Operation Agreements

Forming a Limited Liability Company (LLC) is one of the most flexible and protective ways to structure a business. However, many owners make the mistake of creating an LLC without drafting a formal Operating Agreement. This document is the backbone of your company—it defines ownership, management, rights, responsibilities, and procedures for how your LLC will operate.

Even though Texas does not legally require LLCs to have an Operating Agreement, failing to create one exposes business owners to misunderstandings, legal complications, financial disputes, and loss of liability protection. At Ace Law, attorney Kevin Acevedo drafts, reviews, and negotiates Operating Agreements that safeguard LLC owners and ensure the company operates smoothly.

What Is an Operating Agreement?

An Operating Agreement is a legally binding internal document that outlines how an LLC is structured and managed. It clarifies:

• Ownership percentages
• Management responsibilities
• Voting rights
• Profit and loss distribution
• Procedures for meetings and decision-making
• Rules for adding or removing members
• Dissolution procedures
• Liability protections

Think of the Operating Agreement as the “constitution” of your LLC—it defines how your business will run today and how it will handle future challenges.

Why Every LLC Needs an Operating Agreement

Without a written Operating Agreement, your LLC defaults to Texas state laws, which may not reflect your goals or the needs of your business. Some issues that commonly arise include:

• Disputes over ownership
• Members claiming unequal shares
• Conflicts in management decisions
• Problems removing a non-performing member
• Unexpected tax consequences
• Loss of liability protection

A customized Operating Agreement prevents conflicts and keeps the business stable.

Types of LLCs That Benefit From an Operating Agreement

1. Single-Member LLCs

Even if there is only one owner, an Operating Agreement helps:

• Preserve limited liability status
• Demonstrate separation between the owner and the business
• Protect against legal challenges
• Define inheritance or succession plans

Banks and lenders often require it before opening an account or granting credit.

2. Multi-Member LLCs

Partnership-style LLCs face a higher risk of disputes.
An Operating Agreement provides clarity on:

• Ownership percentages
• Voting rights
• Responsibilities
• Buyout rules
• Conflict resolution

This ensures all members understand their rights from the beginning.

3. Manager-Managed LLCs

If the LLC is not run directly by the owners, the agreement must clearly define:

• Responsibilities of managers
• Limits on authority
• Compensation
• Voting rules
• Member rights

This protects both the managers and the investors.

Key Sections of a Strong Operating Agreement

1. Ownership and Capital Contributions

The agreement must specify:

• Each member’s initial investment
• Ownership percentage
• Additional capital requirements
• How ownership can be transferred

This prevents confusion about who owns what.

2. Management Structure

An LLC can be:

• Member-managed, where owners handle daily operations
• Manager-managed, where appointed managers run the company

The Operating Agreement defines roles, authority, and responsibilities.

3. Voting Rights and Decision-Making

Not all members may have equal voting rights.
The agreement clarifies:

• What decisions require a vote
• When unanimous votes are needed
• Weighted voting based on ownership percentage
• Tie-breaking procedures

Clear voting rules help avoid internal conflict.

4. Profit and Loss Distribution

Profits do not always have to match ownership percentages.
The agreement details:

• How profits are distributed
• When distributions occur
• Tax responsibilities for each member

This ensures fairness and tax compliance.

5. Adding or Removing Members

The agreement should explain:

• How new members can join
• Capital requirements for new members
• Conditions for removing a member
• Buyout procedures and valuation methods

This prevents disputes when the LLC grows or changes.

6. Transfer of Ownership

The Operating Agreement outlines:

• Whether members can sell their interests
• Right of first refusal
• Rules for transferring shares to family
• Restrictions to prevent unwanted partners

Having clear transfer rules protects the integrity of the LLC.

7. Dispute Resolution

Even well-managed businesses may experience disagreement.
Common clauses include:

• Mediation
• Arbitration
• Litigation procedures

This section helps partners resolve issues without disruption.

8. Dissolution of the LLC

A proper Operating Agreement describes:

• Events that trigger dissolution
• Winding-up procedures
• Distribution of assets and liabilities
• Tax responsibilities

This ensures the LLC can close legally and smoothly.

Legal and Financial Risks of Operating Without an Agreement

LLCs without a written Operating Agreement face serious risks, including:

• Conflicts leading to litigation
• Loss of liability protection
• Difficulty opening bank accounts
• Unclear profit distribution
• Disputes about authority or roles
• Forced dissolution under state default laws

A strong Operating Agreement protects the LLC, its owners, and its future.

How Ace Law Helps With Operating Agreements

Attorney Kevin Acevedo at Ace Law offers comprehensive support for LLC owners, including:

For New LLCs

• Drafting customized Operating Agreements
• Advising on tax and legal implications
• Choosing the correct management structure
• Preparing all legal formation documents

For Existing LLCs

• Reviewing outdated Operating Agreements
• Updating agreements due to growth or ownership changes
• Negotiating member roles and responsibilities
• Resolving internal disputes

Advanced Services

• Buy-sell agreements
• Succession planning
• Multi-state compliance
• Asset protection strategies

With Ace Law, LLC members receive agreements specifically tailored to their business goals and legal needs.

Conclusion

An Operating Agreement is more than a formality—it is the core document that protects your LLC, defines ownership rights, outlines responsibilities, and prevents costly disputes. At Ace Law, attorney Kevin Acevedo ensures every Operating Agreement is clear, enforceable, and tailored to your company’s structure and long-term vision. Whether you are forming a new LLC or updating an existing one, Kevin Acevedo provides the legal expertise needed to safeguard your business and support its growth. If you are ready to create or strengthen your Operating Agreement, Ace Law is here to help you protect what you are building.