The Company Agreement Explained: Meetings of the Managers and Members
February 25, 2014 | By Vela Wood
Two of my previous posts discussed the difference between a manager-managed LLC and a member-managed LLC and some of the different consent levels you can have in your LLC company agreement (Super-Majority v. Simple Majority). Now, you may be asking, “What is the process for making decisions on behalf of the LLC?” This blog will give you an overview on what the Texas Business Organizations Code (“TBOC”) says about meetings of the Managers and Members and the meeting provisions that aren’t provided for in the TBOC that you may want to consider adding to your company agreement.
If your LLC is manager-managed, there will be meetings of the managers and meetings of the members. If your LLC is member-managed, there will only be meetings of the members. The TBOC provisions that govern how these meetings are conducted are the same for managers as members. The difference between meetings of the managers and meetings of the members is the type of business conducted and decisions made during the meetings. Your company agreement should set forth what types of decisions managers can make and what decisions both managers and members should make. In my next blog, I will discuss the decisions that are typically made by the managers versus the decisions that are typically made by the members.
What the TBOC Says
TBOC Title 101 Subchapter H discusses the default meeting and voting requirements. Specifically, Subchapter H lays out the general notice requirements (Sec. 101.352), what constitutes a quorum (Sec. 101.353), voting rights (Sec. 101.354), what consent level is required to make a decision (Sec. 101.355 and Sec. 101.356), the manner of voting (Sec. 101.357), action by less than unanimous written consent (Sec. 101.358), and action by members without a meeting (Sec. 101.359).
Most of the provisions in Subchapter H focus on the rights of the managers and members related to holding meetings and the consent level required to make a decision. Section 101.354 of the TBOC states that voting is determined on a per capita basis, i.e., one member, one vote. Voting by managers or members can be modified in the company agreement and can be a financial interest, class, or any other basis that is defined.
In order for an LLC to take action, a quorum must be present. Section 101.353 of the TBOC states that a “majority of all persons, members, or committee members of a limited liability company constitutes a quorum.” Generally, a majority vote of the managers and members at a meeting in which a quorum is present will constitute an act of the LLC (Sec. 101.355). There are certain actions that require a different consent level (Sec. 101.356).
Although the TBOC provides these requirements, it is important to reiterate that the TBOC provisions are the default rules and can be modified in your company agreement. You can modify these provisions by designating your own consent levels required to actions in your company agreement.
Additional Provisions to Consider
The TBOC section sets forth the default provisions for manager and member meetings. Below are some provisions that aren’t discussed in the TBOC that you may want to consider adding to your company agreement.
If you have multiple managers or members in your LLC, you may want to add a provision in your company agreement that allows the managers and members to conduct meetings by means of video conference, or by any other similar means. Sometimes it’s difficult to get a group of people together in one place when the managers and members live in different states or even in different countries. By adding this provision, you can make it easy and cost effective for all of the managers and members to participate in meetings.
If your LLC has multiple classes or if you want to vote to establish a new class of members, you may want to provide for these situations. For instance, you may want to require that establishing a new class can only be done at a special meeting of the members.
You may also want to allow managers or members to vote through a proxy. Life happens. Some managers or members may not be able to make an important meeting, but they may want to make sure their vote is counted. A proxy allows a manager or member to vote in place of another manager or member. Generally, a manager or member will authorize another manager or member to vote in their place. The company agreement should set forth the requirements and procedures for executing a proxy.
If you need assistance updating or drafting your company agreement, we can assist you with creating a company agreement that fits your specific needs. You can reach me by my email address listed below.
Posted in Company Agreement Series
Vela | Wood is a boutique corporate law firm that focuses on small businesses, entrepreneurs, and startups.