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Why does your LLC need an operating agreement?

On Behalf of | Aug 15, 2022 | Business Transactions

An LLC operating agreement provides an outline for the company’s financial decisions. The agreement also provides regulations for the company’s internal operations. Although an operating agreement is not required for a Texas LLC company, the creation of one will greatly benefit it.

Operating agreements protect the LLC status

When you establish an LLC, applicable business law reduces your personal liability in cases of lawsuits. This is one of the benefits of having an LLC instead of a sole proprietorship. By establishing an operating agreement, your company solidifies your LLC status and protects your personal assets.

Operating agreements allow you to avoid any default LLC rules

Business legislation in Texas provide default rules that dictate how your LLC should be run. These default rules may not benefit your company and may actually cause your LLC financial harm. An LLC operating agreement will override these rules. Since every LLC is different, you want decisions governing your company to recognize the specific needs of your LLC.

An operating agreement reduces management disagreements

A well-written operating agreement clarifies key points. This reduces disputes among the LLC management at later dates. The management of your LLC may become quite complex and involve higher stakes long after it has been formed, and an operating agreement makes sure that decisions are made based on fair facts instead of heated disagreements.

LLCs with operating agreements protect their companies

Although the state will not force you to create an operating agreement for your LLC, establishing one will create long-term benefits for your company. Operating agreements provide a baseline for the daily interactions of your company, guidelines for management, and protection for your hard-earned assets. Including an operating agreement in your business plan may help to extend the life of your LLC.