Clear And Caring Counsel
Brock Zettle Legal Team

Why create an operating agreement?

On Behalf of | Sep 14, 2022 | Business Law |

Structuring your Texas business as a limited liability company (LLC) may protect you from claims made against it. As a general rule, only the organization’s assets would be at risk if someone obtains a judgment against your firm. However, if you do opt for the LLC structure, you should create an operating agreement.

The purpose of the operating agreement

An operating agreement is one of the essential elements that separates the LLC from a sole proprietorship. It clarifies your intent to put a legal barrier between yourself and your organization, and it can also specify how it makes important financial and other types of decisions regarding how the company is run. Finally, an operating agreement can be used to memorialize your rights and responsibilities as it relates to dealing with employees, vendors and other important stakeholders.

Create your own rules

Without an operating agreement, you are generally bound by Texas state LLC business statutes. However, these rules may not mesh with how you want to run your organization or may not be specific enough to offer any guidance as it relates to operating a successful company. By writing an operating agreement, all parties affiliated with your firm know their rights and responsibilities.

Define your exit strategy

An operating agreement can contain language stipulating what happens if anyone wants to leave the business. For example, it could say that you can only sell to friends or family members who have been vetted by the other members. A buy/sell agreement can also put a market value on each member’s ownership stake, which can make it easier to complete a transaction in a timely manner.

If you are having issues with an investor or client, the terms of an operating agreement may help resolve it quickly. In the event that you don’t have a formal agreement, it may be possible to come to an amicable resolution of a business dispute through mediation as opposed to litigation.