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Does your single-member LLC really need an operating agreement?

 Posted on April 30, 2020 in Uncategorized

Instead of operating as a sole proprietorship, you decided to take advantage of the personal protections of a limited liability company. Since you are the only member, you may not think you need an operating agreement.

After all, aren't operating agreements meant to outline the relationship among members? Since you are the only member of the LLC, you shouldn't need to worry about one, right?

There's more to it than that

Outlining those relationships isn't the only reason for an operating agreement. Even a single-member LLC needs this document for the following reasons:

  • An operating agreement helps separate you from your business. It makes it clear that the company is its own entity separate from you, which is important for a variety of reasons, not the least of which is protecting you from personal liability.
  • An operating agreement allows you to define your company apart from Texas state laws, which would serve as the default if you fail to set the rules. Of course, even though you have substantial leeway with the state, you must still comply with certain rules, including creating an operating agreement.
  • An operating agreement gives you an opportunity to grow the business. For instance, at some point, you may want to add members and/or investors into your company, and you can provide the framework for it in this document.

Your operating agreement can do so much more than just the above. You can include specifics regarding your day-to-day operations. You can assign certain duties to certain members or to a manager if you choose to hire one. You can outline how members leave the company as well. For example, if you do bring in new members, and one dies or divorces, what happens to that member's interest in the company?

Before sitting down to figure out how you want to structure your operating agreement, you may want to find out what the law says about LLCs first. The last thing you want to do is make a mistake that could end up costing your company and possibly you as well. In order to make sure that your agreement complies with the law, provides you the security you need and provides your company with a road map into the future, you would benefit greatly from working with an experienced attorney.

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