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Appendix C of 2024 Model Company Agreements for Closely Held LLCs
Model Company Agreement for Single Member Limited Liability Company. This Model Agreement is Appendix C to an article by Cliff Ernst and Elizabeth S. Miller entitled Model Company Agreements for Closely Held LLCs (the “Accompanying Article”). This Model Agreement should not be considered a form to be completed by filling in the blanks. Drafters should be certain that any agreement used by them is appropriate for the particular transaction. This Model Agreement should be read together with the Accompanying Article, including the various references to the Accompanying Article throughout this Model Agreement.
Formation and Governance of LLC's An Annotated Company Agreement
An Annotated Company Agreement (Short Form)
Model Company Agreements for Closely Held LLCs
Records maintained by the Texas Secretary of State indicate that the limited liability company has become the entity of choice among Texas organizations. The office of the Texas Secretary of State reports that of the 374,301 certificates of formation filed for domestic for-profit entities in 2024, 348,753 (or approximately 93%) were limited liability companies, and of the 391,934 certificates of formation filed for domestic for-profit entities in 2023, 365,417 (or approximately 93%) were limited liability companies. It is often stated that one of the benefits of organizing an entity as a limited liability company is that this form of entity offers the owners and governing authority of the entity the flexibility to agree to provisions for the economic terms and governance that are more flexible than available with respect to a corporation. This is true, and indeed limited liability companies are sometimes used to create highly complex structures with multiple classes of ownership interests and highly customized provisions regarding management and governance of the entity, including complicated provisions for voting and management succession. However, given the large number of entities now being created as limited liability companies in Texas and other states, it is likely that many of these new entities are not entities with complex structures with multiple classes of ownership and complex bureaucracies for governance. Statistics compiled by the Internal Revenue Service show that for the tax year 2021 (the most recent year for which statistics are currently available), approximately 68% of the S corporation returns are for single-shareholder S corporations and approximately 24% have only two shareholders. The Internal Revenue Service does not publish similar statistics for limited liability companies, and single-member limited liability companies are typically disregarded entities that do not file tax returns. But if one assumes that most limited liability companies are closely held entities, then by analogy, it is likely that a large portion of limited liability companies have one or two owners. Therefore, it is much more likely that practitioners will find themselves needing to draft simple limited liability company agreements suitable for entities with one or two or a very few owners, rather than more complex documents. The purpose of this paper is to present and discuss models for governing agreements for limited liability companies when a simple structure is needed.
MODEL COMPANY AGREEMENT FOR MEMBER-MANAGED, MULTI-MEMBER LIMITED LIABILITY COMPANY
MODEL COMPANY AGREEMENTS FOR SIMPLE LLCS
Texas Secretary of State reports that 84% of certificates of formation filed for domestic profit driven entities in 2016, were limited liability companies (LLC). This growth may be attributed to LLC's specific benefit of providing greater protection, control and flexibility for its owners. LLC members can establish desired provisions within the company agreement concerning management structures, economic issues and governance. The document below provides an explanation of the structure and rationale for LLC company agreement provisions and two model forms for multi-member LLCs.
Model Company Agreements
This paper was presented at the LLCs, LPs and Partnerships Seminar on July 13-14, 2017 in Austin, Texas. This paper has three appendixes, each of which has a model agreement. See below for the three example agreements.