Single-Member LLC Operating Agreement Generator

Why Your Single-Member LLC Needs an Operating Agreement

Many business owners mistakenly believe operating agreements are only necessary for multi-member LLCs. However, a proper operating agreement serves several critical purposes for single-member LLCs:

Establishing legal separation between you and your business. Courts and creditors may "pierce the corporate veil" without proper documentation showing your LLC is a separate entity, putting your personal assets at risk.

Creating a clear governance framework. An operating agreement makes clear how decisions are made, even when you're the only decision-maker, and establishes continuity if you become incapacitated or if ownership changes occur.

Setting rules for capital contributions and distributions. The agreement specifies how money comes in and out of the business, which helps maintain proper accounting and tax compliance.

Overriding default state laws. Without an operating agreement, your LLC will be governed by your state's default LLC laws, which may not align with your business needs or intentions.

Tax Classification Options

Your tax classification choice has significant implications for how you file taxes and the deductions available to you:

• As a disregarded entity, all profits pass through to your personal tax return and are subject to self-employment tax.
• An S-Corp election can save on self-employment taxes but requires you to pay yourself a "reasonable salary" and file additional tax forms (IRS Form 2553).
• C-Corp treatment creates double taxation on distributions but allows more flexibility with fringe benefits and retained earnings.

Asset Protection Best Practices

To maximize the liability protection of your LLC:

1. Never commingle personal and business funds
2. Sign all documents in your capacity as member or manager (e.g., "John Smith, Member")
3. Maintain proper business records and meeting minutes when making major decisions
4. Keep adequate business insurance
5. Follow all the terms established in your operating agreement

Business Succession Planning

Even single-member LLCs need to consider what happens if the owner becomes incapacitated or dies. Your operating agreement should align with your will or trust to ensure smooth business succession. Consider adding provisions allowing a designated successor to take over operations temporarily or permanently.