California LLC Operating Agreement

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LLC Operating Agreement (template + instructions)

What is a California LLC Operating Agreement?

A California LLC Operating Agreement is a written contract among the LLC Members (owners) which includes details and information about LLC ownership and management.

Basic Information:

Your Operating Agreement will include basic information about your California LLC. A lot of the information will be the same information listed in your LLC’s Articles of Organization, such as:

LLC Ownership:

Your California LLC Operating Agreement will be a place where all the LLC Members will list how much of the LLC they own and then each Member will sign the Operating Agreement.

How much someone owns is called their “ownership interest”, “ownership percentage”, or “ownership units”. LLC Ownership is most often expressed as a percentage (example, 5%, 50%, 100%, etc.). The terms “shares” or “shareholders” doesn’t apply to LLCs.

Initial Capital Contribution:

One of the first things you’ll do after your LLC filing is approved by the California Secretary of State is have each of the LLC Members (or the sole Member in a Single-Member LLC) make their initial capital contribution. The initial capital contributions will be listed in your California LLC Operating Agreement.

A capital contribution is simply an individual member depositing money into the LLC bank account. The most common way to do this is by each person writing a personal check made out to the LLC. This also creates a nice record of the transaction. If you’re going to use an Operating Agreement template provided below, you’ll want the amount of the initial capital contribution to be proportionate to the ownership percentages.

For example, if it’s a 2-Member LLC with 50/50 ownership, each person should deposit the same amount of money. It doesn’t matter if both Members deposit $500 or $25,000; as long as both amounts are the same. If the 2 Member LLC was owned 70/30, then the deposits should reflect that ratio, such as Member 1 depositing $7,000 and Member 2 depositing $3,000.

Distribution of Profits:

As per the Operating Agreement templates below, when Members take money out of the California LLC’s bank account and distribute profits to themselves, this is called a “capital distribution”.

A capital distribution can be taken by an LLC Member writing a check from the LLC bank account to the LLC Member(s) individually. You could also use a digital bank transfer, bank wire, or any other other means of money transfer that creates a documented record.

In a Multi-Member California LLC, the amount of the capital distributions are proportionate to the percentage of LLC ownership.

Note: A capital distribution is not considered a salary.

Statement about taxes:

A brief statement about how the LLC will be taxed will be made in the California LLC’s Operating Agreement.

Membership Voting:

The rules of membership voting will be spelled out in your California LLC’s Operating Agreement. If you use the template for a Member-Managed LLC below, the voting powers are proportionate to the LLC ownership percentages.

If you use the Manager-Managed Operating Agreement template below, the voting powers are also proportionate to the LLC ownership percentages. Then the Members (by a majority vote) agree to elect a Manager. The Manager then has their own authority to make most decisions on behalf of the LLC (without a vote needed by the Members). However, certain things, like adding a new LLC Member require a vote of the existing Members (and the Manager has no say).

What about Single-Member California LLCs?

Operating Agreements are not only for Multi-Member LLCs.

Even if you are the only Member of your California LLC (a Single-Member LLC), it’s still best practice to have an Operating Agreement.

In case you have to go to court over a lawsuit, having an Operating Agreement will help prove your Single-Member LLC is being run as a separate entity. And therefore, your personal assets remain safe and out of reach of creditors.

Do I have to send my California LLC Operating Agreement to the state?

No, you don’t have to send your California LLC Operating Agreement to the Secretary of State (or to any other government agency for that matter).

As an “Internal Document”, you (and your fellow Members, if applicable) need only keep your California LLC Operating Agreement in your business records and amongst yourselves.

Who needs my LLC Operating Agreement?

The following may need to see a copy of your California LLC Operating Agreement:

  • Banks and lending companies
  • Title companies
  • Accountants, tax professionals, and lawyers
  • Investors
  • Court (if you ever end up there)

This list is not exhaustive. Other individuals and companies may also request a copy of your California LLC’s Operating Agreement.

Operating Agreements don’t need to be notarized

Your California LLC Operating Agreement doesn’t need to be notarized.

Once you (and the other LLC Members, if applicable) sign the Operating Agreement, then it becomes a legally binding document for all of you.

California LLC Operating Agreement (Member-managed)

Here is a Member-managed Operating Agreement template available in 3 formats. This can be used for a Single-Member LLC or a Multi-Member LLC.

A Member-managed LLC is where all the Members (LLC owners) have the ability to legally bind the LLC in contracts and agreements. The LLC Members also run the business and day-to-day operations.

California LLC Operating Agreement (Manager-managed)

Here is a Manager-managed Operating Agreement template available in 2 formats. This can be used for a Single-Member LLC or a Multi-Member LLC.

A Manager-managed LLC is where one or more designated people (called Managers), have the ability to legally bind the LLC in contracts and agreements. The LLC Manager(s) also run the business and day-to-day operations.

The Members can't legally bind the LLC in contracts and agreements. They also don't take part in running the business and day-to-day operations. Instead, they take a passive/investor role.

However, the Members vote the Manager(s) into their position and are required to vote on certain things, like adding or removing an LLC Member.

For more information, please see Member-managed vs Manager-managed LLC.

Customized California LLC Operating Agreement

If you want your California LLC’s Operating Agreement customized to you and the other LLC Members’ specifications, we recommend hiring a business attorney.

Make sure all LLC Members have a copy

Once you finalize your California LLC’s Operating Agreement, make sure all Members have a copy.

And keep a copy or two of the Operating Agreement with your business records.

Next Step: California EIN Number

After you’ve completed and signed your California LLC’s Operating Agreement, you can then proceed to the next Lesson: California LLC EIN Number.

Matt Horwitz


Matt Horwitz
Founder & Educator, LLC University®
Matt Horwitz has been the leading expert on LLC education for the past decade. He founded LLC University in 2010 after realizing people needed simple and actionable instructions to start an LLC that other companies weren't offering. He's cited by Entrepreneur Magazine, Yahoo Finance, and the US Chamber of Commerce, and was featured by CNBC and InventRight.
 
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.

CALIFORNIA LLC GUIDE

Follow the lessons below to form your California LLC.

​​Overview

  1. ​​Name Search
  2. ​​Registered Agent
  3. ​​Articles of Organization
  4. ​​Operating Agreement
  5. ​​EIN Number
  6. ​​Statement of Information
  7. ​​$800 Annual Tax

12 comments on “California Operating Agreement”

Disclaimer: Nothing on this page shall be interpreted as legal or tax advice. Rules and regulations vary by location. They also change over time and are specific to your situation. Furthermore, this comment section is provided so people can share their thoughts and experience. Please consult a licensed professional if you have legal or tax questions.

  1. 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!

    • 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.

  2. 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.

  3. 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 :)

  4. 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?

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Matt Horwitz founder of LLC University
Matt Horwitz
Founder & Educator
LLC University®