Single-Member LLCs: Why you need an operating agreement
You started your own business. You formed an LLC and have no other members or what are ordinarily known as “partners”. You don’t need to waste your time with an operating agreement, right? WRONG!
Let’s first talk about what an operating agreement is. An operating agreement is to an LLC as bylaws are to a Corporation. It’s your company’s playbook. It is a document which describes the operations of your business, declares the ownership and contains agreements between your business and its owner(s)/ member(s). Clearly, this is something every business needs, whether there is one member or there are fifteen members.
Here are just a few reasons a well-written, operating agreement tailored specifically to your business is important: separation of the business from the owner for tax and liability purposes; avoiding default rules the State imposes when certain events in the business occur; dictates what happens if you pass or can no longer run the business; provides record keeping parameters and much more. ALL of these factors are applicable to you EVEN IF you are the sole owner of the business!
Often times, entrepreneurs assume the operating agreement is just an unnecessary formality and an exercise in futility that they should not have to take time out of their busy schedules to worry about. Do not be fooled! You will be surprised at how much an operating agreement is used/ needed as you progress in your business. Even some potential funding sources request this document!
You’ve already taken the first step to form the LLC, which is GREAT to separate you from your business from a liability standpoint- but you cannot stop there! Do not take your status for granted! Contact C&G to assist you in getting on track today!
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