California LLC Operating Agreement
Every California limited liability company (LLC) should have an operating agreement in place.
Having a written operating agreement will set clear rules and expectations for the management and operations of your LLC.
Download our free California operating agreement template below or sign up to create a custom operating agreement using our tool.
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Free California LLC Operating Agreement Templates
We offer operating agreement templates for single-member LLCs and multi-member LLCs (including member-managed and manager-managed) as well as a customizable operating agreement tool.
Single-Member LLC Operating Agreement
Our single-member LLC operating agreement template was created for limited liability companies 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.
Multi-Member LLC Operating Agreements
Our multi-member LLC templates are meant for LLCs with more than one member. There are two types available: manager-managed and member-managed.
Create Custom Operating Agreement
Create a customized LLC operating agreement using our free tool. Just answer a few basic questions, and the tool will develop an operating agreement for your new LLC.
To use our tool, you will need to sign in to our Business Center. A Business Center account will also grant you access to many other free tools, special discounts on business services, and much more.
What Is a California LLC Operating Agreement?
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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. An operating agreement makes it clear that your LLC is a separate legal entity.
- 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.
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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 recommended by the state. According to California Corporations Code, Revised Uniform Limited Liability Company Act § 17701.10 and § 17701.11, a written operating agreement may be entered into among all members of an LLC.
- 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's credibility as a whole.
The full text of the statutes can be found below:
§ 17701.10 (a) Except as otherwise provided in this section, the operating agreement governs all of the following:
(1) Relations among the members as members and between the members and the limited liability company.
(2) The rights and duties under this title of a person in the capacity of manager.
(3) The activities of the limited liability company and the conduct of those activities.
(4) The means and conditions for amending the operating agreement.
(b) To the extent the operating agreement does not otherwise provide for a matter described in subdivision (a), this title governs the matter.
(c) In addition to the matters specified in paragraphs (1) to (4), inclusive, of subdivision (d), an operating agreement shall not do any of the following:
(1) Vary a limited liability company’s capacity under Section 17701.05 to sue and be sued in its own name.
(2) Vary the law applicable under Section 17701.06.
(3) Vary the power of the court under Section 17702.04.
(4) Subject to paragraphs (14) and (15) of this subdivision and subdivisions (d) to (g), inclusive, eliminate the duty of loyalty, the duty of care, or any other fiduciary duty.
(5) Subject to subdivisions (d) to (g), inclusive, eliminate the contractual obligation of good faith and fair dealing under subdivision (d) of Section 17704.09, but the operating agreement may prescribe the standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable as determined at the time the standards are prescribed.
(6) Vary the requirements of Section 17701.13 to 17701.16, inclusive, or any provision under Article 8 (commencing with Section 17708.01).
(7) Vary the power of a court to decree dissolution in the circumstances specified in subdivision (a) of Section 17707.03 or the provisions for avoidance of dissolution in subdivision (c) of Section 17707.03.
(8) Except as provided therein, vary the requirements of Article 2 (commencing with Section 17702.01) or Article 7 (commencing with Section 17707.01).
(9) Unreasonably restrict the right of a member to maintain an action under Article 9 (commencing with Section 17709.01).
(10) Restrict the right of a member that will have personal liability with respect to a surviving or converted organization to approve a merger or conversion under Article 10 (commencing with Section 17710.01).
(11) Except as otherwise provided in subdivision (b) of Section 17701.12, restrict the rights under this title of a person other than a member or manager.
(12) Except as provided therein, vary any provision under Article 10 (commencing with Section 17710.01).
(13) Vary any provision under Article 11 (commencing with Section 17711.01), Article 12 (commencing with Section 17712.01), or Article 13 (commencing with Section 17713.01).
(14) Eliminate the duty of loyalty under subdivision (b) of Section 17704.09, but the operating agreement may do any of the following:
(A) Identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable.
(B) Specify the number or percentage of members that may authorize or ratify, after full disclosure to all members of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.
(15) Unreasonably reduce the duty of care under subdivision (c) of Section 17704.09.
(d) Except as provided in subdivision (c) and subdivisions (e) to (g), inclusive, the effects of the provisions of this title may be varied as among the members or as between the members and the limited liability company by the operating agreement; provided, however, that the provisions of Sections 17701.13, 17703.01, and 17704.08 and subdivisions (f) to (r), inclusive, and (u) to (w), inclusive, of Section 17704.07 shall only be varied by a written operating agreement. Notwithstanding the first sentence of this subdivision and in addition to the matters specified in subdivision (c), the operating agreement shall not do any of the following:
(1) Vary the definitions of Section 17701.02, except as specifically provided therein.
(2) Vary a member’s rights under Section 17704.10.
(3) Vary any of the provisions of this section or Section 17701.12, except as provided therein.
(4) Vary any of the provisions of subdivisions (s) and (t) of Section 17704.07.
(e) The fiduciary duties of a manager to a manager-managed limited liability company and to the members of the limited liability company and of a member to a member-managed limited liability company and to the members of such limited liability company shall only be modified in a written operating agreement with the informed consent of the members. Assenting to the operating agreement pursuant to subdivision (b) of Section 17701.11 shall not constitute informed consent.
(f) To the extent the operating agreement of a member-managed limited liability company expressly relieves a member of a responsibility that the member would otherwise have under this title and imposes the responsibility on one or more other members, the operating agreement may, to the benefit of the member that the operating agreement relieves of the responsibility, also eliminate or limit any fiduciary duty that would have pertained to the responsibility.
(g) The operating agreement may alter or eliminate the indemnification for a member or manager provided by subdivision (a) of Section 17704.08 and may eliminate or limit a member or manager’s liability to the limited liability company and members for money damages, except for the following:
(1) Breach of the duty of loyalty.
(2) A financial benefit received by the member or manager to which the member or manager is not entitled.
(3) A member’s liability for excess distributions under Section 17704.06.
(4) Intentional infliction of harm on the limited liability company or a member.
(5) An intentional violation of criminal law.
§ 17701.11 (a) A limited liability company is bound by and may enforce the operating agreement.
(b) A person that becomes a member of a limited liability company is deemed to assent to the operating agreement.
(c) Two or more persons intending to become the initial members of a limited liability company may make an agreement providing that upon the formation of the limited liability company the agreement will become the operating agreement. One person intending to become the initial member of a limited liability company may assent to terms providing that upon the formation of the limited liability company the terms will become the operating agreement.
How to Form an LLC in California
Here are the six crucial steps to set up a limited liability company in California:
- Choose a Unique LLC Name. Choose an LLC name that meets guidelines and is distinguishable from other registered businesses in California. It should also comply with the state's naming guidelines.
- Designate a Registered Agent. Next, appoint a registered agent to receive legal notices on your LLC's behalf. This agent can be an individual or a professional service. The first year of registered agent services is usually free with LLC formation.
- File the Articles of Organization. Submit the Articles of Organization to the California Secretary of State and pay the filing fee to officially register your LLC.
- Secure an Employer Identification Number (EIN). An EIN is necessary for opening a business bank account and hiring employees. The IRS provides EINs free of charge.
- Create an Operating Agreement. Lastly, create your LLC's operating agreement. It will outline the ownership, operating procedures, and management structure of your LLC. You can use our tool for this purpose.
Register for State Taxes. Depending on your business's nature, you may need to register for certain state taxes. Check with the California Department of Tax and Fee Administration for specifics.
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.
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Frequently Asked Questions
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.
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.
No. California LLC 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.