Operating Agreement LLC California

A California Limited Liability Company (LLC) Operating Agreement is an internal document that outlines how the LLC will function. It establishes the ownership structure, defines managerial authority, and explains the procedures members will use to run the business. Some refer to it as a California Operating Agreement or California LLC Company Agreement. Regardless of the title used, it serves as the primary internal governance document for the LLC.

Many LLCs adopt an Operating Agreement when forming the business, while others create one later as operations expand. The agreement is kept internally and is not filed with the state.

Is a California Operating Agreement Required?

California requires every LLC organized in the state to maintain an Operating Agreement, but it does not need to be filed with the California Secretary of State. Under the California Revised Uniform Limited Liability Company Act (RULLCA), the agreement may be written, oral, or implied. While oral agreements are recognized, a written Operating Agreement is strongly recommended to ensure clarity and avoid disputes.

Why a California Operating Agreement Matters

Supports limited liability protection

A written Operating Agreement helps demonstrate that the LLC operates independently of its owners. Courts may review internal records to determine whether an LLC is honoring corporate formalities. For single member LLCs, a written Operating Agreement is particularly important.

Defines management and ownership expectations

Without an Operating Agreement, California’s statutory provisions automatically control. A written agreement allows members to specify voting rights, managerial duties, distribution rules, and decision making processes suited to their needs.

Required by banks and third parties

Banks and lenders commonly request an Operating Agreement when opening accounts or providing financing. It verifies ownership and identifies who is authorized to act for the LLC.

Addresses California-specific legal obligations

California imposes an Annual Franchise Tax, an LLC Return of Income (Form 568), and requires a Statement of Information. The Operating Agreement can assign responsibility for these filings to ensure compliance.

Key Provisions to Include in a California Operating Agreement

Basic Company Details

• LLC name
• Business purpose
• Principal office address
• Duration of the LLC
• Federal tax classification

California requires LLC names to include Limited Liability Company, LLC, or an accepted abbreviation.

Registered Agent and Office

• Name and address of the California registered agent
• Filing requirements if the agent or agent address changes
• Submission of updates to the California Secretary of State

Member Information

• Names and addresses of members
• Ownership percentages
• Initial capital contributions

Capital Contributions

• Description of each member’s contribution
• Terms for future contributions
• Clarification that contributions do not automatically earn interest

Management Structure

• Specification of member managed or manager managed structure
• Duties and authority assigned to members or managers
• Procedures for appointing or removing managers

Profit and Loss Allocation

• Rules for allocating profits and losses
• Timing of distributions
• Statement that distributions may only be made when the LLC can meet its financial obligations

Tax Election

• The LLC’s federal tax classification
• Notice that certain tax elections require additional IRS filings

Voting Procedures

• Voting rights of members
• Quorum requirements
• Percentage thresholds required for decision approval

Unless changed by the Operating Agreement, many California LLCs follow ownership-based voting.

Transfers of Interest

• Rules for transferring membership interests
• Admission procedures for new members
• Treatment of interests upon withdrawal, death, or expulsion

Records and Bookkeeping

• How financial statements, meeting notes, and tax filings will be maintained
• Requirement to file California’s Statement of Information (Form LLC-12)
• Responsibility for the Annual Franchise Tax and Form 568 filing
• Note that noncompliance may result in penalties or loss of good standing

Compensation

• Compensation rules for members, managers, or officers
• Reimbursement policies

Dissolution

• Events that may trigger dissolution
• Steps for winding up operations
• Filing a Certificate of Cancellation with the California Secretary of State

Amendments

• Procedures for amending the Operating Agreement
• Requirement for written member consent unless otherwise stated

Management Options for California LLCs

Member Managed

Members participate in daily operations and have authority to act on behalf of the LLC. This structure is common for smaller companies with active owners. Voting is usually based on ownership percentages unless modified.

Manager Managed

Members appoint one or more managers to run daily operations. Managers may be members or outside individuals. Members maintain authority over major decisions while delegating routine tasks.

Creating and Maintaining the California Operating Agreement

Drafting and Signing

The Operating Agreement becomes effective once adopted by the members. California allows written, oral, and implied agreements, but a written version offers clear documentation and helps prevent misunderstandings.

Recordkeeping

The agreement should be maintained with the LLC’s permanent records. California requires timely filing of the Statement of Information, payment of the Annual Franchise Tax, and submission of Form 568, making accurate internal documentation important.

Amending the Agreement

Members may revise the agreement using the amendment procedures stated in the document. If amendments affect information filed with the Secretary of State, the LLC must submit updated forms.