Does a Single-member LLC Need an Operating Agreement?

If you have been following my posts on helping my sister set up her antiques/collectibles business, you may remember that I suggested she set up the business as an limited liability company (LLC), rather than a sole proprietorship. Since she is the only person involved in the business, she would be a single-member LLC. I got to thinking about this, and wondered if she should prepare an operating agreement for her LLC, even though she is the only member.

I did some checking (online, of course, and with my attorney) and I decided that she should set up an Operating Agreement. The biggest reasons for putting together this document are to clarify her business status as separate from her personally and to establish her limited liability status.

Certainly, if she and others were forming a multiple-member LLC, they should definitely prepare an operating agreement to settle misunderstandings and make sure all member investments are protected.

Finally, if an LLC has no operating agreement, it is subject to the "default rules" of the state in which the LLC is organized. These "default rules" are set out by the state. Letting the state tell you how to dispose of your business assets is not what you want for your LLC.

If you are forming an LLC, even if it is a single-member business, be sure to create an operating agreement.