Operating Agreement for a Single Member LLC?


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I will be filing for an LLC very soon (as early as next week) in the state of Tennessee, which does NOT require an operating agreement. I talked with an accountant for a couple hours last week, and over the last year, I've talked with lawyers and received professional business advice.

However, 1 lingering question I have is this: As I will be filing for a single member-managed LLC, should I bother putting together an Operating Agreement? As I understand it, an Operating Agreement is hugely recommended for LLCs with more than 1 member. In some states, it is required.

I have a business plan consisting of about 10 pages (so obviously its brief and probably not as complete as it could be). I've thought a lot about the business. But...

Are there any legal benefits to having an operating agreement I can refer to should something go sour? As is proper business sense, I've put together two separate budgets for myself (personally) and my business, and I'll be opening up a separate business bank account to handle business funds. I will not pay for business expenses out of my personal funds or vice-versa (unless I document that and reimburse myself).

Aside from this common sense and good business practice, I'm just curious to know if there would be any other benefit to having an operating agreement I can refer to in court, for tax purposes, or anything else if needed.

LLC

asked Jan 20 '13 at 03:09
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David W
128 points

2 Answers


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There is one major benefit.

An LLC is governed by each state's LLC Act. This means that any legal issues that may come up will be determined by that state's laws as defined in its LLC Act. Some states have well defined LLC Acts, and others don't.

If you have an Operating Agreement, the stipulations in that OA will, in most cases, override your state's LLC Act. So, if there's something in your state's LLC laws you don't like, you may be able to override it with an Operating Agreement. Additionally, having an OA ensures that there won't be any surprises in certain areas of your business since you have spelled out how things will work. For example, what if the law changes at some point without your knowledge? If you have an OA, it won't matter.

A less important issue to consider is that an OA may be required for certifications, competitions, grants, etc. If you apply for a government certification (e.g. Minority-owned business) you may need to supply an Operating Agreement or other documents to get the certification. Some state grants and competitions may also require it. If you don't have an OA, you can always create one when you apply for these programs, so it's not a big deal; just something to keep in mind.

answered Jan 20 '13 at 04:20
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Zuly Gonzalez
9,194 points

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If your corporate status is contested, say by someone suing you, then you may be asked whether your corporation or LLC has adequate corporate formalities. Not having an operating agreement may weigh in favor of removing the protection against liability provided by your LLC.

answered Jan 20 '13 at 11:07
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Yorick
826 points

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