Draw Up the California LLC Operating Agreement in a Few Clicks
Do you have a limited liability company in the Golden State, or are you thinking about forming one? You should consider writing the California LLC operating agreement to outline the financial and functional decisions of your business. Creating this or any other legal document can be a daunting task, especially if you don’t have an education in law.
LLC Operating Agreement Explained
Having an operating agreement is important for all of the LLC members because this contract allows them to set basic rules regarding crucial issues, such as:
- Decision making
- LLC managing
- Profit allocation
- Ownership percentage
- Membership interest transfer
The contract is legally binding, which means that all LLC members must follow the rules outlined by the agreement.
Do You Have To Write an LLC Operating Agreement in California?
California is one of the states that require an LLC operating agreement regardless of the number of members. Even if you’re running a single-member LLC, you have to write the agreement.
While the state allows verbal operating agreements, you should consider getting your contact down in writing since verbal agreements are impossible to enforce.
Fulfilling legal requirements shouldn’t be your only motivation to compose the agreement. This document can be super beneficial for your business because it:
- Outlines the rules
- Overrides California’s default LLC rules
- Proves who the owners of the LLC are
- Protects the limited liability status
Which Info Should Your California LLC Operating Agreement Include?
Composing an operating agreement on your own can be challenging because you have to cover a lot of crucial info. If you still chose to write the contract by yourself, make sure to include the following sections:
- Division of ownership
- Voting rights of the LLC members
- Capital contribution
- Distributions of profits & losses
- Membership changes
- LLC dissolution
- Members’ signatures
You should open the agreement by recording the following info about your LLC:
- Business address
- The effective date of the agreement
- Names of the members
If you want, you can also include the list of terms used in the contract.
Division of Ownership
Single-member LLCs don’t need this section, but if your LLC has multiple members, it’s crucial that you outline the division of ownership. Membership interest is typically represented by a percentage, and it depends on how much capital each member contributes to the LLC. Ownership interest is important because it determines the distribution of profit and voting rights of every member.
By the State of California law, all LLCs are member-managed unless their operating agreements state otherwise. If you want to have a manager, you must specify it in your agreement.
Voting Rights of the LLC Members
Some of the questions that this section should answer are:
- Will major decisions regarding the LLC be made by vote?
- Will each member’s vote have the same power?
- Does the membership interest influence voting power?
- Does each LLC member have the right to vote?
All members should agree on how much money or assets everyone has to contribute. This part of the agreement determines membership interest.
Distributions of Profits & Losses
Your agreement should also outline how profits and losses of the LLC will be distributed to members.
Spell out what happens if one of the members goes bankrupt, passes away, gets arrested, or leaves the LLC for any other reason. If you fail to cover membership changes and transfers in your agreement, any person or entity can become a new member.
To avoid this, you should specify that all membership transfers need to be decided by a majority or unanimous vote of other members.
In this part of the agreement, you should specify the steps that are required to dissolve the LLC.
The contract has to include the signatures of all LLC members.
Rely on DoNotPay and Write the California LLC Operating Agreement Without Hiring a Lawyer!
Drawing up an operation agreement by yourself is not only difficult but also risky. Should you miss to include any info, you will have to abide by the state’s default LLC rules. Hiring a lawyer who will take care of the agreement is one option, but this solution is usually expensive.
If you’d like to save both time and money, you should rely on DoNotPay. We have created a product that can help you create an adequate California LLC operating agreement in under five minutes!
To write any legal document quickly and hassle-free, you should:
- Access your DoNotPay account
- Type in the name of the document in the Search bar
- Provide the required info
DoNotPay will generate a personalized agreement that you can print. To make the document official, you should get it notarized. Use our app to connect with an online notary and take care of your operating agreement notarization in a snap!
What Other Legal Documents Can DoNotPay Help Me Create?
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