Form 10-3

A series LLC allows for the assets of the LLC to be divided and segregated and the financial benefits from those assets to be allocated to a designated group of members. The liabilities of each series are likewise segregated (unless agreed to otherwise in the company agreement pursuant to Tex. Bus. Orgs. Code § 101.602(c)); however, there is still only one LLC. Therefore, the members of each series are members of the LLC. Series LLCs can be beneficial for companies involved in real estate investment or the ownership of oil and gas interests or operating separate lines of business. See Tex. Bus. Orgs. Code §§ 101.601–.622 for provisions relating to series LLCs.

This agreement satisfies the minimum requirements for allowing an LLC to have series under the Texas Business Organizations Code (TBOC) and includes a simple management structure of one man­ager for both the LLC and each series. Many other provisions of the company agreement would need to be changed to accommodate the series on a case-by-case basis. In this agreement, members of each series vote only on matters relating to that series (and such matters requiring a vote, as opposed to fall­ing under the control of the manager, may be further delineated), and distributions are allocated to the members of each series. These provisions are only a starting point for the practitioner to consider. As long as the certificate of formation and the company agreement authorize the creation of one or more series, additional provisions related to the series can also be formulated under a separate agreement as members and series are added. See Tex. Bus. Orgs. Code § 101.602(b) and form 10-1 in this manual for the requirements of a certificate of formation used to create a series LLC.

This form can be modified to include any provision related to the regulation and management of the company as long as the provision is not inconsistent with law or the certificate of formation of the company. See Tex. Bus. Orgs. Code § 101.052(d). To the extent the company agreement does not oth­erwise provide, the TBOC will govern the internal affairs and management of the business of the com­pany. See Tex. Bus. Orgs. Code §§ 101.052(b), 101.252. Conversely, the agreement may waive or modify the TBOC provisions. In the case of those items listed in section 101.054, a waiver or modifi­cation requires that the company agreement contain a provision that the item is intended to be waived or modified and who must approve the waiver or modification.

References to the TBOC are included following certain sections of this form to allow the practitioner to consider alternative language that might be appropriate for inclusion and to provide additional guid­ance on areas that should be addressed in the agreement.

Company Agreement of [name of LLC]

[For Series LLC]

This Company Agreement (“Agreement”) of [name of limited liability company], a Texas limited liability company (“Company”), is entered into effective [date] (“Effective Date”), by and between [names of members] (collectively referred to herein as the “Mem­bers” and individually as a “Member”) and [name of manager] (“Manager”).

Article 1 

Formation

1.1Formation. The Company was organized pursuant to the provisions of the Texas Business Organizations Code (“Code”) by filing a certificate of formation (“Certificate”) with the Texas secretary of state on the Effective Date. The Certificate provides for the establish­ment of one or more Series (defined in Article 6).

1.2Purpose. The purpose and business of the Company shall be to [list company’s pur­pose] and all related activities incidental thereto and the transaction of any other business or activity allowed under the Code that is approved by the Manager. The Company shall have the authority to do all things necessary or convenient to accomplish its purpose and operate its business as described in this section 1.2.

1.3Term. The Company shall continue in existence perpetually or until the termination of the Company in accordance with the provisions of section 8.1 of this Agreement or the Code.

1.4Registered Agent and Office. The registered agent for the service of process for the Company and each Series is [name], and the address is [address]. The principal office of the Company and all Series shall be located at [address]. The Company or any Series may have other offices and places of business at locations, both within and without the state of Texas, as the Manager may from time to time determine or as the business and affairs of the Company or any Series may require.

1.5Members. As of the Effective Date, the Members of the Company and each Series have the following membership interests (“Membership Interests”) in the Company and each Series:

________
100%

The Member’s Membership Interest is that Member’s right (a) to an allocable share of the profits, losses, deductions, distributions, and credits of the Company and any Series; (b) to a distributive share of the assets of the Company and any Series; and (c) to vote on those mat­ters described in this Agreement and the Code and to participate in the management and oper­ation of the Company and any Series as set forth in this Agreement.

