The Company Agreement Explained: Why Do I Need a Company Agreement If I Have a Certificate of Formation?
July 8, 2013 | By Vela Wood
I regularly get the question from clients, “Why do I need a Company Agreement if I have a Certificate of Formation?” To answer the question directly, the difference lies in the purpose of the two documents.
Certificate of Formation: The Certificate of Formation (also known as the Articles of Organization or the Articles of Incorporation in other states) is the formation document filed with the state to form a Texas limited liability company. Anyone can file a Certificate of Formation. It doesn’t need to be filed by a member or manager of the LLC. The information used to file the Certificate of Formation will be available to the general public once the LLC is formed. The Certificate of Formation usually requires:
Name of the LLC;
Name and address of the registered agent;
Whether the LLC is member or manager managed;
The name and address of the members (if member managed) or managers (if manager managed); and
The name of the organizer.
Company Agreement: As discussed in the previous blog, What is a Company Agreement?, a Company Agreement is an internal document that provides the framework for how an LLC operates. This document doesn’t get filed with the state. Thus, the general public does not have access to this document. For more information on what provisions are generally included in a Company Agreement, visit my previous blog.
A Certificate of Formation is a very basic filing document which primarily serves to establish the company. It is not meant to govern the everyday operations of an LLC. A properly drafted Company Agreement will cover operational, management, distribution, tax, and conveyance matters. This is why we recommend that every LLC draft a Company Agreement. Moreover, as Kevin has discussed in the past, it is imperative to get things down in writing to avoid disputes between the owners. Without a Company Agreement, the LLC operates in accordance with the state limited liability company provisions (known as the default provisions). Your LLC is way too valuable to leave the operations of the LLC up to the default provisions.
Be sure to consult with us or with an attorney when you are ready to adopt a company agreement for your LLC. Vela Wood PC can tailor your LLC company agreement to fit your specific needs and circumstances.
And please stay tuned as I will walk you through the most common LLC company agreement provisions in the coming weeks.