Ricci Partners, LLC

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Is an operating agreement necessary for a 1 member LLC?

| Aug 14, 2019 | Business Transactions |

Single-member limited liability companies work well for Louisiana small business owners in a variety of industries. They provide owners with the protections of an LLC as well as the freedom of a sole proprietorship. However, this autonomy can lull an entrepreneur into skipping an important formation step — creating an operating agreement.

It may seem unnecessary in a single-member LLC, but it actually does serve several vital functions. Most states have what are referred to as “default rules” when it comes to these entities. Having an operating agreement circumvents this. After all, the owner should be have the freedom to choose how to dispose of business assets and determine the succession of the business, both of which can be addressed in this document. 

Furthermore, an operating agreement helps maintain the separation between owner and company, which works to ensure that the liability protections of an LLC remain intact. It also outlines the operations of the business, the distribution to and contributions from the owner, and identifies business formation information about the company. It could also address the addition of other members in the future, among other things. Good record keeping is essential in any business, including an LLC with only one member.

What else would a Louisiana entrepreneur need in the operating agreement of a single-member LLC? That depends on the nature of the business and other factors. In addition to the general information most agreements contain, it should provide whatever the member needs in order to guide the business into the future. A business transaction attorney could assist in the identification of items to include in this document in order to maximize its use for the company.