Operating Agreement LLC California

A California LLC Operating Agreement is an internal contract among members that defines ownership structure, management procedures, and operating rules. Although it is not filed with the state, it serves as the governing document for the LLC’s internal affairs under California law.

Is a California LLC Operating Agreement Required

Under the California Revised Uniform Limited Liability Company Act (RULLCA), the operating agreement governs relations among members and the company. When the agreement is silent, the law’s default provisions apply. While a written agreement is not explicitly mandatory, legal and business experts agree that every California LLC should maintain one, written or implied, with its records. The California Secretary of State also states that an operating agreement is required as an internal record, even though it is not submitted to the state. Because the law treats it as the LLC’s key internal contract, and because banks and courts often request it, a written and signed version is strongly advised.

Benefits of a Written Operating Agreement

A written Operating Agreement provides several advantages:

• Preserves limited liability protection: Shows that the LLC is separate from its owners, protecting personal assets if the company faces legal claims.
• Overrides default state rules: Prevents application of California’s default LLC laws that may not fit the members’ intentions.
• Facilitates banking and transactions: Lenders and financial institutions often require a copy to verify ownership and management authority.
• Clarifies member roles: Establishes decision-making rules, profit allocation, dispute resolution procedures, and terms for transfers or dissolution.

Key Components

A well-drafted Operating Agreement typically includes:

• Formation and basic details: LLC name, effective date, registered agent, purpose, duration, and tax classification.
• Ownership and contributions: Names of members, their percentage interests, and initial capital contributions.
• Management structure: Whether the LLC is member-managed or manager-managed, and the scope of decision-making authority.
• Operational provisions: Allocation of profits and losses, voting procedures, transfer restrictions, and dissolution steps.
• Signing and record-keeping: Each member should sign the document and retain it with company records. The agreement is not filed with the state.
• Amendment process: Specifies how changes are proposed, approved, and recorded.

Record-keeping and Formalities

Keep the signed Operating Agreement in your LLC’s records, provide a copy to each member, and follow its provisions. Notarization is optional, though not required, but can enhance the evidentiary value of the document. Even if you are a single-member LLC, you should maintain separate records and bank account, and adopt the Operating Agreement to reinforce the separation of entity and owner.