If you are planning to start a business or you already have a running business, it is important to have an LLC Operating Agreement in place. The agreement, legally required by the state of California, is the best way to protect the everyday operations of your business. It does so by laying out the rules and expectations governing your LLC and adds to its credit as a legal unit.
What is a California LLC Operating Agreement?
Whether you are a single member organization or a multi-member unit, having a legal agreement document outlining the structural and operational flow is very important. This is where an operating agreement comes in the picture.
This document is used to define the processes governing your LLC and to protect it from any future legalities, conflicts, or liabilities that may arise in the future.
When Do I Need a California LLC Operating Agreement?
Irrespective of the kind of LLC you are planning to start in the state of California (or even if you have an existing one), you are required to draw up an LLC Operating Agreement. The agreement can be drawn before or after filing the Articles of Organization. Here is why you will need an operating agreement:
- As per the Corporate Code Section 17_701.02(s) of the state of California, every single LLC operating in the state must have an operating agreement in place.
- Having clear sets of rules and expectations laid out for your member(s) can help you avoid any conflict that may arise due to ambiguity in roles.
- In the case of a single-member LLC, an operating agreement helps in preserving the limited liability status in front of the courts and improves credibility for your entity altogether.
What Is Included in a California LLC Operating Agreement?
An operating agreement LLC California must include the following items:
- It must lay out details about the Organization such as date of establishment, name, and the number of members (s), and division of power/responsibilities amongst the member(s).
- The agreement must mention if the LLC will be managed by the members or by a hired resource. The voting power that rests with the members that they may exercise to conclude during important business matters.
- Declaration about the capital invested by each enlisted member of the LLC.
- The process to be followed for division or distribution of profits/losses amongst the members.
- Guidelines to replace, change, or buy out an existing member of the LLC.
- Instructions to be followed in case the owner or the members wish to dissolve the LLC.
How important is having an operating agreement?
Though the state of California does not require you to file the operating agreement, it is legally mandated to have an agreement (written or verbal) in place.
What is the right time to draw an operating agreement?
It is advisable to do so before the articles of organization are filed. Some banks, however, require you to present the operating agreement before allowing you to open a business account with them.
Is it required to file the agreement with the state?
No, the state of California does not require the filing of the agreement.
If you are looking for an operating agreement LLC California template for drawing up an Operating Agreement, Cocosign has a variety of templates you can choose from. We also provide templates for various other kinds of CA LLC operating agreements in the state of California.
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