The Single Member LLC Operating Agreement Provides Protection for the Single Owner
A single member LLC is a great business vehicle because it provides a single owner with limited liability protection. Many single members ask whether they need an LLC operating agreement?
It is always recommended that the limited liability company have a single member LLC operating agreement as many courts will look for this document if the LLC were ever to be sued and the party suing tries to find the single member personally liable for the obligation in question.
In a lawsuit, the party suing would make a claim to pierce the LLC veil of limited liability protection and ask the court to find the owner personally liable. One of the biggest challenges of a single member LLC is that once the entity is formed, the owner only has to answer to himself when operating the LLC business. Given this, a single owner will have the tendency to forget about the LLC as a separate entity and operate the business as a sole proprietor business.
Accordingly, it is very important that a single member never forget the LLC and actually engage in limited liability company maintenance and some formalities just to ward off this claim.
Adopting an LLC operating agreement is a standard and well recognized procedure for any LLC business. The document evidences the separate of the legal entity from its owners because it provides for an ownership structure and a set of rules for which the business will be operated.
By having and adopting a single member LLC operating agreement, you will be showing the world that you recognize you business as one separate and apart form yourself. Without one, a third party will have a strong claim that the single owner ignored his own LLC so why should honor the liability protection?
If you are going to go through the process for forming a single member LLC for the benefits, it makes sense to complete the process by adopting a single member LLC operating agreement and properly maintaining the legal entity as the business.
How can a single member LLC operating agreement differ from a standard one? There is no need to have the sometimes complex provisions related to the relationship among multiple members and even voting and other management decision related legal provisions.
Accordingly, a single member LLC operating agreement should cover the complete range of matters generally included in a standard agreement for an LLC business but the membership and approval provisions can be greatly simplified.