In this post, I’m going to go over a very common question that people have when they form a Limited Liability Company (LLC) in California. Forming an LLC used to be very complicated and expensive. Very few people formed them. Nowadays, though, that cost and difficulty has gone way down. LLCs are now available to more people. Just do a quick Google search and you’ll inevitably find many sites promising to help you fill out and file all of the necessary forms in a short time for a low fixed fee.
The question, though, is this: Is the Operating Agreement one of those documents that has to be filed with the State of California?
Before answering that question, as background for those who don’t know, an Operating Agreement is, well, an agreement between the various people or entities who have decided to form the LLC together. As all of these parties are going to be involved in the LLC, two of many things an Operating Agreement typically goes over are (1) what the various parties are each responsible for doing, and (2) what the various parties are each entitled to receive. As you can hopefully guess, any time multiple people are involved in doing something, there is always the chance for disagreements to occur. Disagreements, fundamentally, are what lead to litigation.
For a more complete list of what an Operating Agreement can cover, take a look at Section 17701.10 of the California Corporations Code.
If you’re interested, the term “Operating Agreement” is defined in Section 17701.02(s) of the California Corporations Code:
“’Operating agreement’” means the agreement, whether or not referred to as an operating agreement and whether oral, in a record, implied, or in any combination thereof, of all the members of a limited liability company, including a sole member, concerning the matters described in subdivision (a) of Section 17701.10. The term “operating agreement” may include, without more, an agreement of all members to organize a limited liability company pursuant to this title. An operating agreement of a limited liability company having only one member shall not be unenforceable by reason of there being only one person who is a party to the operating agreement. The term includes the agreement as amended or restated.”
If you read that definition closely, an LLC with just a single person or entity in it also has an Operating Agreement, although it’s a bit academic as it would be an agreement involving just a single party.
Anyway, on to the question of whether an Operating Agreement needs to be filed with the state of California. I’ll give you three answers. First, from practical experience, I know that the answer to that question is no. In all the LLCs I’ve ever formed in California, the California Secretary of State has never asked me to file an Operating Agreement. To be fair, it’s possible that my experience might not be representative, but I’d highly doubt it given how often the Secretary of State’s office could have asked me for an Operating Agreement and yet, somehow, never did.
Second, “Operating Agreement” is noticeably missing from the list of papers that need to be filed in order to form an LLC in California. That list — see Section 17702.01 of the Corporations Code — is a bit long, but if you read it closely, it only references a single form being needed to create the LLC, the Articles of Organization. Under Section 17702.01(d), the LLC is formed once the California Secretary of State files the Articles of Organization.
Third, there’s a page of the California Secretary of State’s website that describes how to order copies of various documents that, for instance, have been filed with the Secretary of State in the past. That page has a Frequently Asked Questions portion and one of those FAQs talks about how to request Bylaws of Corporations and Operating Agreements. The California Secretary of State’s answer?
“Bylaws or Operating Agreements (or any amendments thereto) are maintained by the business entity and are not filed with the California Secretary of State. Requests for copies or information about these documents should be directed to the business entity itself.”
That’s all. If you’re in a situation involving an LLC and how to handle the Operating Agreement, I hope this was helpful. Again, my usual disclaimer applies in that this post is meant as a survey or summary and not an exhaustive discussion about the applicable law. The individual facts of your situation will likely affect what you need to do because, well, that’s how the law works generally (i.e. the facts of your situation will be extremely important and cannot be ignored). If you do have a situation involving an LLC and how to handle an Operating Agreement, the code sections I link to above will hopefully be a good starting point for you if you need to do additional research. If you do have additional questions, it may be prudent to find a lawyer who can help you with the particulars of your specific situation.
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