What is included in a California LLC Operating Agreement?
Creating an operating agreement for your California LLC is important for establishing a big-picture vision for company operations. According to California Corporations Code § 17701.10, your operating agreement can include the following information:
- Activities of your LLC
- Transfer of membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Management
- Compensation
- Bookkeeping procedures
- Dissolution
What information does Northwest’s free California LLC operating agreement need?
If you’d rather concentrate on running your business, let us handle the legal formalities. Our lawyers drafted a comprehensive operating agreement you can use for free. You can even fill it out on this page, save it in a free account for later, and download a completed draft to sign.
In order to fill out our free operating agreement template, you’ll need your:
This must be your business’ legal entity name, or the name you put on your LLC Articles of Organization.
Did an LLC member contribute $500? $5k? A storefront? Put that here.
You’ll just write in 16 here since our version has a set amount of pages.
Don’t forget, this is an internal document, so you won’t provide this information to the state. However, you might need to add these people to your BOI Report.
Include any initial contributions, even ones that are small percentages.
We recommend having a business bank account, but some banks want to see an operating agreement before you can open an account. If that’s the case, you can leave this blank for now.
This is the place your business operates from.
You can add this date in later if you haven’t decided when your meeting will be held.
There’s a few different spots where you’ll need a signature of one or more members. These are pages 13 to 16 on our template.
Why should a California LLC have an operating agreement?
A California LLC should have an operating agreement because a company cannot act for itself. In order to operate, LLCs require real humans (and other entities) to carry out company operations.
Operating agreements are legally required for California LLCs. According to California Revised Statute § 347.081, “the member or members of a limited liability company shall adopt an operating agreement.” While Revised Statute § 347.015 states that an operating agreement could be oral or written, we (and any good lawyer) recommend you put your operating agreement in writing. Here’s why.
1. Your operating agreement proves you own your LLC.
In California, you can opt out of listing LLC members’ names on the Articles of Organization. This is great if you’re concerned about protecting your privacy, but it could make it tricky for you to prove you actually own your business, which you’ll need to do to open a company bank account. That’s when a written operating agreement comes in handy, as it lists all your members’ names and addresses.
2. An operating agreement can help reinforce your limited liability status.
To maintain limited liability, all LLCs need to be able to prove that they are legally separate entities from their owners. This requires LLCs to keep business and personal finances and interests separated. Another way to help demonstrate that your LLC is a distinct legal entity is by adhering to the rules and proceedings outlined in your operating agreement. If you’re ever served with a lawsuit, a strong operating agreement could be one of your best weapons for proving your LLC has limited liability status.
3. An operating agreement can help settle disputes between members.
Disagreements are likely to arise when you go into business with other people, but you don’t want a minor disagreement to escalate into a legal battle. Your operating agreement plans for how your LLC will handle a range of situations, so you can refer back to it when your members can’t agree.
4. An operating agreement can override California’s default laws.
Anything you don’t change in your operating agreement will automatically be subject to California’s default laws for LLCs. You might prefer to create your own rules for your business. That’s why it’s important to have a custom operating agreement that’s tailored to your LLC.
California Case Law
We asked our lawyers for an example of how an operating agreement can make or break your LLC. Here’s what they said.*
“Consider the case of BGJ Associates, LLC, where a group of individuals intended to purchase a piece of real estate, however in their haste to move forward with the deal, they failed to actually adopt an operating agreement. When disputes emerged among the individuals, particularly involving the terms of a draft operating agreement that was never executed, the individuals commenced extensive and expensive litigation.
“When resolving the matter, the court put strong emphasis on the fact that the operating agreement was never signed, coupled with the unresolved residual disputes among the intended members of the LLC. The BGJ Associates, LLC case is an excellent example of why it is important to plan ahead and discuss potential pain points, then distill that understanding into a written operating agreement. Had the individuals done so in that case, valuable resources could have been preserved for more fulfilling commercial purposes.”
FAQs
No. California state law does not require you to create and maintain an operating agreement for your LLC. However, you’ll want to have an operating agreement for many aspects of running a business. For example, banks and landlords will want to see proof of ownership when you deal with them.
Nope. In fact, if you try to file your operating agreement with the state, it won’t be accepted. Your operating agreement is an internal document that you keep on record with your LLC.
As with any LLC, a single-member LLC isn’t required to have an operating agreement in California, so why bother?
While it may seem nonsensical to write an agreement for yourself with yourself, an operating agreement is still important for a single-member LLC when it comes to certain tasks, like opening a bank account or—perhaps most importantly—proving your limited liability status.
*This is informational commentary, not advice. This information is intended strictly for informational purposes and does not constitute legal advice or a substitute for legal counsel. This information is not intended to create, nor does your receipt, viewing, or use of it constitute, an attorney-client relationship. More information is available in our Terms of Service.