The Operating Agreement Your LLC Actually Needs

By the time an LLC dispute reaches a lawyer, the operating agreement has usually already lost it. Two people had built something together, split evenly and amicably, on a document downloaded at formation that no one read closely because nothing had gone wrong yet. Then something did. One wanted out and the other wanted to keep going. Or a member stopped contributing but kept a full share. Or one of them died, and a spouse none of them had planned for was suddenly a co-owner. The agreement, when they finally opened it, was silent on the exact thing now tearing the company apart.

That is the pattern behind nearly every company dispute, and it is worth stating plainly: a form company agreement satisfies the statute and answers almost none of the questions that later matter. In Texas the governing document is called a company agreement, and if you do not write one, the Business Organizations Code writes it for you, in defaults that are frequently the opposite of what the owners would have chosen. The agreement is not paperwork. It is where you decide, while everyone is still getting along, what happens when they are not.

The failures are predictable. Good agreements are drafted against them.

Deadlock

Two owners, split evenly, is the most common structure and the most dangerous one. It works until the day they disagree about something that cannot be deferred, and then neither can act without the other and neither can force the issue. A form agreement almost never contains a tiebreak.

Current as of July 2026. Texas law does not hand a deadlocked LLC a clean exit. The path the statute leaves is to ask a court to appoint a receiver or to wind the company up, which is slow, public, expensive, and rarely produces an outcome either owner wanted. The cure is drafted in advance: a mechanism that breaks a deadlock before it reaches a courthouse. That can be a designated tiebreaker on defined categories of decision, a mediation step that must run before anyone sues, or a buy-sell mechanism, sometimes structured so that one member names a price and the other chooses whether to buy or sell at it, which tends to keep the price honest. Any of these beats the default. The default is dissolution.

Death

An LLC interest is property, and when a member dies it passes like other property, which means it can land with a surviving spouse, with children, or in an estate that now sits across the table from you. Texas is a community-property state, which adds a second question most owners never consider: a spouse may already hold a community interest in the membership interest, whatever the certificate says. Few form agreements address any of this, so the answer defaults to succession law and to a co-owner you did not choose.

A real agreement separates two things the law tends to blur: the economic interest, meaning the right to distributions, and the membership interest, meaning the right to vote and manage. It can allow the economic value to pass to a member's heirs while keeping the management rights with the surviving owners, and it can require that the interest be bought out on death, often funded with insurance so the money is there when it is needed. The point is to decide who your partners can become before the question is forced.

Departure

Members leave, and the statute makes leaving cleanly harder than owners expect in both directions. A member who wants out generally cannot force the company to buy the interest; Texas gives an LLC member no general statutory right to withdraw and demand fair value. And a member who needs to be removed, one who has stopped contributing, stopped working, or become impossible, usually cannot be expelled at all unless the agreement says how. So the owner who wants to leave is stuck, and the owners who want someone gone are stuck, and both discover it at once.

The agreement fixes both by writing the mechanics: whether and how a member may withdraw, what a departing or removed member is paid and how that value is calculated, restrictions on transferring the interest to an outsider, and what happens to a member who simply stops pulling their weight. A valuation method agreed in calm is worth a great deal when the alternative is dueling appraisers in a lawsuit.

Where form documents go silent

Beyond the three large failures sit a set of quieter omissions, each of which reliably becomes a fight:

• Capital calls and the member who won't fund. What happens when the company needs more money and one owner will not or cannot contribute. Without a stated consequence, dilution, a loan, a forfeiture, there is only resentment and argument.
• Management and authority. Whether the company is member-managed or manager-managed, who can actually bind it, and which major decisions require a supermajority or unanimous consent rather than a bare majority. Silence hands these to statutory defaults that may not match how the owners actually intend to run the business.
• Fiduciary duties. Texas is one of the states that lets a company agreement calibrate the fiduciary duties members and managers owe each other, expanding or narrowing them within statutory limits. That is a deliberate lever, and a form document either ignores it or triggers it by accident.
• Distributions, including for taxes. An LLC is usually taxed as a pass-through, which means owners can owe tax on income the company earned but did not distribute. An agreement that does not require tax distributions can leave a member with a tax bill and no cash to pay it.
• Transfer restrictions. Who may sell an interest, to whom, and subject to whose right of first refusal. This is what keeps an unwanted co-owner from buying their way in.

None of these is exotic. Each is the kind of provision a form leaves out and a dispute later supplies, expensively.

What a real agreement does differently

The difference is not length; it is whether the document was drafted against the failures above or merely printed to satisfy the filing. A company agreement worth having is benchmarked to the leading national model documents rather than the statutory minimum, calibrated to how Texas courts actually read these provisions, and matched to the specific owners: their capital, their control expectations, and their intended exits. It answers deadlock, death, and departure on purpose, and it decides the quiet questions before they become loud ones.

If your company runs on a form you downloaded at formation, the honest test is a short one. Open it and see whether it answers deadlock, death, and departure. If it does not, you do not yet have the agreement your company needs, and the least expensive time to fix that is now, while nothing has gone wrong.

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This material is for general information only and is not legal advice; reading it does not create an attorney-client relationship. References to Texas law are stated at the level of principle and current as of the date shown; the law may change, and how it applies depends on your facts. Have your specific company agreement reviewed by counsel.