There is a common question among LLC business owners as to whether a single member LLC operating agreement is even needed or desirable for a single member LLC. After all, why have requirements where a sole member has to abide by processes and rules to get agreement to and from himself or herself.
Well, the answer to this is because the way the limited liability company laws are set up, a single member LLC is still a separate legal entity from its sole owner. As a result, it needs to have its own personality and be its own person.
If there is no evidence like a single member LLC agreement and other paperwork, then there is a chance that a judge in a lawsuit may say that the single member LLC was never really honored by the owner as an independent entity running a business.This is bad for a reason:
One of the biggest vulnerabilities of a single member LLC is that someone suing it may argue that the single owner should be personally liable for the liability in question. This is called piercing the protection veil. While there is not a lot of published case law evidencing when someone has prevailed with this argument, this concept has been well developed in the corporation case law.
Given that corporations have similar asset protection laws, it is a recommended action to see what preserves protection in the corporate arena and apply it to the single member LLC.
The better decision is to have a single member LLC operating agreement and for the single owner to engage in simple governance with his or her LLC to clearly establish that the limited liability company exists and is the separate entity running the business.
The laws are clear that a single member LLC is a good vehicle for asset protection from creditors assuming that the creditor does not require that the member sign a legal agreement agreeing to personally guarantee the liability in question.
The LLC Expert sells a SINGLE MEMBER LLC OPERATING AGREEMENT PACKAGE which includes a single owner specific LLC agreement form and a standard governance consent that can be used to easily maintain written governance approvals for major actions. This can make the differece between full protection and subjecting yourself to personal liability. Click Here for More details about this package for a Single Member LLC.
