Why single member LLC needs an operating agreement

The first question you may be asking is: What is an operating agreement?operating agreement

It is the agreement between the members of an LLC that governs how the business is governed, and it lays out the rights of responsibilities of the member’s for managing the company and the members financial rights and duties.

A lot of states require LLCs to have an operating agreement, but NC is not one of those.

Since NC does not require LLCs to have operating agreements in place, many NC LLCs don’t have them. This especially applies to single member LLCs or sole proprietorships.

But even a single member LLC should have an Operating Agreement.

The first reason you may need one is for financing. A bank will very likely ask for an operating agreement if you go to borrow money.

You will also need an operating agreement if you ever take in a partner or sell the business to someone. The operating agreement will determine how that process occurs.

Perhaps most importantly, your LLC’s operating agreement is important for estate planning. It and/or your will determines what happens to your business if you die. In the case of a single-member LLC the consequence can be dire if there is not an operating agreement that states differently; the person ceases being a member of the LLC and the estate becomes an economic interest holder. This means any revenue streams generated by the LLC will go to the estate. It may take months or in some cases years to close the estate; and in the meantime the revenue from the business is tied up in probate.

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