1.6Manager. The Manager is the person named in the Certificate of Formation as the initial Manager of the Company and any person hereafter elected as a Manager of the Com­pany as provided in this Agreement, but does not include any person who has ceased to be a Manager of the Company. A Manager is not required to be a resident of Texas or a Member of the Company. The Manager of the Company is also the Manager of each Series established as provided for in the Certificate and this Agreement.

1.7No State-Law Partnership. The Members intend that neither the Company nor any Series be a partnership (including a limited partnership) or joint venture, and that no Member be a partner or joint venturer of any other Member, for any purposes other than applicable tax laws, and this Agreement may not be construed to suggest otherwise.

Article 2 

Capital Contributions

2.1Initial Capital Contributions. The Members have contributed to the Company the property listed on Schedule 1.

2.2Capital Accounts. The Company and any Series shall maintain for each Member a separate capital account in accordance with this section 2.2, which shall control the division of assets upon liquidation of the Company or a Series as provided in this Agreement. The capital account shall be increased by the cash amount or fair market value of all capital contributions made by that Member to the Company or a Series pursuant to this Agreement and by that Member’s allocable share of profits. The capital account shall be decreased by the cash amount or fair market value of any property distributed to that Member pursuant to this Agreement and by that Member’s allocable share of losses.

2.3Ownership of Assets. All assets and property of the Company shall be owned by the Company, subject to the terms and provisions of this Agreement, and no Member, individ­ually, shall have any ownership of those assets or property. Legal title to all assets and prop­erty of the Company shall be held and conveyed in the name of the Company. All assets and property of a Series shall be owned by the Series, subject to the terms and provisions of this Agreement, and no Member, individually, shall have any ownership of those assets or prop­erty. Legal title to all assets and property of a Series shall be held and conveyed in the name of that Series or in the name of the Company pursuant to the provisions of Code section 101.603.

2.4Return of Capital Contributions. Capital contributions to the Company shall be expended in furtherance of the business of the Company. All costs and expenses of the Com­pany shall be paid from the Company’s resources, and the Members shall not be liable for any obligations of the Company, directly or indirectly. No interest shall be paid by the Company on capital contributions. Capital contributions to any Series shall be expended in furtherance of the business of that Series. All costs and expenses of any Series shall be paid from that Series’ resources, and the Members shall not be liable for any obligations of the Series, directly or indirectly. No interest shall be paid by the Series on capital contributions.

Article 3 

Financial Matters

3.1Net Cash Flow. There shall be distributed annually, or more often as determined by the Manager, to the Members from net cash flow of the LLC and from each Series an amount that the Manager may determine. Such distributions shall be made among all the Members in accordance with their Membership Interests. Net cash flow shall mean the amount by which the receipts from operations of the Company or any applicable Series and distributions to the Company or any applicable Series exceed (a) applicable expenses (excluding deductions for amortization and depreciation) and (b) any cash reserve that the Manager determines neces­sary for the operations of the Company or any applicable Series. Distributions shall be made to each Member in the form of cash, regardless of the form of the Member’s contribution to the Company or any Series.

3.2Prohibited Distributions. Distributions may not be made to Members if, immedi­ately after making the distribution, the Company’s or any applicable Series’ total liabilities exceed the fair value of the Company’s or any applicable Series’ total assets as set forth in Code sections 101.206 (“Prohibited Distribution”) and 101.613 (“Distributions”). A Member who receives a Prohibited Distribution is not required to return the Prohibited Distribution unless the Member had knowledge of the violation of this section 3.2 or the Code. A Prohib­ited Distribution does not include an amount constituting reasonable compensation for present or past services or a reasonable payment made in the ordinary course of business under a bona fide retirement plan or another benefits program.

3.3General Allocations of Profits and Losses. Profits, losses, deductions, and credits for any fiscal year shall be allocated to the Members in proportion to their respective Member­ship Interests.

3.4Taxes. The Manager may make any tax elections for the Company or any Series allowed under the Internal Revenue Code of 1986, as amended from time to time, or the tax laws of any state or other jurisdiction having taxing authority over the Company or any Series that the Manager may deem appropriate and in the best interests of the Company, any Series, and the Members.

3.5Books and Records. The Company and all Series shall keep at its principal office the books and records of the Company and all Series required by Code sections 3.151 and 101.501. Members shall have reasonable access to the books and records of the Company and any applicable Series.

