failure triggers forfeiture of the right to do business in Texas.
Five Texas-Specific Mistakes
If the company agreement establishes series but the LLC commingles records, the liability shield between series collapses. Each series must have its own bank account, its own ledger, and its own asset register.
Texas has no state income tax for individuals, but LLCs owe franchise tax above the $2.47M threshold. The PIR is mandatory regardless of revenue. Forfeiture is automatic for non-filing.
Texas BOC § 101.201 defaults to allocation based on agreed value of contributions, but § 101.355 defaults voting to per-capita. The two defaults are misaligned, and members often want both to track capital. Both must be addressed in the agreement.
Even no-tax-due LLCs must file annually with the Comptroller. The PIR and franchise tax forms are due 15 May. Forfeiture results in loss of the right to sue in Texas courts.
Texas calls it a 'company agreement', not 'operating agreement'. Either term is enforceable, but the statute uses 'company agreement' throughout. Citing the wrong term in court filings looks unprofessional.
Statutory Sources
- Texas Business Organizations Code, Chapter 101, official text at statutes.capitol.texas.gov
- Texas Secretary of State business filings, Form 205 and other LLC forms
- Texas Comptroller of Public Accounts, franchise tax thresholds and rates
- Texas BOC § 101.601 (series LLCs), series LLC statute
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Common use case for Texas series LLCs.
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