Limited Liability Company

 

If you run your business through an LLC, but you are a single owner, you will need a company operating agreement. This is because you expose yourself to greater chance of losing your personal liability protection without one.

GREATER RISK OF PERSONAL LIABILITY FOR SINGLE MEMBER LLCS

The law definitely offers the same liability protection to a single member of an LLC as companies with more than one member. However, the single member company is subject to a higher risk of challenge. And, many shocking solo business owners have found themselves losing this protection due to improper operation of their LLC entities.

LLC laws demand that the limited liability company is operating the business itself and not being run by you personally. The law is written this way because a sole owner has no one to answer to. This creates a risk that someone will create a legal entity but then ignore it while operating the business.

Even if you do run your business properly, aggressive lawyers can work to convince the court that your are running the business personally and not as the LLC itself. Claims of this type are called "piercing the veil". One way to protect yourself against this kind of claim is by having an operating agreement properly filed. You must also follow the requirements of the operating agreement to ensure your protection.

ESTABLISHING SEPARATION WITH AN OPERATING AGREEMENT

The LLC Agreement will have to hold sufficient specifications that acknowledge the LLC as an independent and separate entity that is the business's actual operator. In doing this, it is important that you have a provision requiring that the owners vote on major decisions.

As a sole member, you must follow the procedures outlined in the operating agreement and you should be sure to document particular processes that you are complying with. Proper documentation will form a structure in which the owner acts separately and distinctly from the business.

SINGLE MEMBER COMPLIANCE: 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 single owner cannot use written consent unless the LLC Operating Agreement has provision for it. Including a Written Consent provision will let you vote and act through an uncomplicated written approval form. Using this kind of form lets you easily meet your obligations to show sufficient independence and maintain the protection against personal liability.

Because a single member does not have to answer to other members, there usually are not as many governance procedures with a single member LLC. But, with less governance evidence, the risk of personal liability becomes higher.

Accordingly, every single owned business should have a proper LLC agreement and a minimum level of documentation to evidence the independence of owner and business is essential.

CLICK HERE for details on a Single Member LLC Operating Agreement Package