Many California LLC owners assume voting power tracks ownership: put in 70 percent of the money, control 70 percent of the votes. That is how it works — if the operating agreement says so. Without one, California's Revised Uniform Limited Liability Company Act (RULLCA) supplies default rules, and they are not what most owners expect. The defaults lean toward per-member voting and unanimous consent for big decisions, which can put a 10 percent member on equal footing with a 90 percent member. Here is what the statute actually provides and why nearly every LLC should override it in writing.
Member-managed is the default
Under Corporations Code § 17704.07, an LLC is member-managed unless both the articles of organization and the operating agreement expressly make it manager-managed. In a member-managed LLC, management is vested in the members collectively, and — critically — under Corporations Code § 17703.01, each member is an agent of the LLC for ordinary-course business. That means any member may be able to bind the company to contracts within the ordinary course, regardless of ownership percentage. If you formed an LLC online, never adopted an operating agreement, and assumed the majority owner runs things, the statute says otherwise.
The default voting rules that surprise people
For a member-managed LLC with no contrary operating agreement provision, § 17704.07 supplies the decision rules:
- Ordinary-course decisions: differences among members about matters in the ordinary course of the LLC's activities may be decided by a majority of the members. The statute counts members, not percentages — a headcount rule. Three members with 80/10/10 ownership means the two 10 percent members can outvote the 80 percent member on ordinary business.
- Outside the ordinary course: an act outside the ordinary course of the LLC's activities requires the consent of all members.
- Amending the operating agreement: unanimous consent, by default.
- Selling substantially all assets, mergers, and conversions: unanimity again, under the default scheme.
In a manager-managed LLC, the manager decides ordinary-course matters, but the statute still reserves the fundamental decisions — amending the operating agreement, approving a merger, disposing of substantially all property outside the ordinary course, and acts outside the ordinary course — for the consent of all members by default. Either way, the smallest member holds a veto over the biggest decisions unless the agreement says otherwise.
Why the defaults cause real problems
The unanimity defaults convert every fundamental decision into a negotiation with every member — including the estranged co-founder, the former spouse who became a member after a divorce, or the investor who went silent. A sale of the business, a recapitalization to bring in new money, or even a needed amendment can be blocked by a holder of any size. The headcount rule for ordinary business creates the opposite problem: majority-in-interest owners discover they can be outvoted on operations by a coalition of small holders. And the agency rule means a minority member in a member-managed LLC may bind the company to ordinary-course contracts the others never saw. Disputes over who had authority to act are a recurring source of member deadlock and business litigation — most of it avoidable with a page of drafting.
What a good operating agreement does instead
RULLCA is mostly default law: the operating agreement can rewrite nearly all of it, subject to limited exceptions, including statutory limits on eliminating fiduciary duties and the contractual obligation of good faith and fair dealing. A well-drafted agreement typically:
- Votes by percentage interest, not headcount, so control tracks ownership.
- Defines approval tiers: day-to-day matters to the manager or a designated member; a defined list of major decisions (borrowing over a threshold, admitting members, selling the company, amendments) to a majority or supermajority in interest — not unanimity.
- Limits unauthorized commitments, stating who has actual authority to sign for the company and pairing that rule with appropriate public filings and internal controls.
- Plans for exits and deadlock: transfer restrictions, buy-sell provisions, and a tie-breaker mechanism, so a stalemate has a contractual resolution instead of a courtroom one.
If your LLC already has an operating agreement, check whether it actually addresses voting — many short-form agreements are silent on decision thresholds, which drops you back into the statutory defaults on exactly the questions that matter. Aligning the agreement with how the owners really intend to govern is core corporate governance work, and for new companies it belongs in the formation package from day one.
Talk to a California business attorney
If your LLC is running on statutory defaults — or an operating agreement that no longer matches how decisions really get made — we can draft or update it before a vote becomes a dispute. Schedule a free consultation or call (949) 418-2113.
This article is attorney advertising and provides general information only. It is not legal advice and does not create an attorney–client relationship. Facts matter; consult a lawyer about your specific situation.
