Operating Agreement for a Single-Owner LLC

By Jennifer Kiesewetter, J.D.

Operating Agreement for a Single-Owner LLC

By Jennifer Kiesewetter, J.D.

An operating agreement is a legal business document that describes the overall management of a limited liability company (LLC). Not only does it identify the LLCs management structure, but it also provides information regarding the company's daily operations, including capital contributions, the process for ownership transferability, and more.

Man in grey sweater reading paperwork

When you have a single member LLC (SMLLC), you only have one member (also known as the owner of the LLC). You don't have the existing relationships between members like you do in a multi-member LLC. Due to the straightforward business structure of an SMLLC, many states don't require an operating agreement for this type of business structure. However, even if you operate an SMLLC, it is still advisable to have an operating agreement.

Here's why.

Serves as a Blueprint for Your Business

SMLLC operating agreements can be simple since there's only one member in the company. However, even with one member, your operating agreement will serve as your business's blueprint by describing your business's daily operations, along with specific provisions addressing succession or bringing in another member.

Additionally, an SMLLC operating agreement helps you avoid your state's default limited liability company rules. By drafting an operating agreement for your one-member company, you can tailor the operations and management of your company within the bounds of your respective state law. You have more control through an operating agreement to frame your company's daily management.

Safeguards Limited Liability Protection

One primary reason to have an SMLLC is to take advantage of the limited liability protection, which is awarded only if you can prove that your business affairs are entirely separate and distinct from your personal affairs. By describing the role of you as a single member as well as the daily operations of the SMLLC, the operating agreement gives proof that you're not operating as a sole proprietor.

Addresses Varying State Law

Make sure you check your applicable state laws (Secretary of State website) before you begin drafting your operating agreement, as you'll want to fully understand what you can and cannot include in the document.

Before you draft an operating agreement for your SMLLC, you'll want to understand the required and discretionary operating agreement provisions that are available to you in your state. Although SMLLC operating agreements are rather simple, you may have questions about the daily management of your company as well as special circumstances, such as bringing on another member down the road. You should consult with an attorney or use an online service provider to assist you in answering any questions you may have regarding the drafting of your SMLLC operating agreement. By receiving additional guidance, you'll be able to make sound decisions affecting the future of your company.

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