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.
