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?
Basic Information
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
Related Reading: Is a Registered Agent a Member of the LLC?
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
Is an Operating Agreement required for an LLC in California?
As per the definition of “operating agreement” in Section 17701.02 of the California Limited Liability Company Act, an Operating Agreement isn’t required for an LLC in California.
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.
Why should an LLC with only one Member still have an Operating Agreement?
It’s best to have an Operating Agreement, even if you are the sole Member of your California LLC (a Single-Member LLC).
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.
Does a Multi-Member LLC need an Operating Agreement?
It’s best to have an Operating Agreement, especially for an LLC with multiple members (a Multi-Member LLC). This document will spell out ownership percentages, profit distribution, operating procedures / company operations, and management responsibilities.
If you go to court, an Operating Agreement helps prove that your Multi-member LLC is being run as a separate legal entity.
Do I have to send my Operating Agreement to the state?
No, you don’t have to send your Operating Agreement to the California Secretary of State, or any other government agency. (That’s why there is no “filing fee” for an Operating Agreement.)
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
Does my LLC Operating Agreement need to be notarized?
No, your Operating Agreement doesn’t need to be notarized. Each Member just needs to sign it.
Once you (and the other LLC Members, if applicable) sign the Operating Agreement, then it becomes a legal document.
Can I write my own Operating Agreement?
Yes, but we recommend using an Operating Agreement template.
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.
How do you write a simple Operating Agreement?
If you wanted to write a simple California Operating Agreement without using a template, you could. You’d need to check with the California LLC Act to make sure it meets all the requirements.
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.
What is the difference between an LLC and an Operating Agreement?
An LLC (Limited Liability Company) is a type of business structure. It’s a legal business entity that you form by filing a document called the Articles of Organization with the state.
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.
How do I set up an LLC in California?
Here are the steps to starting an LLC in California:
- 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
References
California LLC Act
IRS: Paying Yourself
California Secretary of State: Starting a Business Entity Guide
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.
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Just wanted to thank you for sharing your knowledge! The clear, concise, and free help is truly appreciated!
You’re very welcome Cheryl! We’re happy to help :-)
My brother and I are starting a new family property management business. We are creating an s-corp as a holding company which will hold one llc per property. Should we have three different operating agreements per legal entity or just one for the s-corp which spells out the running of the LLCs? Thanks.
Hi Mark, each entity should have its own Operating Agreement, EIN, bank account, set of books, etc., even if owned by an LLC taxed as an S-Corp.
Outstanding tutorial. Saved me time and money. Can’t thank you enough!!
Hi Matt, thank you so much for all the information on your website. I am one step closer to my goal.
You’re very welcome Ana :) That’s so great to hear!
Hi Matt, Thanks for the detailed explanations. I guess my question is more on where to file for LLC because i am expecting address changes soon. My situation is i am in California as of now but will be moving to Texas soon. if i were to file it in California for this year and then file it again in Texas next year. would that be advisable? What would be cost effective and lass hassled solution here?
Hi Sagar, if possible, I’d recommend waiting. California is very aggressive when it comes to foreign LLC registration and taxation. Do you know approximately when you’ll move to Texas?
Hi Matt, thank you so much for creating this site. I’ve incorporated before but am in the process of doing it again so it’s very clear how much easier the process has been for me the second time around with the help of this amazing resource.
My question is around the “Records” clause: I’m using a registered agent and have listed the registered agent’s address as my primary business address. The “records” clause in the template indicates that I am going to be storing these records at the primary business address. My business is a partnership with no physical location. I am planning on keeping my records both online in a shared Google Drive as well as hard copies at my primary residence. Would you recommend that I modify the “Records” clause to reflect this, or is this mostly a formality that people tend to ignore in the digital age?
Hi Mike, you’re very welcome! That is wonderful to hear. I would modify the records clause to say exactly as you mentioned: records are kept on John Doe’s Google Drive account as well as stored physically at this address: 123 Main Street, Anytown, US 12345 (your primary residence). Hope that helps :)
Perfect, thanks again Matt!
You’re welcome Mike!
Do you have a Texas manager-managed LLC operating agreement template you can send over to me?
Hey Mac, I just emailed it over to you. We’ll update this page soon so it’s available for download.
Will this for a Checkbook Roth IRA LLC?
Hi Len, apologies for the slow reply. No, this Operating Agreement doesn’t contain the additional provisions specific to a checkbook IRA/LLC. We have it on our roadmap though and it will be available in the near future. Thank you.
First, thanks so much for sharing this information. It is truly appreciated. I have a question regarding completing the LLC-1 for a California LLC. Nowhere does it ask if this is a single or multi-member LLC. My intent is to form a single member LLC. Under number 4 on the LLC-1, you mentioned that we should check the box that states Management to be by…. “All LLC Members”; however, would I do this as well since I am wanting to be a single-member LLC?
Last, I am wanting the LLC to be formed on December 18, 2017 and the code allows someone to request a specific date for filing as long as we are within 90-days of that date, which I am. How and where do I specify this? Perhaps on an attachment of some kind? I am doing this so I do not have to pay the $800 for 2017.
Again, THANNKS!
Hey Charles, thanks for the kind words! CA actually doesn’t ask about single-member vs. multi-member on the Articles of Organization, so no need to worry about it. And yes, you’d select “All LLC Members”, even though you are the only member (you’re still “all of them”). You can use a Future File Date Attachment to request a file date of January 1st of the following year. This will help you avoid the dreaded back-to-back annual franchise tax payments. You can also just wait until the 2nd half of December or early January to send your Articles of Organization to the state. And yes, you’re correct; the future file date can’t be more than 90 days forward. Hope that helps!