What Is a Company Agreement and What Does It Cover?

A Texas LLC company agreement is the internal contract that governs how the business operates: who manages it, how members vote, how profits are split, what happens when someone wants out, and how disputes get resolved. Most states call this document an operating agreement, but the Texas Business Organizations Code uses “company agreement” throughout. Texas law allows the agreement to be written, oral, or implied from the members’ conduct, though putting it in writing avoids nearly every dispute that surfaces later.¹

Under the Business Organizations Code, the agreement governs all relationships among members, managers, and officers, along with every other aspect of the LLC’s internal affairs. Any provision that doesn’t conflict with Texas law is fair game, and the agreement can override most of the default rules the state would otherwise impose. Even a single-member LLC can have one. Texas law specifically provides that an agreement isn’t unenforceable just because only one person is a party to it, and for solo owners it mainly documents the separation between personal finances and the company, which matters if a creditor ever challenges the liability shield.¹

How It Differs From the Certificate of Formation

The certificate of formation and the company agreement serve different purposes. The certificate is the public filing submitted to the Texas Secretary of State that brings the LLC into existence. It records basic information: the company’s name, registered agent, registered office, and whether the LLC will be managed by managers or by its members.²

The company agreement stays private. Nobody outside the membership ever needs to see it unless a dispute reaches court. That privacy is part of why it ends up doing the heavy lifting on anything the members actually care about: the certificate records the LLC’s existence, and the agreement controls how it runs.

What Happens Without a Company Agreement

If an LLC has no company agreement, the Business Organizations Code fills every gap with default rules.³ Two of those defaults catch members off guard.

First, profits and losses are allocated based on the agreed value of each member’s capital contribution, not equally. If one member contributed $90,000 and the other contributed $10,000, the first member receives 90% of profits. Second, voting works the opposite way: each governing person gets one equal vote, regardless of how much they invested.⁴ The member who put up 90% of the capital has the same voting power as the member who contributed 10%. That mismatch alone is enough reason to put something in writing.

Management Structure

Every Texas LLC is either member-managed or manager-managed, and the company agreement controls the choice. If the agreement is silent, the certificate of formation determines the structure.⁵

In a member-managed LLC, every member participates in running the business. Each one can bind the company to contracts and make operational decisions. This works for small ventures where all owners want a direct role. In a manager-managed LLC, one or more designated managers handle operations while the remaining members serve as passive investors. Managers don’t have to be members; the LLC can hire an outside professional.⁶

The certificate of formation must state whether the LLC initially has managers and list each manager’s or member’s name and address.² The company agreement then builds on that framework with the specifics: authority limits for each manager, dollar thresholds above which a manager needs member approval, and procedures for appointing or removing managers.

Voting Rights and Breaking Deadlocks

The agreement can structure voting however the members want. Common approaches include per capita voting (one vote per member) and voting weighted by ownership percentage. Most agreements separate routine decisions from major ones. Day-to-day operations might require a simple majority; admitting a new member, taking on significant debt, or selling company assets might demand a supermajority or unanimous approval.

Deadlock is the single biggest governance risk for any LLC with equal ownership. When two 50/50 members disagree on something fundamental, the company can stall completely. A well-drafted agreement anticipates this with a specific resolution path:

Mediation or arbitration, where a neutral third party helps resolve the dispute or issues a binding decision.
A shotgun buy-sell, where one member names a price for the other’s interest and the second member must either sell at that price or buy the first member’s interest at the same price. The mechanism is self-correcting, because the person naming the price knows they might end up on either side of the deal.
A rotating tiebreaker, where members alternate who gets the casting vote on deadlocked decisions.

Without a deadlock provision, the members may have no practical option other than petitioning a court for judicial dissolution, which destroys value for everyone.

Capital Contributions and Profit Allocation

Every member’s ownership stake starts with a capital contribution. Most are cash, but Texas allows property, equipment, and services. The agreement should document the agreed value of each contribution, because that value determines the default profit-and-loss split.⁷

The agreement can override the default and split profits however the members choose. Disproportionate allocations are common. A member who contributes expertise but little cash might negotiate a larger profit share than their capital alone would justify. The agreement should also address future capital needs: whether additional contributions can be required, what happens to a member’s ownership percentage if they decline to contribute more, and whether the company can bring in new members to fill funding gaps. These questions are far easier to resolve in advance than during a cash crunch.

Pass-through taxation creates a related problem. The IRS treats a multi-member LLC as a partnership by default, so profits and losses pass through to each member’s personal return based on the allocations in the agreement.⁸ A member allocated $100,000 in profit owes tax on that amount even if every dollar stays in the company’s account. For that reason, many agreements include a tax distribution clause requiring the LLC to distribute at least enough cash each year for members to cover their personal tax bills from company income. The agreement should also spell out which tax classification the members intend (partnership, S corporation, or C corporation) and what approval is needed to change it.

