When forming any limited liability company (LLC), including any single-member LLC (SMLLC), most people prepare at least two key documents: the articles of organization (or equivalent document such as certificate of organization) and an operating agreement. The articles of organization are filed with the state, tell the state that the new SMLLC exists, put the public on notice of the SMLLC's existence, and let people know how to contact the business. The operating agreement, meanwhile, lays out the most important rules for how an SMLLC will be run. Unlike the articles of organization, an operating agreement generally is not required in order to form an SMLLC, nor is it filed with the state. Instead, an operating agreement is optional—though recommended. If you choose to have one, you’ll keep it on file at your business’s official location.
Any good operating agreement is tailored to fit the specific needs of a particular LLC. For this reason, the length and contents of different companies’ operating agreements can vary widely. However, many operating agreements contain information in the following areas:
This particular list necessarily is somewhat arbitrary; different people (lawyers and others) will include different information, and also will organize the same basic information in different ways. However, an SMLLC operating agreement typically is made between the SMLLC and its sole member (though including the SMLLC as a party to the agreement is not a strict legal requirement); and every properly-drafted SMLLC operating agreement will have a section (whether it’s headed “Organization” or otherwise) that contains the same basic information as the articles of organization.
A section on management is particularly important for manager-managed SMLLCs. The section can be used to clearly define the powers, rights, and responsibilities of the manager, as well as how the manager is appointed. It’s also one place where, if you, the owner, will serve as the initial manager, you can state who will serve as a successor manager in case you become unavailable. Second, both a section on management and a section on membership should contain explicit statements of limited liability; in other words, statements that, respectively, managers and members are not liable for debts, obligations, or liabilities of the company. Some of the other areas (tax and financial matters, capital contributions and distributions, dissolution) are covered in other articles in theSMLLC section of this website.
The importance of an operating agreement may be more obvious in the context of multi-member LLCs as opposed to SMLLCs. For multi-member LLCs, a written agreement can be crucial to resolving disputes among members. However, for SMLLCs, too, an operating agreement is recommended. An SMLLC operating agreement offers various benefits, such as:
Most lawyers prepare operating agreements when they form SMLLCs, and many banks and other businesses that you want to work with will expect that you’ll have this document.
For fuller information on how to start and run an SMLLC, pick up a copy of Nolo's Guide to Single-Member LLCs: How to Form and Run Your Single-Member Limited Liability Company by David M. Steingold (Nolo).