top of page

Is an Operating Agreement Legally Required?

Updated: Mar 15

An operating agreement (often called a company agreement or LLC agreement) sets out the basic rules and procedures of your LLC. You ought to have an operating agreement for your LLC.


I'll say it again: you ought to have an operating agreement for your LLC.


But is it actually, legally required by your state?


Does California require an operating agreement?


Probably not.


Until about 2014, California law explicitly required LLCs to have an operating agreement. See former Corp. Code section 17050 ("...the members shall have entered into an operating agreement."). However, there does not appear to be such a requirement anymore. See Cal. Corp. Code sections 17701.01 to 17713.13.


Section 17701.02(s) defines "operating agreement" as "the agreement...whether oral, in a record, implied, or in any combination thereof..." It then states that the operating agreement may include simply the agreement between members to form an LLC, and it clarifies that the operating agreement is not unenforceable just because there is only one member.


I read these sections to mean that an operating agreement is not required under California law.


However, if you don't have a written operating agreement, I read the Code to mean that a court is going to cobble one together from the defaults in the statutes and the various documents, emails, and agreements you have with your co-members. My read then is that the Code does not require one, but that the court will create one.


The California Secretary of State website states explicitly that an operating agreement is required. See "Starting a Business – Entity Types" ("an operating agreement among the members as to the affairs of the LLC and the conduct of its business is required"). They don't cite to a code section or case law.


In short, yes, you need an operating agreement, but I can't say that California law requires it. I imagine I'm going to get push-back on this one, and I'm happy to edit this post if someone can make a convincing argument otherwise.


Does Texas require a company agreement?


No.


Like California, the Texas Business Organizations Code has several sections that appear to presume a company agreement.


Texas defines a company agreement as "any agreement, written or oral, of the members concerning the affairs or the conduct of the business of a limited liability company." Bus. Orgs. Code section 101.001(1). "[A]ny agreement" suggests to me that there is an understanding that there might not be one. And the fact that it limits such agreement to "written or oral," but not to "implied," suggests Texas courts aren't necessarily going to create one for your LLC.


Moreover, Texas gives LLCs an explicit out: you can put the information in your Certificate of Formation instead, and forego a company agreement. See section 101.051.


[NOTE: This refers only to the general, statutory requirements. There may be other entities that do require an operating/company agreement; for example, the Texas Real Estate Commission requires certain documents in order to license an LLC as a broker, often including an operating agreement.]


In short, no, Texas does not require an operating agreement. But, let me reiterate, you still ought to have one.


What about other states?


Some states require operating agreements explicitly, others don't. You'll need to check with a business attorney in your state to see what your state requires (or does not require).


Summary


In both Texas and California (and, likely, in all states), you ought to have an operating/company agreement. But the question here refers to whether an operating/company agreement is a legal requirement. The answer, for both California and Texas, appears to be no.

2 views0 comments

Recent Posts

See All

Texas Business Courts – What, Why, and How?

In 2023, Texas adopted HB 19, establishing the Texas Business Courts ("TBC"). The TBC will operate in several metropolitan areas, the TBC will have specific jurisdictional and procedural rules, and th

Top 5 New Laws in Texas for 2024

Happy New Year! Sorry that this post is coming in late. As always, January 1 brings with it a slate of new laws. My criteria here are: what I thought was interesting, what will impact my clients the m

コメント


bottom of page