Fiduciary Duties and Liability Protection

Members and managers who serve as governing persons owe fiduciary duties to the LLC and to each other. These duties, primarily care and loyalty, require acting in good faith, avoiding conflicts of interest, and not using company resources or opportunities for personal gain. Texas law presumes that governing persons act in good faith and in compliance with their duties, shifting the burden to anyone challenging a decision.⁹

Texas gives LLCs unusual latitude here. The company agreement can expand, restrict, or eliminate fiduciary duties entirely.¹⁰ A common use is allowing a manager to pursue outside business interests that would otherwise raise conflict-of-interest concerns. Eliminating all duties wholesale is technically permitted but risky; most practitioners keep at least a baseline good-faith standard.

The agreement also plays a direct role in protecting members’ personal assets. Courts can pierce the veil and hold members personally liable for company debts if the LLC ignores its own governance. Maintaining separate bank accounts, documenting decisions in writing, and consistently following the procedures laid out in the agreement are the most effective defenses against a veil-piercing claim.

Transferring Ownership Interests

Most company agreements restrict how members can sell or transfer their interests. The standard approach is a right of first refusal: before offering an interest to an outsider, a departing member must give existing members the chance to buy it on the same terms. This keeps someone the remaining members didn’t choose from gaining a voice in the company.

Buy-sell provisions go further by establishing a valuation method so nobody is left arguing about what an interest is worth. Common methods include a formula based on book value, a multiple of earnings, or an independent appraisal triggered by the departure event. Without an agreed method, the exiting member and the remaining owners will almost certainly disagree on price, and that disagreement frequently ends up in court.

Involuntary transfers are harder to control. When a member files for bankruptcy, their economic interest (the right to receive distributions) becomes property of the bankruptcy estate regardless of what the agreement says. Management and voting rights can be protected if the agreement qualifies as an executory contract with meaningful ongoing obligations for all parties. Death and divorce raise similar issues. The agreement should specify what happens in each scenario: whether the company or remaining members must buy the departing member’s interest, what triggers the purchase, and where the money comes from. Life insurance often funds the purchase in the case of death.

Amending the Agreement

Under Texas law, a company agreement can only be amended if every member consents, unless the agreement itself sets a different threshold.¹¹ The unanimous-consent default can lock members into outdated provisions if even one person refuses to approve a change. Many well-drafted agreements lower the bar to a supermajority for most amendments while preserving unanimous consent for changes that directly affect a member’s economic rights, like altering profit allocation percentages or adding new capital contribution obligations.

Even though Texas allows oral agreements, oral amendments invite disputes about what was actually changed. Any amendment should be documented in writing, signed by the required members, and attached to the original agreement.

Dissolution Triggers

Ending a Texas LLC follows the procedures in Chapter 11 of the Business Organizations Code.¹² The company agreement can define specific triggers for voluntary dissolution: completion of a particular project, expiration of a fixed term, or a vote by a defined percentage of owners. Without those provisions, default rules control.

Once dissolution begins, the LLC must wind up its affairs: collect outstanding debts, sell assets as needed, and pay creditors before distributing anything to members. Creditors always come first. Only after all obligations are satisfied do remaining funds go to members, distributed according to the priority set in the company agreement. The final step is filing a certificate of termination with the Secretary of State.

1
State of Texas. Texas Business Organizations Code Title 3, Chapter 101 – Section: Definitions
2
Office of the Texas Secretary of State. Form 205 Instructions for Certificate of Formation Limited Liability Company
3
State of Texas. Texas Business Organizations Code Title 3, Chapter 101 – Section: Company Agreement
4
State of Texas. Texas Business Organizations Code Title 3, Chapter 101 – Section: Equal Voting Rights
5
State of Texas. Texas Business Organizations Code Title 3, Chapter 101 – Section: Governing Authority
6
Texas Secretary of State. Selecting a Business Structure
7
State of Texas. Texas Business Organizations Code Title 3, Chapter 101 – Section: Allocation of Profits and Losses
8
Internal Revenue Service. Limited Liability Company (LLC)
9
State of Texas. Texas Business Organizations Code Title 3, Chapter 101 – Section: Presumptions for Governing Persons of Certain Limited Liability Companies
10
State of Texas. Texas Business Organizations Code Title 3, Chapter 101 – Section: Expansion, Restriction, or Elimination of Duties and Liabilities
11
State of Texas. Texas Business Organizations Code Title 3, Chapter 101 – Section: Amendment of Company Agreement
12
State of Texas. Texas Business Organizations Code Title 1, Chapter 11 – Winding Up and Termination of Domestic Entity