Top 10 Provisions to Include In Your Texas LLC Operating Agreement

Introduction

The contents of a Texas LLC operating agreement are governed by Texas State law. What provisions can and must be included in an LLC operating agreement are matters specifically addressed by Chapter 101 of Title 3 of the Texas Business Organizations Code. 

This Article will describe the Top 10 provisions to include in your Texas LLC operating agreement. Some of these provisions should be included in your operating agreement because it is wise to include them. Others must be included for the agreement to be valid and enforceable under Texas law. 

First, what is an LLC? And what is an LLC’s operating agreement, exactly?

What Is a Texas LLC Operating Agreement?

An LLC is a limited liability corporation. Nearly every state allows registration and formation of such entities, and Texas is no exception. 

The LLC’s operating agreement  (or “company agreement”) is the underlying contract between the Members (owners) of the LLC as to who does what, who is entitled to what, and who can exercise which level of authority on behalf of the LLC. 

It governs the relations among the members, officers, managers, and other principals of the company, as well as those of assignees of the company and even the company itself. It is enforceable against the members of the LLC—and against the LLC itself. 

If a provision does not run contrary to Texas State law, it can be included. But which provisions must or should be included in a Texas LLC operating agreement?

1. Irrevocable Power of Attorney Provision

An initial power of attorney provision will grant the LLC or any of its members, officers, directors, employees, or agents the power to act on behalf of the organization with regard to the organization, internal affairs, or termination of the LLC.

2. Membership Provisions

An owner of an LLC is called a “member,” as noted above. The Texas LLC operating agreement should contain a number of provision defining membership, the qualification for  membership, the effective date of a grant of membership to an individual, the mechanisms for issuance of membership interest after company formation, the assignment of membership interest, the mechanisms for removal of membership, and the effects of death, divorce, or a judicial charging order upon a member’s interest.

3. Parties to Action Provision

A Parties to Action provision stipulates that an LLC member can only be named as a party in an action by or against the LLC if the action is brought to enforce the member’s rights or liabilities to the company.

4. Liabilities for Obligations Provision

This provision is key in immunizing members of the LLC from personal liability. The Liabilities for Obligations provision specifies that members will not be liable for debt, obligations, or other liabilities—including court judgments—of the LLC.

5. Contributions and Enforceability of Promises of Members Provisions

Any requirements for members to pay cash or to transfer property, or fulfill other obligations, to the company must be present in writing and signed by the obliged member to be enforceable. These provisions ensure that such obligations—often required for membership—are binding.

6. Allocation of Profits and Losses Provision

What’s in it for the LLC’s members? The Allocation of Profits and Losses provision stipulates the benefits to be received by members—as well as the burden of losses.

7. Management Provisions

How is the company to be run? By whom, exactly? 

The Management provisions will stipulate which managers and members comprise the governing authority of the LLC and how those individuals may designate committees to exercise their authority, as well as how, when, and to whom that authority may be delegated. 

These provisions also allow for the designation of agents with the power to bind the LLC to contracts and agreements. 

8. Meetings and Voting: Notice & Quorum Provisions

LLCs and all other corporate entities need to occasionally make decisions about a course of action which may potentially affect the members’ or shareholders’ investment value. 

The Texas LLC Operating Agreement will always need provisions describing the notice requirements, quorum requirements, voting rights among members, the minimum number of votes to approve certain actions, and more.

9. Derivative Proceedings Provisions

LLCs and other corporate entities are separate legal persons. Just like actual persons, legal persons will need to commence or defend litigation from time to time. 

The LLC Operating Agreement’s Derivative Proceedings provisions will define the scope of the LLC’s ability to file lawsuits, make legal demands, provide the basis for the LLC’s standing before judicial tribunals, and to pay for such legal activity. 

10. Winding Up and Termination Provisions

All things must pass, and so, occasionally, do LLCs. This possibility should be forecast from the get-go. The Winding Up and Termination provisions specify the conditions under which a closure may occur, the responsibility for the winding up of the company, and the approval required from the membership to do so. 

Texas LLC Operating Agreement Provisions: The Bottom Line

The bottom line is that these are just a few of the provisions that can or even should be included in a Texas LLC operating agreement. 

If you are forming an LLC or other corporate entity, your first step should be to consult an experienced Texas business attorney to determine the optimal contents of your LLC operating agreement. 

Contact us now to schedule your initial appointment.

The Top 10 Provisions to Include in Your Texas Employment Agreements

Introduction

What are the Top 10 provisions to include in your Texas employment agreements? Before we list them, you should know that an employment agreement is just contract between an employer and employee that sets out the terms of employment.