Article 4 

Management

4.1Management Authority. Subject to the provisions of Article 5, management of the Company and of each Series shall be vested in the Manager. The Manager shall have the exclusive power and authority to conduct the business of the Company and of each Series. In conducting the business of the Company, the Manager shall have all rights, duties, and powers conferred by the Code. Subject to Article 5, the Manager shall have the authority to buy and sell assets for the Company or make commitments in the name of the Company in the ordi­nary course of the Company’s business and is hereby expressly authorized on behalf of the Company to make all decisions with respect to the Company’s business and to take all actions necessary to carry out those decisions, including, but not limited to, borrowing money for the Company and encumbering any of the Company’s assets. In conducting the business of a Series, the Manager shall have all rights, duties, and powers conferred by the Code. Subject to Article 5, the Manager shall have the authority to buy and sell assets for a Series or make com­mitments in the name of a Series in the ordinary course of the Series’ business and is hereby expressly authorized on behalf of each Series to make all decisions with respect to the busi­ness of that Series and to take all actions necessary to carry out those decisions, including, but not limited to, borrowing money for a Series and encumbering any of a Series’ assets.

4.2Duties. The Manager shall carry out his duties in good faith, in a manner that is in the best interest of the Company or any applicable Series, and with the care that an ordinarily prudent manager in a like position would use under similar circumstances. As long as the Manager complies with the provisions of this section 4.2, he shall not have any liability by reason of being or having been a manager of the Company or a Series.

4.3Time Devoted to Business. The Manager shall devote the time to the business of the Company or any Series that the Manager, in his discretion, deems necessary for the efficient carrying on of the Company’s or any Series’ business. The Manager shall at all times be free to engage for his own account in any business whether or not that business competes with any business of the Company or any Series.

4.4Number of Managers. The number of managers may be increased or decreased by vote of the Members with aggregate Membership Interests of more than fifty percent (50%). Initially, there shall be one Manager: [name of manager].

4.5Officers. The Manager may designate one or more persons to be officers of the Company (“Officers”). Any Officer so designated shall have such authority and perform such duties as the Manager may delegate to him. The Manager may assign titles to particular Offi­cers. Unless the Manager decides otherwise, if the title is one commonly used for Officers of a business corporation formed under the Code, the assignment of such title shall constitute the delegation to such Officer of the authority and duties that are normally associated with that office, subject to any specific delegation of authority and duties by the Manager. Each Officer shall hold office until his successor shall be duly designated and shall qualify, or until his death, or until he shall resign or shall have been removed in the manner provided herein. Any number of offices may be held by the same person. The salaries or other compensation, if any, of the Officers of the Company shall be fixed by the Manager. Any Officer may be removed, with or without cause, by the Manager whenever in the Manager’s judgment the best interests of the Company will be served thereby. Initially, the Officers of the Company shall be as fol­lows: [name[s] of officer[s]].

4.6Tenure and Removal. The Manager shall hold office until his successor has been duly elected and qualified as provided in this section 4.6. A Manager may be elected or removed by the vote of the Members with aggregate Membership Interests of more than fifty percent (50%). No person shall be eligible to serve as a manager of the Company or a Series until that person has accepted the provisions of this Agreement in writing.

4.7Reliance by Third Parties. No third party dealing with the Company or a Series shall be required to ascertain whether the Manager is acting in accordance with the provisions of this Agreement. All third parties may rely on a document executed by the Manager as bind­ing the Company or any applicable Series. If the Manager acts outside the authority set forth in this Agreement or as provided in the Certificate or the Code, he shall be liable to the Mem­bers for any damages arising out of his unauthorized actions.

4.8Reimbursement. The Manager shall be entitled to a management fee for managing the assets of the Company and/or a Series, which shall be set by a vote of the Members with aggregate Membership Interests of more than fifty percent (50%). The Manager shall be reim­bursed by the Company and any applicable Series for any reasonable out-of-pocket costs incurred on behalf of the Company or that Series.

4.9Insurance. The Company may maintain for the protection of the Company, any Series, the Members, and the Manager such insurance as the Manager, in the Manager’s sole discretion, deems necessary for the operations being conducted.

