Articles of Organization and Operating Agreement
In the previous article, we went over what a limited liability company, or LLC, is and why you may want one. It offers various lucrative advantages to its member-owners and it comes with relatively few strings attached. Such an idyllic scenario is very rare to stumble upon in the corporate realm, which is why many businesses aim to achieve LLC status. However, to establish an LLC there are some key requirements you must complete in order for the state of California to grant recognition of your company as an LLC. Firstly, you’ll need to select a business name, then you’ll have to file the necessary documentation to the state of California, and you will have to come to an agreement with the other members of the LLC as to how everything will be run. Let’s start with that first part.
Pick a name, any name! Well, almost.
To start, you’ll want to decide upon a name for your LLC. But the trick is that you’re not the one that’s going to do the final deciding. That’s reserved for the state to decide and grant. As a general rule, you’ll want to ensure that the name you’ve settled on is:
- Original, meaning that it isn’t registered to another LLC in your state,
- Transparent, meaning that it clearly lets the reader know that the company is an LLC; this is typically done by adding “LLC” to the end of the name,
- Uncontroversial, meaning that it does not contain any words that are prohibited by state or federal law.
Lastly, it’s also definitely worth making sure that your chosen LLC name doesn’t infringe upon any potential copyright issues. If your name is too similar to another LLC’s name, then you may be held in contempt of copyright violation.
An Organized LLC is…a Required One
This second step is arguably the most important one on the list. You will have to create and file Articles of Organization. These are important documents which outline and affirm the initial statements required of you to form an LLC. The Articles of Organization will be filed to the state secretary’s office and, once approved, they establish the LLC as a registered business entity within the state.
Drafting Articles of Organization for LLC in California
The information that is required typically includes the name of the LLC, its registered address, the names of the owners and their roles, as well as a few more key points of information about the LLC. These documents are used by the state government to keep track of which LLCs are claimed and who their registered agents are. Registered agents must be designated in order for your LLC to get formed because that person will have legal authority to respond to any legal documents that your LLC may receive.
LLC Operating Agreements: The Rules of Operation
Lastly, you’ll want to draft up an Operating Agreement. This is an extremely important part of the LLC creation process because it plainly establishes the business’ financial and operational decisions, the processes for arriving at those decisions, the protocols and chain of command, as well as many other rules, regulations, or provisions. The main reason you’d want to spend quite a bit of time working on the specifics of an Operating Agreement is that it outlines and governs the internal operations of your business in such a way that is most suitable to the specific needs of the business owners. Therefore, by investing time in writing it out now, you will save a lot of frustration, confusion, and time later down the line.
Is an LLC Operating Agreement Considered as a Contract?
Do note that once signed by the member-owners of the LLC, the Operating Agreement acts as an official contract which binds them to its terms and conditions. The legal significance of this document is yet another reason to spend time on it–should any legal disputes or issues arise between the owners of the LLC, the operating agreement is one of the first things the courts will point to. As such, you’ll generally want your operating agreement to mention:
- The members’ business interests and ventures in the LLC,
- The rights, privileges and responsibilities of the members,
- Rules regarding the voting power of the members in executive decisions,
- Guidelines detailing how the business profits are to be split and shared,
- Procedures and protocol that establish how the LLC will be managed,
- Rules specifying when meetings occur and how votes will be taken,
- Provisions and protocol for outlining what will occur when a member chooses to get out of the LLC, either by selling their share, or by death or disability.
Also, bear in mind that the Operating Agreement must be completely transparent and agreed upon by all members of the LLC. You will all have to sign the document affirming your assent to its terms and rules.
Legal Help Creating an LLC
There are many points to make sure you get down in just right way while filing the documents for forming your LLC. In particular, the Articles of Organization and the Operating Agreement are so crucial to get right that the future of your business depends on it. That’s a very tall order to ask of anyone to complete on their own. That’s where we come in; you do not have to go through that process alone. We can help you with the filing of these documents so that you can focus more on your business and worry less about the details. Give our office a call today at (310) 943-1171 to speak to our experienced California business lawyers. We will make the process as smooth as can be.
KAASS LAW is authorized to practice law in California. Our lawyers in Glendale, Los Angeles County, California specialize in offering services for multiple practice areas. The above content is intended for California residents only. This content provides only general information which may or may not reflect current legal developments. KAASS LAW expressly disclaims all liability in respect to actions taken or not taken based on any of the contents of this website. The above content DOES NOT create an attorney-client relationship. KAASS LAW does not represent you unless you have expressly retained KAASS LAW in person at the KAASS LAW office.
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