Congratulations! You have decided to form a limited liability company (LLC) to run your business. After completing your state formation process, your LLC needs to have the right documentation in place. A company agreement (also called an operating agreement or regulations in other jurisdictions), is a document that describes and outlines the management and governance of an LLC. While a company agreement is not required in Texas, Texas law assumes that each LLC has one in place. Thus, all LLCs need a company agreement in order to run efficiently and avoid lengthy and expensive disputes.

  1. A company agreement allows you to customize how your business operates. A key advantage of LLCs is the ability to create flexible business structures. With a company agreement, you can customize the management and ownership of your business. Generally, an LLC owner can customize almost everything about management and ownership other than a very short list of topics.
  2. A company agreement may help maintain members’ limited liability. An important benefit of LLCs is that LLC members have limited liability—that is, they will not be held liable for the LLC’s obligations. However, limited liability may be lost if steps are not taken to maintain the business as an entity that is separate from its owners. One practical step is creating and implementing a company agreement and including provisions that adequately separate the business matters from the individual owners.
  3. A company agreement identifies how decisions will be made. Another critical part of the company agreement is the decision-making provisions. These clauses provide immense value, particularly for multimember LLCs and manager-managed LLCs, where multiple people may be involved in making management decisions. In those instances, it is vital to identify who has the power to make certain decisions or to break deadlocks.
  1. Other institutions may require a company agreement. Even though most states do not require LLC company agreements to be created or filed, some institutions or individuals may impose such a requirement before engaging in a business transaction with your LLC. Banks, third party investors, and other financial or lending institutions often require a copy of the company agreement before doing business with an LLC and will refuse services until one is provided.

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Our attorneys understand how to draft company agreements that will help your business operate efficiently and avoid expensive litigation. A conversation with our team will enable you to identify the key features your LLC needs. Call our office and schedule a virtual appointment today.