An employment agreement in Texas is a legal contract which must be properly drafted. A boilerplate contract form borrowed from unknown internet sources may be found later to be unenforceable under Texas State law.

Texas is an “at-will” employment state. This means that, for most workers, an employment contract will not be required. An employer can terminate an employee-employer relationship “at will,” so long as it is not for a reason prohibited by Texas or Federal law.  

However, for high-value, professional, or executive-level employees, an employment contract guaranteeing salaries, benefits, stock options, and other terms and conditions of employment may, in fact, be necessary for an employer to spark that employee’s interest from the start.

When this is the case, what provisions should a Texas employment agreement or contract include?

1. Position or Job Description

An employment agreement in Texas should certainly include a specific description of the position that is the subject of the contract.

This provision should include the job title and grade, where appropriate, the specific duties to be performed by the employee. Additionally, this provision should specify the hours or schedule which the employee will be expected to fulfill and the location, where applicable, of the job function. If travel is expected or relocation is foreseeable, this should also be described in the employment agreement.

2. Salary or Compensation

What is the employee-to-be getting for his or her trouble? It is one of the basic requirements of any legally binding contract that it describe the “consideration” to be provided in exchange for goods or services rendered.

In a Texas employment agreement, the wages and other benefits to be provided to the employee are that “consideration.” In addition to the hourly wage or salary, this provision, or additional provisions, should describe stock options, vesting of options, vacation-time or PTO accrual and payout, and expense reimbursement.

3. Employment Term

For how long will the services be rendered by the new employee? A service contract must include a term, even if open-ended, to be enforceable in court.

If the employment agreement is for a temporary or limited scope engagement, that fact should certainly be specified.

4. Definition of Termination for Cause or Good Reason

As noted above, the execution of an employment agreement moves your relationship outside of the “at-will” employment standard.

Therefore, it is vital that you include specific descriptions of the good cause or good reasons bases upon which the employee’s engagement can be terminated.

5. Physical Examination, Credit Check, or Drug Screening Requirements

Does your company require a physical examination, drug-screening, or a credit check to complete an offer of employment?

An employment agreement can include the employee’s agreement to undergo these intrusions and voluntary acceptance of positive results as a condition of employment.

6. Return of Property

If the prospective employee will receive any company property, including the use of a company car or credit card, the employment agreement can and should specify the need for return of such property upon termination of employment and the consequences of a failure to return company property.

7. NDA and/or Non-Compete and Non-Solicitation Provisions

A great many employment agreements include non-disclosure (NDA), non-compete, and non-solicitation clauses attempting to bind the employee in various ways during and after the employment relationship has ended.

These provisions aim to protect the employer’s confidential information, customer and vendor lists, and to limit the employee’s ability to take what he or she has gained in the employment relationship and utilize it for the benefit of a competitor.

Such provisions have been the subject of an enormous amount of litigation and have often been found to be unenforceable when not properly drafted within the confines of Texas law. Thus, an experienced Texas employment attorney should also be consulted when such a provision is to be included in an employment agreement.

8. Confidentiality Provision

A confidentiality clause likewise seeks to protect sensitive company and customer information. Particularly if the employer deals with information that is subject to legal privilege, HIPAA regulation, or contains personally identifiable information, this provision may be a crucial component of a Texas employment agreement.

9. Employee Manual Receipt and Read Acknowledgment

Does your company utilize and maintain an employee manual? (It should, if not!) The employment contract should contain a provision agreeing that the prospective employee has received and read a copy of the manual.

10. Binding Arbitration and Choice of Law and Venue Provisions

Nearly every contract, including employment agreements, contain provisions attempting to settle the questions of whether binding arbitration will be required to settle initial disputes and where in the United States and in what venue (Texas State vs. Federal Courts, etc.) those disputes will be litigated.

These provisions may also include an attorney fee-shifting element, requiring each party to maintain responsibility for attorney’s fees in the case of dispute—or requiring one party or a breaching party to maintain that responsibility.

Top 10 Provisions for Texas Employment Agreements: The Bottom Line

The above is just a short list of some of the key provisions typically included in Texas employment agreements. The nature of the specific job, the demands of a specific employee, or the requirements of a specific employer will always govern the question of what should and should not be included in such a contract.

It is essential to retain a competent Texas business attorney to properly draft and review any employment agreement that you hope will withstand the scrutiny of a judge in later litigation.

Contact us now to discuss your existing and future employment agreement needs.