4.10Exculpation. The Manager shall not be liable to the Company, a Series, or the Members for any act or failure to act or for any errors of judgment, but for only willful mis­conduct or gross negligence. The Company and any applicable Series shall indemnify and hold harmless the Manager and his agents against and from any personal loss, liability, or damage incurred as a result of any act or omission, or any error of judgment, unless the loss, liability, or damage results from the Manager’s willful misconduct or gross negligence. Any such indemnification shall be paid only from the assets of the Company or any applicable Series, and no Member, Manager, or third party shall have recourse against the personal assets of any Member for such indemnification.

4.11Conflicts of Interest. A Manager shall be entitled to enter into transactions that may be considered competitive with, or business opportunities that may be beneficial to, the Com­pany or any Series, it being expressly understood that the Manager may enter into transactions that are similar to the transactions into which the Company or a Series may enter. A Manager does not violate a duty or obligation to the Company or a Series merely because the Man­ager’s conduct furthers the Manager’s own interest. No transaction with the Company or a Series shall be voidable solely because a Manager has a direct or indirect interest in the trans­action if the transaction is fair to the Company or any applicable Series.

Article 5 

Members

5.1Participation. The Members, in their capacity as Members, shall take no part in the control, management, direction, or operation of the affairs of the Company or a Series and shall have no power to bind the Company or a Series, except as specifically provided herein.

5.2Unanimous Vote of Members. The following actions by the Company shall require the unanimous vote of all Members: (a) voluntary dissolution of the Company; (b) voluntary termination of a Series; (c) admission of an additional Member; (d) amendment of this Agree­ment or the Certificate; or (e) selling all or substantially all of the assets of the Company or a Series other than in the ordinary course of business.

5.3Quorum. A majority of the outstanding Membership Interests, represented in per­son or by proxy, shall be necessary to constitute a quorum at meetings of the Members. Each Member hereby consents and agrees that one or more Members may participate in a meeting of the Members by means of conference telephone or similar communication equipment by which all persons participating in the meeting can hear each other at the same time, and that participation shall constitute presence in person at the meeting. If a quorum is present, the affirmative vote of the majority of the Membership Interests represented at the meeting and entitled to vote on the subject matter shall be the act of the Members, unless a greater number is required by this Agreement or the Code. In the absence of a quorum, those present may adjourn the meeting for a period, but in no event shall the period exceed sixty (60) days. Jointly held membership interests shall be voted pursuant to Code section 6.157.

5.4Informal Action. Any action required or permitted to be taken at a meeting of the Members may be taken without a meeting if the action is evidenced by a written consent describing the action taken and signed by each Member entitled to vote. Action taken under this section 5.4 is effective when all Members entitled to vote have signed the consent, unless the consent specifies a different effective date, which may be before or after the date the con­sent is signed.

5.5Meetings. Meetings of the Members for any purpose or purposes may be called by the Manager or any Member. The place of meeting shall be the principal office of the Com­pany or any other reasonable place designated by the Manager or Member calling the meeting. Written notice stating the place, day, and hour and purpose or purposes of the meeting shall be delivered either personally or by mail to each Member of record entitled to vote at the meet­ing. Waiver of notice and actions taken at a meeting shall be effective as provided in the Code. Following each meeting, copies of the minutes of the meeting shall be sent to each Member, and the original of all minutes and consents of the Members shall be maintained in the minute book of the Company.

5.6Liability of Members. A Member shall not be liable as a Member for the debts, obligations, or liabilities of the Company or a Series, including a debt, obligation, or liability under a judgment, decree, or order of a court. The failure of the Company or a Series to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs under this Agreement or the Code shall not be grounds for imposing personal liability on a Member for liabilities of the Company or a Series.

