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- Single Member Operating Agreement
Single Member Operating Agreement
An operating agreement is a legally binding document that Limited Liability Companies (LLC) use to outline how the company is managed, who has ownership, and how it is structured. As a sole owner you will not have to worry about the roles of other members or the proper procedure for votes, but the operating agreement still has much value.
Having a well-drawn operating agreement can help establish that your business is operating as an entity separate from yourself. If you can’t do this, you may have difficulty enjoying one of the main benefits of the LLC: limited liability.
Limited liability means that you are not personally liable for debts or legal issues directed at your company. If separation between owner and company is easy to establish, as it generally is with multi-member LLCs, then limited liability is not in doubt.
However, for the sole owner of a Single Member LLC, showing separation may be more difficult. For instance, even though you may have a separate business account for your LLC, since you as the sole owner are the sole operator of that account, there may be some question of separation, especially amongst creditors. Having an operating agreement that clearly separates this and other areas of possible confusion can help the LLC maintain limited liability.
In addition to this, there are a number of other ways the operating agreement may be of value to you, such as:
There are several reasons why you need an operating agreement, including:
- If you are seeking funding, you can show it to potential lenders to give them an idea of your business’s plan and organization.
- Protects members from personal liability: The operating agreement is a formality that protects the managing members from being personally liable.
- It allows you to create your own rules in regard to running your company; rules that supersede those in state business statutes.
- Ensures you aren't subject to default state rules: When a business doesn't have an operating agreement in place, the default rules set by the state will apply. For example, states have default rules that require the company to divide profits and losses equally. To avoid having to rely on your state's basic operating rules, you should have an operating agreement in place.
Simply download and fill in your information on this single member operating agreement and store it in your records for when it is requested by banks and lenders. As your business grows, you can get one specially formatted. Until then this one will work.
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