Operating Agreement LLC - Two Must Have Provisions For a Single Member LLC Operating Agreement
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If you are the single owner of a business which is run through a limited liability company, you must have an operating agreement LLC. Why? Because without one, the chances of you losing your liability protection greatly rises. A SINGLE MEMBER LLC IS SUBJECT TO MORE RISK OF PERSONAL LIABILITY While it is established that a single member of a limited liability company has just as much protection under the law as companies with more than one member, the single member company is subject to a higher risk of challenge. This is because the LLC laws do require that the legal entity itself is running a business and not you personally. Because a single owner does not have to answer to anyone other than himself, there is always a risk that a person forms a legal entity but then ignores it when running a business. Even if this is not true, an angry customer or party that is suing you will try to convince a court that this is the case. This challenge is called piercing the veil and one way to guard against this is by having a proper operating agreement for your LLC. THE OPERATING AGREEMENT LLC ESTABLISHES SEPARATION AND THIS PROTECTS THE OWNER The best way to shoot down any piercing claim that is trying to get at your personal liability is to prove through documents that indeed it is and always has been the limited liability company operating the business and entering into business transactions. This is proven through the Operating Agreement for LLC and related documents showing compliance with the main document. This Agreement must contain sufficient provisions acknowledging the company as a separate and independent entity and the actual operator of the business. As part of this, the major must have provision is one that require that votes of owners be made for major decisions. And, the single member must follow these procedures when operating the business. This creates a structure where the owner is acting separate and apart from the business. COMPLIANCE BY THE SINGLE MEMBER IS EASY BUT NECESSARY Do not think that you will have to subject yourself of onerous or substantial paperwork obligations. Maintaining paperwork for a single member LLC is easy. This is done through what is called the Written Consent.
A second must have provision in your Operating Agreement is the written consent authority provision which allows the single owner to vote and act via a simple written approval document. This will allow you to very easily meet and document sufficient independence to preserve your personal liability protection. A single member LLC is different from a multi-member one in that the same level of checks and balances regarding governance is not required. However, the risk of personal liability is greater and so having an appropriate operating agreement LLC and knowing what you should do each year to document and prove the separation of owner and business is essential If you would like more details on exactly how to do this, visit our site at http://www.thellcexpert.com/single_member_llc_operating_agreement.htm which has more articles for the Single Member LLC and offers a Single Member LLC Operating Agreement Package with step by step instructions on how to preserve your protection