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What is the minimum that goes into an operating agreement?

You decided to form a limited liability company for your new business. You choose a name and go through the process of creating and filing your Articles of Organization. After taking care of everything else you needed to, you feel you are ready to open your business.

However, you have one more important task to complete before can consider your business formation tasks completed. California law requires that you have an operating agreement. You don't have to file it, but you do need to create and execute one.

So, what are the minimum items to include?

Some basic information goes into all operating agreements, including the following:

  • The name and address of your company's principal office
  • Information from your Articles of Organization
  • The duration of your LLC, which is usually either a specific date or until you dissolve it
  • The name and address of the person who receives legal notices and correspondence, called the registered agent
  • The type of business the company conducts
  • Detailed information about the members, such as monetary contributions, ownership interest and more
  • How one will manage and operate the LLC
  • Clauses about the limitation on liability and the indemnification of the members
  • Information about how members can join or leave the LLC

You can also add non-compete and confidentiality clauses to your operating agreement. Depending on your industry and the business conducted, you could also include provisions specific to those areas. The more detail you include in this document, the better off you and the other members, if any, will be.

Many people also include a road map for the future of the business in their operating agreements, and so could you. This could provide valuable information for potential investors and lenders if you seek more capital for your business.

Don't go it alone

Even though there are forms on the internet for operating agreements, it would most likely be a mistake to use one. These forms often cannot be tailored to a particular business and may not include all of the information required by the state. Moreover, you may inadvertently leave out something important because it was not in the form.

Instead, it would be wise to take the time, money and effort to work with a business law attorney to create this and the other documents needed to help make your business a success. The work you put in now could help save you more money, time and effort that you may need to expend later to litigate and correct an issue.

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