Form 8-3

This manager-managed company agreement is best used for LLCs with fairly straightforward business operations and few members (and no classes of members), such as a husband and wife or parties that have known or done business with each other in the past. The aim is the creation of a concise agree­ment that covers the most important provisions without being burdensome to understand or implement by your client. For more complex business arrangements, see the long-form manager-managed com­pany agreement at form 8-5 in this manual.

The agreement is based on chapter 101 of the Texas Business Organizations Code (TBOC). See Tex. Bus. Orgs. Code §§ 101.001–.621. Chapter 101 provides general guidelines and, as such, parties have significant freedom in structuring the company agreement according to their particular situation. This form, therefore, can be significantly modified and adapted to address each party’s requirements.

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 manager-managed LLC]

[Short Form]

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.

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 unanimous consent of the Members. 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 7.1 of this Agreement or the Code.

1.4Registered Agent and Office. The registered agent for the service of process is [name], and the address is [address]. The principal office of the Company shall be located at [address]. The Company 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 may require.

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

______________
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; (b) to a distributive share of the assets of the Company; 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 as set forth in this Agreement.

1.6No State-Law Partnership. The Members intend that the Company not 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.

[Name of member] promises and agrees to make a contribution of [specify property or amount of cash] to the Company on or before [date of deadline]. The Member is obligated to make the contribution without regard to the death, disability, or other change in circumstances of the Member.

Additional capital contributions may be made only if unanimously agreed to by all Members.

2.2Capital Accounts. The Company 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 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 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.

2.4Return of Capital Contributions. Capital contributions 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.

Article 3 

Financial Matters

3.1Net Cash Flow. There shall be distributed annually to the Members from net cash flow 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 and distributions to the Com­pany 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. Distributions shall be made to each Member in the form of cash, regardless of the form of the Member’s contribution to the Company.

3.2Prohibited Distributions. Distributions may not be made to Members if, immedi­ately after making the distribution, the Company’s total liabilities exceed the fair value of the Company’s total assets as set forth in Code section 101.206 (“Prohibited Distribution”). 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 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 that he may deem appropriate and in the best interests of the Company and the Members.

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

Article 4 

Management

4.1Management Authority. Subject to the provisions of Article 5, management of the Company shall be vested in the Manager. The Manager shall have the exclusive power and authority to conduct the business of the Company. 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.

4.2Duties. The Manager shall carry out his duties in good faith, in a manner that is in the best interest of the Company, 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.

4.3Time Devoted to Business. The Manager shall devote the time to the business of the Company that he, in his discretion, deems necessary for the efficient carrying on of the Com­pany’s 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.

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].

4.5Tenure and Removal. The Manager shall hold office until his successor has been duly elected and qualified as provided in this section 4.5. 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 until that person has accepted the provisions of this Agreement in writing.

4.6Reliance by Third Parties. No third party dealing with the Company 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. 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.

4.7Reimbursement. The Manager shall be entitled to a management fee for managing the assets of the Company, 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 for any reasonable out-of-pocket costs incurred on behalf of the Company.

4.8Insurance. The Company may maintain for the protection of the Company, the Members, and the Manager such insurance as the Manager, in his sole discretion, deems nec­essary for the operations being conducted.

4.9Exculpation. The Manager shall not be liable to the Company or to 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 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, and no Member, Manager, or third party shall have recourse against the personal assets of any Member for such indemnification.

4.10Conflicts 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, it being expressly understood that the Manager may enter into transactions that are sim­ilar to the transactions into which the Company may enter. A Manager does not violate a duty or obligation to the Company merely because the Manager’s conduct furthers the Manager’s own interest. No transaction with the Company shall be voidable solely because a Manager has a direct or indirect interest in the transaction if the transaction is fair to the Company.

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 and shall have no power to bind the Company, 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) admission of an additional Member, (c) amendment of this Agreement or the Certificate, (d) selling all or substantially all of the assets of the Company other than in the ordinary course of business, or (e) approving additional capital contributions.

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, including a debt, obligation, or liability under a judgment, decree, or order of a court. The failure of the Company 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.

5.7Representations and Warranties. Each Member hereby represents and warrants to the Company 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; (b) the Member has asked the questions and conducted the due diligence concerning the acquisi­tion of his Membership Interest in the Company 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; (d) the Member understands that owning the Membership Interest in the Company involves various risks, including the restric­tions on transfers as set forth in Article 6 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; (e) the Member is able to bear the economic risk of the investment; (f) the Member is acquiring the Membership Interest in the Company 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 has 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 

Restrictions on Transfers

6.1Additional Members. Additional members shall not be admitted to the Company without the prior written consent of all the Members.

6.2Dispositions 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, 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 6.2, shall be, and is hereby declared, null and void ab initio.

6.3Withdrawal.  A Member does not have the right or power to withdraw, resign, or retire from the Company as a member. The Company, or the remaining Members, may not expel a Member from the Company.

6.4Death of Member; Buyout Option. In the event that a Member dies and the remain­ing Member or Members agree to continue the Company’s existence, the remaining Member or Members shall have the option to acquire the Membership Interest of the deceased Mem­ber. This option must be exercised within ninety (90) days of the date of death of the deceased Member. If any remaining Member does not respond during the ninety-day period, that Mem­ber shall be deemed to have waived his right. If the remaining Member or Members exercise their right, the Member or collective Members must purchase the entirety of the deceased Member’s Membership Interest. (Multiple remaining Members may purchase equal or unequal shares of the deceased Member’s Membership Interest, as agreed upon by the exer­cising Members.) In the event the remaining Member or Members do not agree to purchase all of the Membership Interest of the deceased Member, the Company shall be dissolved accord­ing to section 7.1 of this Agreement. If the deceased Member’s representative and the remain­ing Member or Members, as applicable, are unable to agree upon the purchase price of the Membership Interest of the deceased Member, the purchase price shall be determined by a qualified appraiser mutually agreed upon by them.

Article 7 

Dissolution and Winding Up

7.1Dissolution. The Company shall be dissolved upon (a) an election to dissolve the Company by the unanimous vote of the Members or (b) any other event that would cause its dissolution under the Code.

7.2Liquidation. Upon the dissolution of the Company, a liquidator shall be selected by the Members. The liquidator shall liquidate the assets of the Company 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, 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.

7.3Distribution in Kind. The liquidator may, in his discretion, distribute assets of the Company 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.

7.4Certificate of Termination. On completion of the distribution of Company property as provided in this Article 7, the Company is terminated, and the liquidator shall cause the cancellation of the Certificate and any other filings made by the Company and shall take any other actions that may be necessary to terminate the Company.

7.5Deficit Capital Accounts. No Member shall be required to pay to the Company, 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 8 

General Provisions

8.1Amendments 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.

8.2Pronouns 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.

8.3Binding 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.

8.4Invalidity 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.

8.5Governing Law. This Agreement is governed by and shall be construed in accor­dance with the laws of the state of Texas.

8.6Counterparts. This Agreement may be executed in any number of counterparts, all of which shall constitute the same instrument.

8.7Enforceability against Company. This Agreement is enforceable by or against the Company regardless of whether the Company has signed or otherwise expressly adopted this Agreement.

8.8Entire Agreement. This Agreement embodies the entire understanding and agree­ment between the parties concerning the Company 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