Single Member LLC Operating Agreement is Needed For Protection
The single member LLC is a great asset protection vehicle for the sole owner, but in order to ensure that you are really protected, you must adopt a single member LLC operating agreement and make sure you have one suitable for your business.
A sole owner operating as a sole proprietorship is always risking everything he owned in order to run and grow a business. This is because his business is inextricably a part of him and so if a business problem ever arose and caused some liability, the sole owner would be personally liable. What does this mean?
It means that everything he owns like his home and all his money is at risk. Before the limited liability company was available, this sole business owner could choose to get a corporation for protection but many did not go that route because of the costs and added complexity of incorporating a business.
Then along came the limited liability company and even more importantly the single member LLC. Now, the solo entrepreneur has a viable option for protection. He can run his business and protect his personal assets from business liability. In addition, he will not be required to meet all these formalities because these types of legal entities are easy to manage.
However, it should be noted that lawmakers are sometimes suspect of the single member LLC. For a time, they were not even allowed in some states. But, recently, every state has changed their LLC laws to allow for a single member. The reason they are not always liked by judges and lawmakers is that when there is only one member, the business looks like the mere alter ego of the sole owner. It appears to have the exact same features and is run like a sole proprietorship.
Well, they may be right but it still does not matter because the limited liability company laws passed in every state provide for this protection if a sole owner chooses to form a single member LLC for his or her business. So, no worries- the protection is there.
However, in order to make sure you have a strong case if ever challenged, you should always have a single member LLC operating agreement for your business. This is a written document that sets forth the governance rules and procedures for the legal entity. By having one, you are showing the world that you are recognizing your LLC as a separate person from yourself. After all, you are giving it its own personality by adopting a proper written governance agreement.
This is very important because if your business is ever sued, the first thing everyone will want to see if your LLC paperwork and if there is none, they will claim that you disregarded your own legal entity which, in turn, means, you should be personally liable. With a proper single member LLC operating agreement and some minimal paperwork, you can win this argument every time.
Single Member LLC Operating Agreement is Needed For Protection
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