Search
  • Gifford Collins

5 Reasons Your Single-Member LLC Needs an Operating Agreement.

Updated: Aug 17, 2020


An operating agreement is a contract that controls your LLC’s operations as well as member interaction with each other and with the LLC. You may think that an operating agreement is not necessary for your single-member LLC - after all - why make an agreement with yourself?


Is the Operating Agreement a Legal Requirement?

Most states don’t require an LLC to have an operating agreement. Of the states that do, some require the operating agreement be written while others permit oral agreements. No state requires an LLC to file an operating agreement with the Secretary of State; instead, the operating agreement is kept with other business records. No matter what state you’re in, however, it’s always a good idea to create a formal, written operating agreement—even for a single-member LLC. Here’s why:


REASON 1 – Avoid State-Imposed Default Rules

Without an operating agreement in place, your LLC is bound by the default rules of your state. Most state laws governing LLCs allow the default rules to be overwritten in the LLC's operating agreement.

REASON 2 – Maintain Control

As the business gains momentum, you may want to hire a manager to take care of the day-to-day business operations so you can shift your attention to business-development opportunities. An operating agreement can define the manager role—designating the authority and compensation and what happens if the manager leaves or competes with the company.


REASON 3 – Keep Business and Personal Identities Separate

An operating agreement helps distinguish the business from the owner for liability purposes. A major benefit of an LLC is that it limits liability going both ways: the LLC protects a member from business liabilities and the business assets from a member’s personal liabilities. Without an operating agreement in place, the business may look like a sole proprietorship. If a court doesn’t see your LLC as an entity separate from you, you could lose the liability protection that an LLC offers.


REASON 4 – Clarify Succession

An operating agreement can specify what happens if you die or become unable to run the business. Without this specific provision, your family may have a hard time continuing the business or winding it down.


REASON 5 – Scalability

Successful businesses grow. And growth requires capital. An operating agreement can specify how future investors will be treated. If you structure these terms in the operating agreement, the LLC will be better positioned in the investment negotiations.


Let’s Continue this Conversation

An operating agreement serves an important role, even for a single-member LLC. The operating agreement puts you in the driver’s seat and enables the LLC to perform its main task—to limit liability. If you have an operating agreement in place, we’d be happy to review the agreement as well as your business needs to ensure the operating agreement and LLC are in sync. Or, if your single-member LLC doesn’t have an operating agreement in place, we’ll work with you to craft an appropriate agreement.


Collins Law Firm, LLC helps families and businesses build, protect and efficiently pass their wealth on to the next generation.

giff@giffcollinslaw.com or (608) 886-9529 www.giffcollinslaw.com

40 views0 comments

CONTACT COLLINS LAW FIRM, LLC

Milwaukee Address

11616 W. North Ave., Suite A

Wauwatosa, WI 53226

(414) 207-6292

La Crosse Address

319 Main St. S., Suite 312

La Crosse, WI 54601​

(608) 886-9529

giff@giffcollinslaw.com

 

  • Black Google Places Icon
  • Black Google Places Icon

 ©2019 by Collins Law Firm, LLC. All rights reserved. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.  We invite you to contact us and welcome your calls, letters and electronic mail.  Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

 

​​​​© 2018 Proudly created By adBidtise

  • Grey Facebook Icon
  • Grey LinkedIn Icon
  • Grey Google Places Icon
  • Grey Google+ Icon
  • Avvo_logo