Texas does everything big—oil fields, ranches, egos, and business disasters when Operating Agreements fail. The Lone Star State’s hands-off approach to business regulation creates maximum freedom and maximum danger for unprepared LLCs.
I’ve drafted 300+ Operating Agreements for Texas LLCs—from Houston energy ventures to Austin tech startups to Dallas real estate empires. Texas’s “business-friendly” environment taught me a brutal truth: When the state won’t protect you from yourself, your Operating Agreement becomes your only defense.
Let me show you exactly what your Texas LLC Operating Agreement needs, why the state’s unique legal landscape demands specific provisions, and how to build documentation that survives both boom times and bust cycles.
The Texas Paradox: Maximum Freedom, Minimum Safety Net
Section 101.052 of the Texas Business Organizations Code makes Operating Agreements optional. That word “optional” has destroyed more Texas businesses than all the oil busts combined.
The Texas reality:
- No Operating Agreement triggers statutory defaults
- Those defaults reflect 1950s business models
- Texas courts strictly enforce written agreements
- Handshake deals die in Houston courtrooms
- Today’s flexibility becomes tomorrow’s bankruptcy
I watched an Austin software LLC worth $12 million implode because four equal founders couldn’t break deadlocks. No Operating Agreement meant no resolution mechanism. Texas law offered nothing. Company dissolved, investors sued, founders bankrupted.
Critical Architecture for Texas LLCs
Foundation Elements Texas-Style
Your Operating Agreement isn’t just Certificate of Formation 2.0. It’s your business constitution written in Texas blood:
Core Texas identifiers:
- Exact LLC name (must match Certificate precisely)
- Texas SOS file number
- Principal office (affects franchise tax)
- Specific purposes (Texas courts hate vague)
- Duration (perpetual or limited)
Texas peculiarity: The state allows “LLC,” “L.L.C.,” and “Limited Liability Company” interchangeably in documents. But banks don’t. Match your Certificate exactly or face account opening delays.
Ownership Structure for the Texas Economy
Texas’s diverse economy—oil, tech, real estate, agriculture—creates complex ownership needs:
Modern Texas structures:
- Class A voting units (operators)
- Class B economic units (investors)
- Carried interests (oil & gas standard)
- Profits interests (tech equity)
- Preferred returns (real estate norm)
The Houston problem: Energy companies often have working interest partners, royalty owners, operator stakes, and investor units. Without clear definitions, every operational decision requires unanimous consent. Nothing moves, opportunities die.
Capital account tracking:
- Initial investment
- Additional calls
- Distributions received
- Allocated profits/losses
- Deficit restoration obligations
- Negative capital rules
Texas courts demand pristine capital accounts. Sloppy records equal lost credibility.
Capital Contribution Documentation
Texas defaults: Cash talks, everything else walks. This oversimplification kills sophisticated ventures.
Document everything meticulously:
- Cash contributions (date, amount, account)
- Property contributions (appraisal required)
- Service contributions (vesting mandatory)
- Oil/gas interests (percentage and type)
- Intellectual property (assignment essential)
The Austin trap: Tech startups grant 25% equity for “sweat equity” without vesting. Developer works two months, quits for Google, keeps equity forever. Standard Austin terms: 1-year cliff, 4-year vest, monthly thereafter, double-trigger acceleration.
Management Structure for Texas Industries
Texas businesses span wildcatting to venture capital. Structure accordingly:
Industry-specific management:
Oil & Gas:
- Manager-managed with operator control
- Non-operators protected
- AFE approval thresholds
- Operating agreement compliance
Tech/Software:
- Board-managed structure
- CEO operational authority
- Founder protections
- Investor oversight rights
Real Estate:
- Manager-managed with property manager
- Major decision thresholds
- Refinancing authority
- Development approvals
Professional Services:
- Member-managed with practice groups
- Client ownership rules
- Compensation formulas
- Retirement buyouts
Distribution Waterfalls Texas-Style
Texas defaults to pro-rata by ownership. This ignores preferred returns, carried interests, and performance hurdles.
Sophisticated Texas waterfalls:
- Unpaid management fees
- Preferred returns (8-10% standard)
- Return of capital
- Catch-up distributions
- Promote/carry (20% typical)
- Remaining pro-rata
Texas tax distribution formula: Federal max (37%) + Texas franchise tax (0-0.75%) + Self-employment (15.3% if applicable) + Net investment income (3.8% if applicable) = ~45-56% × Allocated income × 110% buffer
No state income tax doesn’t mean no tax surprises.
Transfer Restrictions for Texas Businesses
Texas businesses often involve family wealth. Plan for generations:
Essential Texas restrictions:
- Absolute bar on involuntary transfers
- Right of first refusal (45-day standard)
- Tag-along rights (protect minorities)
- Drag-along rights (enable exits)
- Permitted family transfers
Texas valuation methods:
- Oil & Gas: 3-5× cash flow
- Tech companies: 4-8× ARR
- Real estate: Appraised value
- Service businesses: 1× revenue
- Manufacturing: 3× EBITDA
Define formulas now. Texas juries hate ambiguity.
Texas-Specific Provisions
Oil & Gas Considerations
Many Texas LLCs touch energy somehow:
Energy provisions:
- Operating agreement compliance
- AFE approval authority
- Dry hole allocations
- Working interest transfers
- Override assignments
- Preferential rights
Even Austin tech LLCs might inherit mineral rights. Address them.
Series LLC Provisions
Texas allows series LLCs—separate protected cells:
Series considerations:
- Individual series creation
- Asset segregation rules
- Liability isolation
- Inter-series transactions
- Series termination
If using series, your Operating Agreement must explicitly establish them. Generic agreements don’t work.
