I formed a single-member LLC about six months ago and never wrote an operating agreement. I keep seeing conflicting info online, some say it doesn't matter for a single-member, others say it's essential. I run a small consulting business, no employees, no partners. Do I really need one, or is this just something lawyers push to bill hours?
LLC Formation
I formed a single-member LLC and skipped the operating agreement
Banks and lenders often ask for one when opening accounts or applying for credit, even for single-member. I got asked twice.
Lawyer here, though not your lawyer. The operating agreement is not strictly required in many states for a single-member LLC, but it helps establish the LLC as a separate entity. Without it, a plaintiff's attorney could argue you're commingling assets or that the LLC is just an alter ego. It's a relatively cheap document compared to the cost of litigation. Many template providers sell single-member versions for under $100, which is usually adequate for a simple consulting business.
I didn't have one for my first two years. Nothing bad happened, but I did get a lot of side-eye eye from my accountant.
Accountants always side-eye.
The real risk is if you ever get sued. Without an operating agreement, its easier for the other side to argue you're not respecting the LLC structure. If you keep business and personal finances separate and have an EIN, you're probably fine in practice, but the document is cheap insurance. I'd just pay a service to generate one.
Also worth checking your state's LLC Act. Some states have default rules that apply if you don't have an operating agreement—things like default profit allocation, or what happens if you die. For a single member, that last part is mostly about who inherits your membership interest. An operating agreement can name a successor or set terms for transfer, which avoids probate complications.
I have a single-member LLC for my landscaping business. My attorney told me it's not legally required in Idaho but strongly recommended. I got a basic one for $150 from a local firm. It's basically just template language but it satisfied the bank when I got a line of credit.
Exactly. It's not about the law, it's about the bank and the court.
One more thing: if you ever want to bring in a partner or sell part of the business, you'll need one. Not a huge deal now, but it's easier to have a base document you can amend later.
I've heard that some states require it for for single-member LLCs if you're doing certain types of work, like real estate. Not sure about consulting. Definitely check your state's rules.
To be clear, no state I'm aware of requires it at formation for a single-member LLC in general. But for professional LLCs (law, medicine, etc.) there mwy be additional requirements. Your operating agreement for a consulting firm can be very simple.
Checking my state's default rules now. The point about the bank asking for it is what worries me most. I had to open a business account last month and they didn't ask, but I'm planning to apply for a credit card soon.
Get it before you apply. It's not worth the hassle of a denied application.