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What Is A California LLC Operating Agreement?

This Operating Agreement for an LLC is simply a contract that is drafted among the members or owners that includes information and details about the management and ownership. The operating agreement for your California LLC includes some of the most basic information about your LLC in California. However, some of the same information listed within the Articles of Organization can also be found in the Operating Agreement:

* The LLC Name
* The effective date of the LLC
* The Registered Agent in California
* The duration of the LLC
* The purpose of the LLC
* The taxation method of the LLC


LLC Operating Agreement California


LLC Ownership

On the LLC Operating Agreement in California, the LLC Members usually indicate their owner percentage before all the members agree and sign off on the Operating Agreement. The percentage owned by members is usually known as the ownership interest, or the ownership units, or even the ownership percentage. As previously mentioned, most of the times the ownership of expressed as a percentage such as 100%, 75%, or even 5%.


Initial Capital Contribution

After you file for your LLC and it’s approved, each of the LLC Members need to make their initial contribution. The initial contributions are also listed within the California Operating Agreement LLC. If you didn’t already know, the capital contribution is an initial deposit that is made into the LLC account for each member. This can also be done if each person writes a personal check for the LLC.

When this is done, it can easily provide a decent transaction record for the LLC. So, if you’re going to make use of the Operating Agreement template, you’ll need to ensure that the initial contributions are in line with the percentage that each owner holds. In essence, if an LLC has only two members then the ownerships are shared half and half. When it comes to this type of percentage, each person is required to deposit the same amount in to the LLC account.

It should be noted that if the members deposit $25000 or even $500, both amounts need to be the same. If the two members owned 70/30, then the amounts deposited by them should reflect in this ratio. In essence, this means that they should deposit $3000 and $7000 respectively.


Distribution Of Profits

According to the Operating Agreement, the members are allowed to take money out from the LLC’s account and distribute the profits. This is done in an even manner is referred to as the capital distribution. Capital distribution is usually done when an LLC member writes a check from the bank account to the individual member.

Capital distribution can also be done via electronic transfers, bank wire, or other means that are available. However, all of this should be done in such a way that documents are recorded. In LLCs where there are numerous members, the distribution is made according to the percentage owned by the other members. It should be noted that capital contributions are not deemed as a salary.


Statement About Taxes

The Operating Agreement for the LLC usually has the tax information. This is simply a statement that indicates how the LLC within California will be taxed.


Membership Voting

When it comes to voting, all of this is written in details within the LLCs Operating Agreement in California. If you’re planning to use the template below, it indicates that the voting rights are in line with the percentage ownership. So, if a vote depends on the majority and certain members own over 50%, they can vote and make the decisions for the LLC.

If for some reason, you’re the only member in the LLC, you have absolutely nothing to worry about since you’re going to have the majority of votes. The Manager-Managed Operating template below indicates that the voting rights are based on the percentage ownership. A manager is also elected when the majority vote on it.

Managers usually have the power to make certain decision without votes being taken. If new members are to be added to the LLC, existing members need to vote and managers don’t really have a say in this matter.

What About Single-Member California LLCs?

If you’re the only member within the California LLC, it’s still in your best interest to have an Operating Agreement. If ever you should be summoned to court, the Operating Agreement will prove that the LLC is being run by a single member. This ensures that your assets are separate and safe from the grasp of collectors.


Does The State Require A Copy Of My Operating Agreement?

You’re not required by the state to send your LLC Operating Agreement to the state. Furthermore, you’re not required to send it to any agency that is associated to the government. The Operating Agreement is better known as an LLC Internal Document and is needed for record purposes.

Entities That Require Your LLC Operating Agreement

The following is a list of persons who may need your LLC Operating Agreement:

* Title Companies
* Lending and Banking Companies
* The Court
* Investors
* Tax Professionals, Lawyers, Accountants

While the list isn’t exhaustive, there are several other companies and individuals that can request copies of the Operating Agreement.

Does The Operating Agreements Need To Be Notarized?

No, it doesn’t, and once the members sign the Operating Agreement, it becomes a document that legally binds the members. Member-managed LLCs within California provide the opportunity for all owners to bind agreements and contracts. The members are responsible for running the daily operations of the business. Due to this, most people choose for their LLCs to be Member-managed.


California LLC Operating Agreement (Manager-managed)

In order to bind LLCs in agreements and contracts, the manager has to make the decision since only a select few have this power. Since the manager run the daily operations, other members are not responsible for running these daily operations. However, the simply play the investor or passive role within the company. Members have the right to vote the manager into his position and they have the right to remove or add LLC members if they so desire.


Customized California LLC Operating Agreement

If you’re planning to customize the Operating Agreement, you’ll need to hire an attorney. Additionally, all members are required to have their own copy of the Operating Agreement as soon as it is finalized. Don’t forget, you’ll need to also keep a copy for records if ever you need them. Even if you’re a single member LLC these still come in handy.

Additional Resources