Every California LLC should have an Operating Agreement, but getting one doesn’t have to be expensive. You can download and customize your own Operating Agreement using our free template below.
California LLC Operating Agreement (Member-managed)
California LLC Operating Agreement (Manager-managed)
What is a California LLC Operating Agreement?
A California LLC Operating Agreement is a written contract between the LLC Members (LLC owners). This legal document includes detailed information about LLC ownership structure, who owns the company and how the LLC is managed.
Single-Member LLCs and Multi-Member LLCs should draft a customized LLC Operating Agreement, keep it with their business records, and give a copy to all Members.
What should be included in LLC Operating Agreements?
Your LLC Operating Agreement will include basic information about your Limited Liability Company. Some of the information will be the same as what is listed in your California LLC Articles of Organization. Operating Agreements should include:
- LLC Name
- LLC effective date
- California Registered Agent (if applicable)
- purpose of your LLC
- duration of your LLC
- and how your LLC will be taxed
Limited Liability Company Ownership
Your Operating Agreement will list all the LLC Members and how much of the Limited Liability Company they each own.
How much of the LLC someone owns is called their “LLC Membership Interest”.
LLC Membership Interest is most often expressed as a percentage (like 5%, 50%, 100%, etc.).
Initial Capital Contributions (putting money into your LLC)
After your LLC is approved, you should open an LLC bank account and put money into that account.
Each of the LLC Members makes an initial capital contribution. Capital contribution simply means a deposit of money into the LLC bank account.
You will list the initial capital contributions in your LLC’s Operating Agreement.
Pro tip: If you complete your Operating Agreement before you have opened an LLC bank account, just enter the amount the Members plan to deposit. If the amount of your deposit changes, it’s okay to edit your LLC Operating Agreement with the actual amounts later.
Statement about taxes
You will list how your LLC will be taxed in your California Operating Agreement. There are four common ways a Limited Liability Company can be taxed:
- LLC taxed as a Sole Proprietorship
- LLC taxed as a Partnership
- LLC taxed as an S-Corporation
- LLC taxed as a C-Corporation
Voting Rights of LLC Members
The rules of membership voting will be spelled out in your California LLC’s Operating Agreement.
If you use the Member-managed Operating Agreement, the voting powers are proportionate to the LLC Membership Interest.
If you use the Manager-managed Operating Agreement, the voting powers are also proportionate to the LLC Membership Interest. Then the Members vote to elect one or more Managers. The Manager(s) then has authority to make certain decisions on behalf of the LLC (without needing a vote by the Members).
However, certain things, like adding or removing an LLC Member, require a vote of the Members (and the Manager has no say).
Make sure all LLC Members have a copy
Once you finalize your Operating Agreement, make sure all the Members have a copy.
We recommend keeping a copy of the Operating Agreement with your LLC business records.
Operating Agreement FAQs
But while it’s not required for a Limited Liability Company pursuant to California law in order to conduct business (and you don’t have to send a copy to the California Secretary of State), we strongly recommend having an Operating Agreement for your LLC.
Additionally, financial institutions (like banks) and other organizations may need to see a copy of this paperwork in order for you to do business with them.
If you go to court, an Operating Agreement helps prove that your Single-Member LLC is being run as a separate legal entity. This confirms the company’s limited liability status, and that is what protects your personal assets.
If you go to court, an Operating Agreement helps prove that your Multi-member LLC is being run as a separate legal entity.
California LLC Operating Agreements are “internal documents” for business entities. Meaning, the Members just need to keep a copy with their business records.
The Operating Agreement is a legally binding document upon the LLC Members because of the Members’ signatures. It doesn’t need a government stamp of approval.
However, in the future, if your company were involved in a lawsuit or an audit, a court or government agency might ask to see a copy of your Operating Agreement.
Additionally, you may also need to show this document to:
- financial institutions when you open a business bank account
- financial institutions if you apply for a loan for the LLC
- a title company if your LLC is buying real estate
Once you (and the other LLC Members, if applicable) sign the Operating Agreement, then it becomes a legal document.
An Operating Agreement is a legal document. You don’t have to hire a lawyer to write one, though. Using a template helps make sure you cover everything you need to.
LLC University® offers free Operating Agreement templates that you can download. Using the free Operating Agreement template, you can customize it and write your own Limited Liability Company Operating Agreement.
For example, at a minimum, you’d want your California LLC name, your Registered Agent information, your business purpose, the names of the LLC Members, and information about initial capital contributions.
However, there is a lot more information that is important to document about your LLC.
It’s probably a lot easier to start with an existing template. We have a free LLC Operating Agreement template you can download on this page.
An LLC Operating Agreement is an internal document that governs how your LLC is run. It contains rules about how much of the company each Member of the LLC owns, and other details about management and taxes.
Said another way, the LLC is your legal entity. And the Operating Agreement is a written set of rules for how the LLC will operate.
You could have an LLC without an Operating Agreement (but you shouldn’t). But you can’t have an Operating Agreement without an LLC.
- Choose an LLC name and make sure it’s available
- Choose who will be your California Registered Agent
- File the California LLC Articles of Organization
- Complete and sign an LLC Operating Agreement
- Get an Employer Identification Number (EIN) from the Internal Revenue Service
- Submit your LLC Statement of Information
- Research business license requirements
- Open an LLC bank account