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LLC operating agreement

A limited liability company’s operating agreement or company agreement is similar to a corporation’s shareholder agreement, and provides for the management of the LLC, and the rights and duties of the owners of the LLC (members) and the managers of the LLC, if any.

Specifically, the LLC operating agreement should address the company’s finances, capital contributions, percentages of ownership, voting rights, meetings, notices, buyouts, distribution of profits and losses, officers, and other matters. Limited liability companies generally may be managed by the members or by appointed or elected managers.

In Texas, a limited liability company (LLC) is governed by its operating agreement, also known as a company agreement. This document is crucial as it outlines the internal operations and structure of the LLC, similar to how a shareholder agreement functions for a corporation. The operating agreement should detail the financial aspects of the LLC, including capital contributions, ownership percentages, and the distribution of profits and losses. It should also specify voting rights, the procedures for meetings and notices, and the protocols for buyouts. Additionally, the agreement delineates the rights and responsibilities of the LLC's members and, if applicable, the managers. Texas law allows LLCs to be member-managed or manager-managed, and the operating agreement should clearly state the management structure chosen. While Texas does not require an LLC to have an operating agreement, it is highly recommended to have one to ensure smooth management and operation of the LLC, and to protect the members' interests.

Texas Statutes & Rules

Federal Statutes & Rules

Internal Revenue Code (Title 26 of the United States Code)
The Internal Revenue Code is relevant to LLCs as it determines how they are taxed at the federal level, which can affect the financial provisions of the operating agreement.

The Internal Revenue Code (IRC) does not directly govern the creation or operation of LLCs, as they are state-level entities, but it does have significant implications for how they are taxed. An LLC can be taxed as a partnership, corporation, or as a disregarded entity if it has only one member. The default federal tax classification for an LLC with more than one member is a partnership, which means that the LLC itself does not pay income taxes, but profits and losses are passed through to the members who report them on their personal tax returns. The operating agreement should address tax matters such as allocations of profits and losses, which must be consistent with IRS rules for partnership taxation. The agreement may also specify tax elections, such as electing to be taxed as an S corporation to potentially reduce self-employment taxes.

Uniform Limited Liability Company Act (ULLCA) - Not a federal statute but a uniform act many states have adopted
While not a federal statute, the ULLCA provides a template for state legislation governing LLCs and is relevant for understanding the general legal framework within which LLC operating agreements operate.

The Uniform Limited Liability Company Act is a uniform act that has been adopted in whole or in part by many states to provide a consistent legal framework for the formation, operation, and dissolution of LLCs. It outlines default rules for LLCs, which apply in the absence of specific provisions in an operating agreement. The ULLCA covers issues such as the establishment of an LLC, management and voting rights, distributions, transfer of membership interests, and dissolution. An LLC's operating agreement typically addresses these issues in more detail and can modify or waive certain default rules provided by the ULLCA. For example, while the ULLCA may specify equal voting rights for members, an operating agreement can establish different voting rights based on capital contributions or other criteria.