A California LLC operating agreement template is an internal document that specifies how an LLC company is to be run and protects the assets of the LLC owners. The applicable policies or regulatory procedures, ownership distribution, and capital contributions are also outlined in the agreement. This agreement is also referred as a membership agreement.
Reasons for making the LLC operating agreement:
Here are the reasons that why you should make an LLC operating agreement;
Sets the rules
With the help pf LLC operating agreement, LLC owners become able to come up with rules specific to their entity. The decision-making protocols, and financial and management policies without external influence can be defined by the LLC members. That way, disputes are prevented as the agreement can be consulted for solutions.
Proves the ownership
Unlike the California Articles of Organization or manager-managed LLC statement of information, this agreement indicates all the company owners. This is an important document that proves the ownership of an LLC in California. Proof of LLC ownership will often require by banks, creditors, investors, title companies, courts, accountants, lawyers, and tax professionals.
Overrides default rules
According to The California Revised Uniform Limited Liability Company Act, without an operating agreement, any LLC in California is automatically subjected to default LLC state laws. In general, for all LLCs, these default laws are developed and might fail to capture problems or interests particular to a given company. Furthermore, to address these regulations as per the company’s vision and mission, an operating agreement is an opportunity for LLC members.
Protects liability status
In California, the limited liability aspect of an LLC is further solidifies by an operating agreement. An LLC and its members are considered as separate entities. This indicates that owners cannot assume legal and financial liabilities like debts and litigation implemented on the LLC. The limited liability privilege is compromised in case the members’ personal life is mixed with the LLC business affairs.
Avoidable disputes can be prevented or mitigated through an operating agreement by specifying LLC members’ roles, responsibilities, and expectations in writing.
An operating agreement can be used by potential investors, partners, and creditors to assess an LLC. That’s why, a well-run LLC improves the opportunities of collaboration or assistance.
How to form the agreement?
Here are the steps to follow;
Article of organization
The members starts by applying with the secretary of state in California. By using Articles of Organization, Domestic LLC entities are registered. On the other hand, foreign LLCs have to be registered as foreign LLC as well as they need a registered agent with a physical address in California.
An application fee of $70 (both domestic and foreign LLCs) must be paid to the secretary of state through check, money order, or credit card while applying to operate an LLC in California. An additional $15 fee will attract by In-person applications.
Report annual franchise tax
When the LLC has been registered, within 90 days after filing with the California Secretary of state, California LLC owners are required to submit an initial report. Additionally, by the 15th of the 4th month into the tax year, LLC owners must also pay an Annual Franchise Tax.
Creating a California LLC operating agreement is the next step. All LLC entities have an operating agreement as per the state of California. The agreement should be written as it is more preferred due to its effectiveness. The document should contain the signatures of every member.
Members have to apply for an Employer Identification Number. This is required for tax purposes once their registration documents have been filed with the state.
Free California LLC Operating Agreement
Printable California LLC Operating Agreement Template
In conclusion, a California LLC operating agreement template is a formal document that outlines the management structure and other operational details of the company. This document have to be signed by all the owners to make it valid.