What is an operating agreement?

An operating agreement is a legal document that outlines the binding agreement between the members of an LLC (limited liability company) in California. Operating agreements typically include the rights, roles, responsibilities and regulations that all members must abide by. This serves as a form of organization for the LLC, and outlines expectations of all members as well as any procedures related to problem-solving, decision-making, purchases, mergers and dissolution. Operating agreements also provide clear definitions of the voting process of members, which typically includes voting rights, frequency of voting and business resolution methods. They also outline the management structure and set out the role of each member in the organization. Individual members will typically have specific rights and responsibilities assigned to them, although all members are typically held to a certain standard of conduct, including the requirement to act in the best interests of the LLC. Finally, operating agreements will often include provisions for dispute resolution and general provisions, such as indemnification and reimbursement. These provisions provide protection and clarity for all members in the event of a dispute. Operating agreements are essential to the formation and ongoing management of an LLC in California, and they provide clear guidelines for all members to follow.

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What is an operating agreement?

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