Border Business Provisions
Texas’s Mexico border creates unique opportunities:
Cross-border elements:
- Maquiladora operations
- Currency risk allocation
- USMCA compliance
- Export/import authority
- Foreign partner restrictions
Dallas to Houston to El Paso—different borders, different rules.
Hurricane and Disaster Provisions
Gulf Coast exposure demands planning:
Disaster provisions:
- Emergency decision authority
- Insurance claim procedures
- Rebuild vs. liquidate triggers
- Business interruption allocations
- Force majeure definitions
Hurricane Harvey taught harsh lessons. Document disaster response before disasters.
Single-Member Considerations
“Why document agreements with myself?” Because Texas courts pierce single-member veils without formalities.
Critical Texas single-member provisions:
Succession planning:
- TOD (Transfer on Death) provisions
- Trust compatibility language
- Beneficiary designations
- Continuity provisions
Asset protection:
- Charging order limitations
- Distribution restrictions
- Separate property declarations
- Community property waivers
Without these, your LLC offers minimal protection in Texas.
Multi-Member Combat Readiness
Every Texas multi-member LLC needs three weapons:
1. Deadlock Breakers
Texas law provides zero deadlock remedies:
- Texas shootout (each names price, highest wins)
- Russian roulette (one offers, other chooses role)
- Dutch auction (descending price until someone buys)
- Mediation/arbitration (specify Dallas, Houston, or Austin rules)
2. Decision Hierarchies
- Daily operations: Individual authority ($50,000 limit)
- Regular business: Simple majority
- Major decisions: 75% supermajority
- Fundamental changes: 90% minimum
Define everything. Texas courts interpret narrowly.
3. Exit Strategies
- Voluntary withdrawal (prohibited or restricted)
- Involuntary removal (bad acts defined)
- Retirement provisions (age plus years)
- Competition restrictions (2 years, geographic limits)
Common Texas Operating Agreement Catastrophes
Catastrophe #1: The Oil Boom Handshake “We’ve been partners since Spindletop.” Modern Texas courts want documentation, not nostalgia.
Catastrophe #2: The BBQ Agreement Drafted over brisket with bourbon. These miss critical provisions and create more disputes than they prevent.
Catastrophe #3: The Cowboys Optimism Assuming your business will be more successful than the Cowboys in January. Plan for conflict, not championships.
Catastrophe #4: The California Import Using Silicon Valley templates in Texas. Different laws, different cultures, different disasters.
Drafting Strategies for Texas Success
Know Texas Defaults
Understand Business Organizations Code provisions:
- Equal management rights
- Pro-rata distributions
- Majority governs ordinary business
- No expulsion rights
Override what doesn’t fit.
Reference Texas Statutes
Cite BOC sections when adopting provisions. Texas judges appreciate statutory precision.
Address Texas Realities
- Boom/bust cycles
- Industry consolidation
- Hurricane exposure
- Border dynamics
- No state income tax planning
Generic agreements miss Texas-specific issues.
Build Texas Flexibility
- Amendment by supermajority
- Emergency provisions
- Temporary management
- Expansion mechanics
Rigid agreements break under Texas-sized pressure.
Banking Requirements
Texas banks (Frost, Comerica, Texas Capital) require specific provisions:
Banking authorizations:
- Account opening powers
- Wire authorities
- Credit facilities
- Investment accounts
- Foreign exchange
Multiple banks: Include provisions for various institutions. Single-bank limitations create problems during credit crunches.
Professional Help vs. Texas DIY
DIY works for:
- Single-member service businesses
- Simple partnerships
- Minimal assets
- Standard operations
Get professional help for:
- Oil & gas interests
- Series LLCs
- Multiple classes
- Significant assets
- Cross-border operations
Texas attorneys charge $3,000-10,000 for complex Operating Agreements. Litigation starts at $100,000. Do the math.
Your Texas Action Plan
Week 1: Foundation
- [ ] Identify all members/interests
- [ ] Document contributions
- [ ] Define ownership structure
- [ ] Choose management model
Week 2: Operations
- [ ] Create decision matrices
- [ ] Define distribution waterfalls
- [ ] Add transfer restrictions
- [ ] Include exit procedures
Week 3: Protection
- [ ] Add deadlock provisions
- [ ] Include arbitration clauses
- [ ] Define valuation methods
- [ ] Add Texas-specific provisions
Week 4: Implementation
- [ ] Legal review if complex
- [ ] Member negotiations
- [ ] Final revisions
- [ ] Execution ceremony
The Hard Texas Truth
Texas gives you enough rope to hang yourself, then stands back to watch. Your Operating Agreement is the only thing between you and that rope.
The state’s business-friendly reputation means business-friendly to formation, not to operations. Once you’re in business, Texas expects you to handle your own problems.
I’ve seen too many Texas LLCs fail not from market forces or competition, but from internal wars that proper Operating Agreements would have prevented.
Your Operating Agreement isn’t red tape—it’s your armor in the Texas business battlefield.
Skip it or use garbage templates, and you’re going naked into combat.
Create your Operating Agreement now, while everyone’s friendly and optimistic. Because when Texas-sized problems hit—and they always do—your Operating Agreement determines whether you survive or surrender.
Remember: Everything’s bigger in Texas, including the consequences of poor documentation.
Don’t mess with Texas. But more importantly, don’t let Texas mess with your business.
Jake Lawson has drafted Operating Agreements across Texas’s diverse economy for 15+ years, from Permian Basin oil plays to Austin tech unicorns. He’s survived multiple boom-bust cycles and learned what documentation endures both $100 oil and $20 oil. His philosophy: In Texas, go big on documentation or go home broke.
Ready to bulletproof your Texas LLC? The Lone Star State rewards preparation and punishes assumptions. Create an Operating Agreement as tough as Texas itself. Your business’s survival in the wild west of American capitalism depends on it.