Operating Agreement for a Single-Owner LLC

Even LLCs with one owner may need an operating agreement

An operating agreement governs business of the LLC and the relationships among its owners. Although not legally required, limited liability companies with more than one member should always adopt a written operating agreement that defines the rules by which they want to operate the business. Single owner LLCs can also benefit from an operating agreement.

Documenting Authority

An operating agreement can confirm the authority of a named individual to sign contracts and take other actions on behalf of the company. The single owner of an LLC might be a corporation or another LLC instead of an individual. Confirming authority in the operating agreement helps banks, title companies and other third parties verify they are dealing with the right person.

Appointing Officers

State limited liability company laws classify LLCs as either member-managed or manager-managed. They don't create officer positions. Business owners sometimes prefer traditional titles; CEO looks better on business cards than Manager. A single-member LLC operating agreement can create corporate style officers by contract.

Special Purpose Entities

Some real estate loans limit the activities of the borrower. The lender fears that liabilities from unrelated business activities could affect the real estate securing the loan. As part of implementing the special purpose entity structure, the company includes restrictions on its business activities in the operating agreement.

Springing Members

If the sole member of the LLC is an individual, that individual's death could result in dissolution of the LLC. Dissolution might cause adverse business and tax consequences. An LLC owner can use an operating agreement to admit a "springing member" who becomes a member only upon the owner's death and help transition ownership of the LLC in compliance with the owner's estate planning.

References

• BankruptcyLawFirms.com; Special Purpose Entities