Filing a formation document creates a Texas limited liability company, but it doesn’t settle the day-to-day questions that often cause trouble later: who can sign contracts, how profits are divided, or what happens if an owner wants out. Those answers belong in a company agreement, the practical rulebook for the LLC after formation.
Texas owners have broad flexibility to set their internal rules, but statutory defaults govern matters they leave unaddressed. Through 75 years of serving Texas clients in business law and related legal matters, we have seen the value of documenting decisions while the owners are aligned rather than reconstructing an informal understanding after a disagreement or major transaction.
What Texas Means by a Company Agreement
Texas law uses the term company agreement, while “operating agreement” is a common alternative. Section 101.001(1) of the Texas Business Organizations Code defines a company agreement as the members’ written, implied, or oral agreement concerning the LLC’s affairs or business.
The company agreement isn’t filed with the Texas Secretary of State alongside the Certificate of Formation. It’s an internal business document. Section 101.052 places the relationships among members, managers, and officers, their rights and duties, company affairs, and amendment procedures within the agreement’s scope.
A written agreement provides the clearest record of the owners’ decisions. It’s also valuable for a business with one owner: a single-member LLC can have an enforceable company agreement even though one person is the only party to it.
Define Ownership & Management Authority
The agreement should identify every member, the ownership and economic arrangements the members have adopted, and each member’s agreed capital contributions, including cash, property, or other value contributed to the business. These details provide a reference point when the company distributes money, admits another owner, or evaluates a buyout.
Management authority needs equal clarity. Under Section 101.251, an LLC’s governing authority is its managers when the company agreement provides for manager management and its members when the agreement provides for member management. If the agreement doesn’t address management, the Certificate of Formation determines whether managers or members govern the company.
Owners may want managers to handle routine operations while reserving larger decisions for member approval. If the LLC uses officer roles, the agreement can identify those officers and specify who may sign contracts, open accounts, hire personnel, or take other actions for the company.
Useful authority rules often address:
- Which decisions a manager or member can make alone.
- Which transactions require member consent.
- Who can bind the LLC in agreements with vendors, lenders, or customers.
Put Financial Rules & Voting Rights in Writing
Equal ownership doesn’t always mean equal contributions, and unequal contributions don’t automatically determine voting power. The company agreement should address:
- Additional capital contributions.
- Distributions and compensation.
- Profit and loss allocations.
- Voting rights and approval thresholds.
Texas statutory defaults may not match the deal the owners believe they made. Under Code provision 101.201, profits and losses are allocated according to the agreed value of each member’s capital contributions unless the company agreement provides otherwise. Code provision 101.354 gives each member an equal vote by default, regardless of capital contribution or ownership percentage.
As a result, one member might contribute substantially more capital yet have the same default voting power as another. A written agreement lets the owners choose a voting structure and economic arrangement that reflect their expectations.
The agreement should also identify decisions requiring a higher approval threshold. Code provision 101.356 generally requires a majority of all members to approve fundamental business transactions, and the approval of all members to amend the formation document, unless the governing rules provide otherwise. Owners can establish approval requirements for major borrowing, the sale of significant assets, the admission of a new member, or changes to the operating structure.
Plan for Transfers, Departures & Dissolution
Exit terms are easy to postpone when a company is new, but they become much harder to negotiate once an owner wants to leave or an unexpected event occurs. Business Organizations Code 101.107 generally provides that a member may not withdraw from or be expelled from a Texas LLC unless the company agreement says otherwise.
A well-considered agreement can establish procedures for transferring membership interests. Those procedures may address whether the other owners must approve a transfer, whether they have an opportunity to purchase the interest first, and how the interest will be valued. The agreement can also cover death, incapacity, bankruptcy, retirement, or a member’s failure to meet agreed obligations.
LLC dissolution terms deserve the same attention. The agreement can identify events that trigger winding up, designate who handles final business tasks, and set expectations for paying obligations and distributing remaining assets. These provisions don’t eliminate conflict, but they give the parties a documented process to follow when circumstances change.
Choose Deliberate Rules & Maintain the Record
When a company agreement doesn’t address an internal-affairs issue, Titles 1 and 3 of the Texas Business Organizations Code govern it. The agreement therefore serves as more than a formation checklist. It records deliberate choices instead of leaving owners to rely unintentionally on rules designed for many different businesses.
Contractual flexibility also has limits. Business Organizations Code 101.054 identifies provisions that a company agreement can’t waive or modify, subject to limited exceptions. Careful drafting requires owners to define their preferred terms and confirm that those terms comply with Texas law.
Business Organizations Code 101.501 requires an LLC to maintain supplemental records at its principal office, including:
- A current ownership list.
- Six years of tax returns.
- The Certificate of Formation.
- A written company agreement, if one exists.
Keep the signed agreement with the company’s records and update it when ownership, management authority, or operating rules change. A written amendment provides a clearer record than emails, conversations, or changed practices.
When Tailored Drafting Deserves Legal Guidance
A basic form may not capture the decisions that distinguish one LLC from another. Tailored drafting is particularly useful for companies with multiple owners or unequal contributions, manager management or planned ownership transfers, and intellectual property concerns or other arrangements requiring customized financial and authority provisions.
Issues beyond the company agreement may also affect the structure, including tax classification and securities considerations, employment arrangements and regulatory requirements, and ownership of intellectual property. Before finalizing terms, owners should also consider whether an LLC, limited partnership, or corporation best fits the planned ownership structure and business activity.
The most useful agreement records three things before they become points of disagreement: who has authority, how ownership economics work, and what happens when an owner or the business changes course. Our LLC Creation services include assistance with the formation filing, registered-agent appointment, and a customized company agreement. To discuss the formation process, call Norred Law, PLLC at (817) 500-9433.