The Company Agreement Explained: What is a Company Agreement?
June 26, 2013 | By Vela Wood
Sometimes anything involving a lawyer can sound like a whole other language. I’m going to simplify what exactly a Company Agreement is and does. You may have heard governing agreements for LLCs referred to as an operating agreement or regulations of the LLC, but those are a bit archaic at least in Texas they are, and “Company Agreement” is the term used in the Texas Business Organizations Code, the statutes that governs LLC laws, and the preferred term today.
A Company Agreement is an internal document for your LLC that provides the framework for how a limited liability company operates. According to the TBOC, “It governs the relations among members, managers, and officers of the company, assignees of membership interests in the company, and the company itself; and other internal affairs of the company.”
A Company Agreement typically includes the following information:
- Ownership structure
Members’ rights and responsibilities
Allocation of profits and losses
Distributions of profits
Members’ voting power
Members’ transfer of membership interest
Dissolution and liquidation
It is important to note that in the event a company has not adopted a Company Agreement (most states, including Texas, don’t require LLCs to have a Company Agreement), the company will operate under the provisions of the Texas Business Organizations Code (TBOC). The provisions of the TBOC are known as the default provisions. On the other hand, if a company has adopted a Company Agreement, the company and its members must operate in accordance with the provisions of the Company Agreement. However, if a specific circumstance is not covered by a provision in the Company Agreement, then the company must look for guidance under the default provisions of the TBOC.
There is no such thing as “one size fits all” when it comes to drafting a Company Agreement. What goes into the Company Agreement depends on the specific circumstances surrounding each LLC. If you need assistance creating a Company Agreement for your LLC, please reach out to your attorney or us for more information.
Stay tuned…as the next blog, Why do I Need a Company Agreement if I have a Certificate of Formation, will be coming soon!