Let me start by saying I'm not an expert on the subject by any means, I can only tell you what little I have read and heard about the subject. First and Foremost, by Army Regulations only a Battalion Sized unit or larger rated to carry colors. The Company flags that are discussed in most Civil war circles were either pre war Militia flags or flags that the local community presented to the company before they shipped out to be accepted into National Service. An Example is the "Emerald Guard" which was a company sized Militia Unit Out Of Mobile. Alabama. They went to Richmond in June 1861 with Green Uniforms and a "Company Flag" that was green with a Harp of Erin on one side and had a Confederate 1st National with a picture of George Washinton on the side.

When they reported to Richmond they were assigned to be Co I of the 8th Alabama Infantry, and the flag and Uniforms were not mentioned again..

When the independent companies were formed into Regiments they were eithered issued Regt Colors from the Govt, if none were availiable ( Usually just in the early war period) they would select one of the company flags to serve that purpose.

Company flags may have been used to mark Company streets with but probably would not have been used for any offical unit movements. A great many were probably sent home, but their are records of some being captured. The 10th Tx lost a company flag when they surrended as part of a Forts Garrision, but it was not noted if it was posted in the defenses or part of the stored baggage.
Company Flags are not to be confused with flank markers which were small flags carried on the bayonets of men at the etreme ends of aunit to mark the left and right boundries and to assist the men in dressing the lines.