A few years ago, I wrote about how Operating Agreements work in a California Limited Liability Company (LLC) work. To refresh you all slightly, an Operating Agreement is, in essence, a contract between the various members or owners of an LLC that details the substantive relationship between them. If you want to see more in-depth what an LLC Operating Agreement in California can and cannot contain, take a look at Section 17701.10 of the California Corporations Code. LLC Operating Agreements in California are extremely flexible and can, practically-speaking, be customized in an almost infinite number of ways.
This is one reason why LLCs are so popular.
In today’s post, I want to go over one topic that can be addressed in a California LLC Operating Agreement and that’s the question of having officers. When it comes to companies, most people have heard of positions such as Chief Executive Officer (CEO), Secretary, Chief Financial Officer (CFO) and so on. Officer jobs like these are customary in corporations, but what about in an LLC? If you’ve created your own LLC, you may be wondering if you can have officer jobs like these also or whether you’re required somehow to have them and, if you do not, then it’s illegal in some way.
The short answer to this question of “Can I have officers in an LLC?” is that it depends on what the Operating Agreement says. If the members or owners of an LLC want to have the traditional or customary officer jobs like CEO and CFO, they can. However, the existence of officer roles like this must be clearly specified in the Operating Agreement itself. The substantive law for this is Section 17704.07(u) of the California Corporations Code, which states:
“A written operating agreement may provide for the appointment of officers, including, but not limited to, a chairperson or a president, or both a chairperson and a president, a secretary, a chief financial officer, and any other officers with the titles, powers, and duties as shall be specified in the articles of organization or operating agreement or as determined by the managers or members. An officer may, but does not need to, be a member or manager of the limited liability company, and any number of offices may be held by the same person.”
I’ve bolded and underlined two items of note.
- The first is that the statute says that a written operating “may provide” for the appointment of officers. In other words, this is not a required component of an Operating Agreement. If the members or owners of an LLC elect to have officers, they can do that by writing it in to their Operating Agreement.
- The second item is that the “titles, powers, and duties” of whatever officers exist in a given LLC can be customized. This is one example of how LLCs are extremely flexible. Instead of being fixed, the “titles, powers, and duties” of these officers can come from three possible sources: (1) whatever the members specified in the Articles of Organization that were filed originally to form the LLC, or (2) whatever the members chose to include in the LLC’s Operating Agreement, or (3) as determined by the managers or members themselves.
This brings up a related question of what happens when the members of an LLC change their mind about having officers. If the initial Operating Agreement did not mention having officers, can this be changed? One obvious answer is that the Operating Agreement can be amended to explicitly state that the LLC will have officers. However, amending the Operating Agreement is not the only option. Section 17704.07(v) of the California Corporations Code addresses this by stating, in relevant part:
“Officers, if any, shall be appointed in accordance with the written operating agreement or, if no such provision is made in the operating agreement, any officers shall be appointed by the managers and shall serve at the pleasure of the managers, subject to the rights, if any, of an officer under any contract of employment.”
In other words, the manager(s) of an LLC can simply appoint officers also if amending the Operating Agreement to mention the LLC having officers is not feasible, too complicated, etc. As a general rule, I am a big of putting things in writing whenver possible. Thus, if it were me, I think I would want to amend the Operating Agreement, but to each their own.
As always, I hope you found this post helpful. Keep in mind that, as usual, this post was not meant to be a comprehensive discussion on the topic, but rather just a survey of the field as a whole. If you have a case or legal matter where you are dealing with an LLC Operating Agreement or an LLC with officers, please do your own research and/or talk to a lawyer to discuss the specifics of your situation.
Andy Chen
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