For a single-member LLC
An operating agreement is sometimes considered superfluous since it’s simply an agreement between you and yourself. You may amend or disregard it at anytime. We still supply one for two important reasons:
- 1) For the “springing member” provision and transfer of membership interest testament.
- 2) Banks frequently ask for them.
The springing member provision ensures a smooth transition in case of your death. Almost every person who owns an LLC would like his or her spouse, family or loved ones to inherit the company when they die. Unfortunately, few LLC owners plan for death and the orderly transfer of their LLC ownership to their desired heir(s). The named person(s) will receive your membership interest via a smooth transition process.
The transfer can be simple (the LLC is owned by a trust or the owner signed a Transfer of Membership Interest Testament) or the transfer can be a time consuming, expensive and private details enter the public record due to being probated.
Imagine your company's bank account. The bank will refuse to give control of the account to the deceased’s heirs. The rightful heirs will require an attorney, thousands of dollars and often more than a month to become appointed the personal representative of the estate. Beyond added expenses, this could starve the company of needed cash. Do your loved ones a big favor and plan for your death so you will know for sure that your desired heir(s) inherits your LLC automatically without the need for a probate.
The second reason is banks and other institutions often require you to have one. However, you will also notice the agreement we provide is relatively sparse, especially when compared to the multi-member agreement. Why is this?
There may come a day where the company is sued or faces another credit event. If your operating agreement goes into detail about best practices for accounting, finances, risk management and more, then it will be easier to hold you accountable if you fall short in one of those areas. It would be hard to claim you didn’t know better if it was in the operating agreement you signed.
This is why we strip out talk of best practices in the single member agreements. Should you fail to properly segregate business and personal accounts, or not keep perfect receipts, then you will have plausible deniability. For more information about single member limited liability companies click here.