As a business owner, you’re ready to get up and running, but not so fast. There are many layers and intricacies to business owning, so getting on the same page with your partners, peers, and employees is essential to operating a successful business.
If you’re starting a business, you might have heard of an LLC, also known as, Limited Liability Company. Simply put, an LLC is a business structure that combines pass-through taxation of either a partnership or a sole proprietorship with the limited liability of a corporation.
This article covers what a Company Agreement is and what it does for Texas business owners.
What is a Company Agreement and what does it mean or Texas business owners?
A Company Agreement provides structure on how your LLC will operate. It’s an internal document that governs the internal and external affairs of a business.
For example, having an LLC can help you with hiring, opening bank accounts, obtaining licenses or permits needed for your business, and allows you to enter into contracts.
Company Agreements include information such as:
- Ownership strucuture
- Members’ rights and responsibilities
- Allocation of profits and losses
- Distribution of profits
- Members’ voting power
- Members’ transfer of membership interest
- Dissolution and liquidation
This information helps define the business objectives of the company and clearly explains how your business will operate.
Most states, Texas included, don’t require LLCs to have a Company Agreement. However, if a business has not adopted a Company Agreement, they will then operate under the provisions of the TBOC, or the Texas Business Organizations Code.
However, if a company has adopted a Company Agreement, the business and its people are obligated to operate under the provisions of that Agreement. In the event a specific circumstance is not outlined under the Company Agreement, then the business will have to look for guidance under those default provisions provided under the TBOC.
For example, if you want a specific person to take over your business in the event you are incapacitated or in death, you have to clearly state who you want to take manage your business. Otherwise it falls to your state’s default rules and you could potentially have your business fall into the hands of a family member not qualified to run it.
Start your Company Agreement today
The information that goes into a Company Agreement will look different across different businesses. And each LLC will look have a different framework unique to your business needs. This is why it’s important to reach out to an attorney experienced in business law to help you prepare a company agreement specific to your business. Your attorney can even help you define and structure your LLC while helping you draft up a Company Agreement.
Contact us today to see how we can help.