Urgent: do we really need one?

My best friend and I are starting a landscaping business together. We filed the LLC in Texas last week. Our state does not require an operating agreement as part of the filing, and a lawyer quoted us $1,200 to draft one. That is a lot of money when we are just getting started.

Do we really need this? We have known each other for 15 years. We already talked about who does what and we are splitting everything 50/50. Can we just operate on a handshake and do the formal agreement later when we have more money?

I will be blunt: this is the single most important document your LLC will ever have, and skipping it because you are friends is exactly the scenario that leads to destroyed friendships and expensive litigation. I have seen it dozens of times.

An operating agreement covers things you have not thought about yet. What happens if one of you wants to leave the business? What if one of you gets divorced and your spouse claims a share of the LLC? What if one of you stops showing up to work but still expects 50% of profits? What if you disagree on a major business decision and you are deadlocked at 50/50? What if one of you dies?

Without an operating agreement, Texas default LLC law under the Texas Business Organizations Code governs all of these scenarios. Those defaults may not be what you want. For example, under default Texas rules, a member can transfer their economic interest to a third party. Do you want your partner’s ex-wife to become your business partner?

The $1,200 is money well spent. If that is too much right now, there are online templates for $200–$400 that cover the basics. But please do not operate a multi-member LLC without a written agreement. I cannot stress this enough.

Let me tell you a story. I started a business with my best friend of 20 years. No operating agreement. Everything was great for about 18 months. Then I wanted to reinvest profits and he wanted to take distributions. We had no written process for resolving the disagreement.

It turned into a screaming match. Then he stopped coming to work but demanded his 50%. Then he threatened to dissolve the LLC entirely. We ended up spending $15,000 each on lawyers to sort out a mess that a $1,200 operating agreement would have prevented.

We are not friends anymore. Spend the money.

Okay, message received loud and clear. I did not think about the divorce scenario or the deadlock issue. Those are real concerns. We will get the operating agreement done.

What are the key things we should make sure it covers? I want to be prepared when we go back to the lawyer so we get the most out of the $1,200.

At a minimum your operating agreement should address: (1) capital contributions — who is putting in what and what happens if the business needs more money, (2) profit and loss allocation and distribution schedules, (3) management structure and voting rights including a deadlock resolution mechanism, (4) restrictions on transfer of membership interests, (5) what happens when a member wants to leave or is expelled, (6) death or disability provisions, (7) non-compete and non-solicitation during and after membership, and (8) dissolution procedures.

Also consider a buy-sell provision. This is essentially a prenup for business partners. It sets out how a departing member’s interest is valued and who can buy it. Without this, you are back to arguing over what the business is worth if one of you wants out.

I have been running a landscaping LLC with my brother for six years. We have an operating agreement and we have referred to it three times for real disputes. Not blow-up fights, just genuine disagreements about equipment purchases and hiring. Having the process written down made each disagreement a 30-minute conversation instead of a week-long argument.

Also, if you ever want a business loan, the bank will ask for your operating agreement. Not having one looks unprofessional and makes lenders nervous.