Single Member LLC Operating Agreements

What Is a Single-Member LLC Operating Agreement?

operations, management structure, and ownership details of a limited liability company (LLC) with only one member. You might know it as a sole proprietor agreement. Having one is not a strict obligation in every state. Rather, it’s a recommended step when forming your one-member LLC as it helps establish the rules and guidelines for how your processes run.

Single-Member LLC Operating Agreement by State

The SMLLC Operating Agreement varies by state, reflecting each jurisdiction’s unique regulations and requirements. While most states don’t mandate it for SMLLCs, having one in place is highly recommended to delineate the business’s structure and operations and to affirm the separation of personal and business assets. 

States that require a single-member LLC operating agreement: California, Maine, Missouri, Delaware, and New York

Why it’s Important to Have One Even if You’re The Only Member

Even if you’re the sole member of your Limited Liability Company, having an operating contract is crucial. Here’s why:

1. Legal Protection: It reinforces your limited liability by separating your personal and business assets.
2. Operational Clarity: It outlines your LLC’s management and operational structure, providing a clear framework for your business decisions.
3. Flexibility: It allows you to create rules tailored to your business needs rather than defaulting to the state’s generic laws.
4. Credibility: It adds credibility to your corporation, which can be beneficial when dealing with other businesses and potential investors.
5. Preparedness: It prepares your business for future growth and changes, making transitions smoother.

An SMLLC operating agreement serves as a roadmap for your business, providing clarity and legal protection. Even though it might seem unnecessary for a one-person operation, it’s a small step with significant potential benefits.

Sample Single-Member LLC Operating Agreement

PandaDoc offers a comprehensive template that’s free to use and easy to understand. This template outlines the rules and regulations for a single-member Limited Liability Company, ensuring a clear separation between member and company assets. 

It’s designed to protect the member from liability and complies with the state’s regulations requiring an SMLLC contract. The template also includes provisions for various scenarios, such as the member’s death or bankruptcy. It’s a valuable resource for anyone looking to establish a single-member Limited Liability Company.

How It Differs From Other LLC Operating Agreements

A Single-Member LLC Operating Agreement includes many of the same provisions found in operating agreements for multi-member LLCs, but with some differences. You may include provisions for potential future changes in ownership or management delegation while emphasizing the sole member’s liability protection

Single Member LLC Operating Agreements differ from other LLC Operating Agreements in the following ways:

1. Number of Members: As the name suggests, a Single Member LLC Operating Agreement is designed for an LLC with just one member, while other agreements cater to companies with multiple members or managers.
2. Decision-Making: In a Single Member LLC, decisions are made solely by one person. In contrast, multi-member companies require provisions for voting rights and decision-making processes among members.
3. Distribution of Profits and Losses: In a Single Member LLC, all profits and losses go to that one member. Other Limited Liability Company agreements must outline how profits and losses are distributed among all members.
4. Succession Planning: Single Member LLC agreements must address what happens if the sole member cannot continue running the business. In contrast, other LLC agreements may have more complex succession plans due to the presence of multiple members.
5. Asset Protection: Both types of agreements provide asset protection, but Single Member LLC Operating Agreements emphasize separating personal and business assets to maintain the liability protection the business structure offers.

In essence, while all LLC Operating Agreements share the common goal of defining the structure and operations of the business, the specifics can vary significantly depending on the number and roles of the members involved.

Key Components of a Single-Member LLC Operating Agreement

A comprehensive Single Member LLC Operating Agreement should include the following key components:

• Acknowledgment of Sole Ownership: This provision explicitly states that the LLC has only one member, emphasizing the sole proprietorship nature of the business.
• Organizational Details: This includes basic information about your business, such as its name, date of formation, and location of the registered office.
• Management and Control: Since there is only one member, this provision typically outlines that the sole member has full control and management authority over the LLC’s affairs. However, it may also include language allowing the member to delegate management duties if desired.
• Transfer of Ownership: While single-member LLCs typically cannot have other members, this provision may address the possibility of the sole member bringing on additional members in the future or transferring ownership interests under certain circumstances.
• Indemnification: This provision may protect the sole member from personal liability for actions taken on behalf of the LLC, similar to how it would be addressed in multi-member agreements.
• Financial Management: This section details the processes regarding financial management, capital contributions, distributions, accounting and record-keeping, and tax filing responsibilities.
• Dissolution and Liquidation: Procedures for dissolving the LLC, distributing assets, and winding up affairs in the event of closure may be included, providing clarity for how the business will be concluded.

How to Write a Single-Member LLC Operating Agreement

Your single-member LLC operating agreement should encompass the following provisions:

• Name of LLC: The official name of your Limited Liability Company.
• Principal Place of Business: The primary location where your business operates.
• State of Organization/Formation: The state where your business was formed.
• Registered Office and Registered Agent: The official address and appointed agent for receiving legal documents.
• Operating the LLC in Another State (Foreign LLC): There are provisions for operating your Limited Liability Company in states other than the state of formation.
• Duration of LLC: The intended lifespan of your company.
• Purpose of LLC: The primary purpose or nature of your business.
• Powers of LLC: The powers and capabilities of your company.
• Statement of Limited Liability: A declaration of the limited liability status of your business.
• Membership and Contributions: Details about your membership in the corporation and any capital contributions you’ve made.
• Records and Accounting: Guidelines for maintaining financial records and accounting practices.
• Dissolution or Termination: Procedures for dissolving the corporation or terminating your membership.

Your operating agreement serves as your roadmap for managing your company, and you can add other items as you see fit. For added legal validity, it’s also advisable to have your signature witnessed by a public notary.