WHAT IS A CALIFORNIA LLC OPERATING AGREEMENT?
An operating agreement is a legal document that outlines the ownership structure and operating procedures of an LLC.
Whether you are starting a single-member or multi-member LLC, your operating agreement should address all of the topics below. Some of these stipulations will not have much bearing on the actual operations of a single-member LLC, but are still important to include for the sake of legal formality.
- Organization: When the LLC was officially formed, who its members are, and how ownership is divided. Multi-member LLCs may utilize an equal ownership structure or assign various members different “units” of ownership.
- Management & Voting: Whether the LLC will be managed by its members or by an appointed manager, and how members will go about voting on business matters. Typically, each member has one vote, but you may wish to give some members more voting power than others. For more information on managing your LLC, read our Member-Managed vs Manager Managed guide.
- Capital Contributions: The amount of money each member has invested in the business. This is also where you should establish an approach to raising additional funds in the future.
- Distributions: How profits and losses will be divided among the members. The most common option is to distribute profits evenly. If you want them divided a different way, this should be detailed in your operating agreement. For more information on the basics of LLC ownership, read our Contributions and Distributions guide.
- Changes to Membership Structure: How roles and ownership will be transferred in the event that a member leaves the company. It’s essential to lay out the process for buying out and/or replacing a member in the LLC’s governing document.
- Dissolution: Dissolution: If at some point all the members of your LLC decide you no longer wish to conduct business, you should officially dissolve it. Outlining the hypothetical process of dissolving your business is an important aspect of your operating agreement. To learn how to dissolve your California LLC, read our California LLC Dissolution article.
Not sure how to get your business started? Check out our detailed guide on how to start a business.
DOWNLOAD A FREE OPERATING AGREEMENT
This Operating Agreement template is for use by a Limited Liability Company with only one member, where the sole member has full control over all affairs of the LLC, and no other individuals have a membership interest in the company.
Single-Member Operating Agreement Template
Better Still, Create a Free Custom Operating Agreement
We created a lawyer-reviewed, always free tool that helps you create a custom operating agreement for any type of LLC you have, with features including:
- Single-member templates
- Multi-Member templates, with options for management by:
- With any custom sections or clauses your unique business needs
- All while saving your progress along the way
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WHY SHOULD I HAVE A CALIFORNIA LLC OPERATING AGREEMENT?
No matter what type of California LLC you're starting, you'll want to create an operating agreement. Here's why:
It’s required by the state. According to CA Corporations Code Section 17701.02(s), every California LLC is required to have an operating agreement.
- It'll prevent conflict among your business partners. If you're starting a multi-member LLC, having an operating agreement will prevent misunderstandings amongst your team by setting clear expectations about each partner's role and responsibilities.
- It helps preserve your limited liability status. If you're the sole owner of a single-member LLC in California, having an operating agreement will help to ensure your limited liability status is upheld by court officials, and add to your business' credibility as a whole.
We teamed up with a business attorney to develop free operating agreement templates and a customizable Operating Agreement Tool. Simply sign up for a free business center account to get started.
Sample templates include:
- Single-Member Operating Agreement: For LLCs formed by a single individual.
- Multi-Member Operating Agreement (Member-Managed): For LLCs formed by multiple members who wish to jointly manage the company.
- Multi-Member Operating Agreement (Manager-Managed): For LLCs formed by multiple members who wish to appoint one or more managers to handle the daily affairs of the company.
The Operating Agreement Tool makes it easy to create a customized operating agreement for your business by answering a few simple questions.
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Keep in mind that these operating agreements are meant for reference and should be reviewed by a lawyer.
AFTER CREATING YOUR CALIFORNIA LLC OPERATING AGREEMENT
Once you have finished your operating agreement, you do not need to file it with your state. Keep it for your records and give copies to the members of your LLC.
Following any major company event, such as adding or losing a member, it is a good idea to review and consider updating the operating agreement. Depending on how your operating agreement is written, it may require some or all of the members to approve an amendment to the document.
FREQUENTLY ASKED QUESTIONS
Do I really need an operating agreement?
Yes. Although you won’t file your operating agreement with the state, California legally requires that you have a “verbal or written” operating agreement in place.
When should I create my operating agreement?
While it's a good idea to create an operating agreement before filing your Articles of Organization, the state does not discourage LLCs from waiting until the formation process is complete. It's worth noting that some banks require you to submit an operating agreement in order to open a business bank account.
Do I need to file my operating agreement with the state?
No. Operating agreements are to be retained by the LLC members. If you attempt to submit your operating agreement with the CA Secretary of State, it will be returned to you unfiled.