5.7Representations and Warranties. Each Member hereby represents and warrants to the Company, any applicable Series, and each other Member that (a) the Member is familiar with the existing or proposed business, financial condition, properties, operations, and pros­pects of the Company and any Series in which the Member is receiving a Membership Inter­est; (b) the Member has asked the questions and conducted the due diligence concerning the acquisition of his Membership Interest in the Company and Series that he has desired to ask and conduct, and all those questions have been answered to the Member’s full satisfaction; (c) the Member has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the Company and Series; (d) the Member understands that owning the Membership Interest in the Company and Series involves various risks, including the restrictions on transfers as set forth in Article 7 of this Agreement, the lack of any public market for the Membership Interests, the risk of owning the Membership Interest for an indefinite time, and the risk of losing his entire investment in the Company or Series; (e) the Member is able to bear the economic risk of the investment; (f) the Member is acquiring the Membership Interest in the Company or Series for investment, solely for his own beneficial account and not with a view to, or any present intention of, directly or indirectly selling, transferring, offering to sell or transfer, participating in any distribution, or otherwise disposing of the Membership Interest; and (g) the Member acknowledges that the Membership Interests have not been registered under the Securities Act, or any other applica­ble federal or state securities laws, and that the Company and Series have no intention, and shall not have any obligation, to register or to obtain an exemption from registration for the Membership Interests or to take action so as to permit sales pursuant to the Securities Act.

5.8Conflicts of Interest. A Member shall be entitled to enter into transactions that may be considered competitive with, or business opportunities that may be beneficial to, the Com­pany, it being expressly understood that the Member may enter into transactions that are simi­lar to the transactions into which the Company may enter. A Member does not violate a duty or obligation to the Company merely because the Member’s conduct furthers the Member’s own interest. A Member may lend money to and transact other business with the Company.  The rights and obligations of a Member who lends money to or transacts business with the Company are the same as those of a person who is not a Member, subject to other applicable law. No transaction with the Company shall be voidable solely because a Member has a direct or indirect interest in the transaction if the transaction is fair to the Company.

Article 6 

Series

6.1Series. “Series” means a series of the Company created pursuant to the provisions of Code sections 101.601 through 101.622, composed of Members and their associated Mem­bership Interests, that has separate rights, powers, or duties with respect to specified property or obligations of the Company and the allocation of profits and losses that are associated with such property and may have a separate business purpose or investment objective, all as set forth in this Agreement.

6.2Establishment and Designation of Series. The Manager, at any time and from time to time, may authorize the creation of one or more Series and, additionally, may authorize the division of existing Members and Membership Interests into one or more Series.

6.3Series Schedule.  Series Schedule 2 attached hereto and incorporated herein con­tains the name and purpose of each Series along with the names of the Members of the Series and each Member’s Capital Contribution. Notwithstanding the provisions of section 9.1, the Manager may amend Schedule 2 from time to time to reflect changes to any Series or the addition of a Series. Any such amended Schedule 2 shall (a) supersede all prior Schedule 2s; (b) become part of this Agreement; and (c) be kept on file at the principal office of the Com­pany.

6.4Assets and Liabilities Associated with Series; Records. The Manager shall cause the Company to maintain separate and distinct records for each Series and shall cause the assets, contributions, debts, liabilities, obligations, expenses, and profits and losses associated with any such Series to be held and accounted for separately from the other assets, contribu­tions, debts, liabilities, obligations, expenses, and profits and losses of any other Series or the Company generally. The Manager shall maintain the records of each Series so that the assets of each Series can be reasonably identified by specific listing, category, type, quantity, or computational or allocational formula or procedure, including a percentage or share of any assets, or by any method in which the identity of the assets of a Series can be objectively determined. Assets of a Series may be held in the name of the Series or in the name of the Company. In the event an asset is held in the name of the Series, the Manager may file an assumed name certificate under the Texas Assumed Business or Professional Name Act and any applicable local county provisions for the name of the Series.

6.5Limitation on Enforceability of Obligations and Expenses of Series against Assets. Notwithstanding any other provision of this Agreement, the Code, or of other law:

a.the debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to a particular Series shall be enforceable against the assets of that Series only, and shall not be enforceable against the assets of the Company generally or any other Series; and

b.none of the debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to the Company generally or any other Series shall be enforceable against the assets of a particular Series. All per­sons who extend credit to (or with respect to) a particular Series, or who con­tract with (or with respect to) or have a claim against a particular Series, may look only to the assets associated with that Series for repayment of such credit or to enforce or satisfy any such contract or claim.

Article 7 

Restrictions on Transfers

7.1Additional Members. Additional members shall not be admitted to the Company or any Series without the prior written consent of all the Members.

7.2Dispositions and Encumbrances of Membership Interests. A Member shall not encumber or make a sale, assignment, transfer, conveyance, gift, exchange, or other disposi­tion (voluntarily, involuntarily, or by operation of law) of all or any portion of his Member­ship Interest in the Company or any Series, including a disposition resulting from the death or divorce of a Member, without the prior written consent of all the remaining Members. Any attempted disposition or encumbrance, other than in strict compliance with this section 7.2, shall be, and is hereby declared, null and void ab initio.

7.3Withdrawal.  A Member does not have the right or power to withdraw, resign, or retire from the Company or any Series as a member. The Company, any Series, or the remain­ing Members may not expel a Member from the Company or any Series.

Article 8 

Dissolution and Winding Up

8.1Dissolution. The Company or any Series shall be dissolved upon (a) an election to dissolve the Company or that Series by the unanimous vote of the Members or (b) any other event that would cause its dissolution under the Code.

8.2Liquidation. Upon the dissolution of the Company or a Series, a liquidator shall be selected by the Members. The liquidator shall liquidate the assets of the Company or the Series and apply and distribute the proceeds of the liquidation in the following order or prior­ity: (a) to the payment of the expenses of the terminating transactions including, without lim­itation, brokerage commission, legal fees, accounting fees, and closing costs; (b) to the payment of creditors of the Company or the Series, including Members, in order of priority provided by law; (c) to the Members in accordance with their capital account balances at the time of distribution until full repayment of those capital accounts has occurred; and (d) any remaining assets to the Members in accordance with their Membership Interests.

8.3Distribution in Kind. The liquidator may, in his discretion, distribute assets of the Company or the Series in kind to a Member. The liquidator shall determine the fair market value of the property distributed in kind using such reasonable method of valuation as he may adopt.

8.4Certificate of Termination. On completion of the distribution of Company or Series property as provided in this Article 8, the Company or the Series is terminated, and the liqui­dator shall cause the cancellation of the Certificate and any other filings made by the Com­pany or the Series and shall take any other actions that may be necessary to terminate the Company or the Series.

8.5Deficit Capital Accounts. No Member shall be required to pay to the Company or the Series, to any other Member, or to any third party any deficit balance that may exist from time to time in that Member’s capital or similar account.

Article 9 

General Provisions

9.1Amendments to This Agreement or to Certificate. Any amendment to this Agree­ment, the Certificate, or any restated certificate of formation shall be adopted only with the written consent of all Members.

9.2Pronouns and Plurals. Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine, and neuter forms, and the singular form of nouns, pronouns, and verbs shall include the plural and vice versa.

9.3Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives, and permitted assigns.

9.4Invalidity of Provisions. If any provision of this Agreement is declared or found to be illegal, unenforceable, or void, in whole or in part, the parties shall be relieved of all obli­gations arising under that provision, but only to the extent that it is illegal, unenforceable, or void, it being the intent and agreement of the parties that this Agreement shall be deemed amended by modifying that provision to the extent necessary to make it legal and enforceable while preserving its intent or, if that is not possible, by substituting therefor another provision that is legal and enforceable and achieves the same objectives.

9.5Governing Law. This Agreement is governed by and shall be construed in accor­dance with the laws of the state of Texas.

9.6Counterparts. This Agreement may be executed in any number of counterparts, all of which shall constitute the same instrument.

9.7Enforceability against Company. This Agreement is enforceable by or against the Company regardless of whether the Company has signed or otherwise expressly adopted this Agreement.

9.8Entire Agreement. This Agreement embodies the entire understanding and agree­ment between the parties concerning the Company and the Series and supersedes all prior negotiations, understandings, or agreements in regard thereto.

IN WITNESS WHEREOF, the parties hereto have executed this Company Agreement of [name of limited liability company] as of the Effective Date.

[Name of company]

By:      
     [Name of member]

[Name of manager], the Manager designated in the foregoing Company Agreement, hereby accepts that designation and agrees to abide by the provisions of the Agreement.

   
[Name of manager]

Schedule 1

Series Schedule 2

to the Company Agreement of

[name of limited liability company], LLC

Dated [date]

   
[Name of member]