Recently, we drafted a post about why you need a Limited Liability Company. In short, you need the legal protection that comes with the LLC designation. However, you can’t stop there when it comes to setting up your business. You also need an Operating Agreement. This document outlines the name of your company, the owners, how decision will be made, how you will be paid, how to add or remove people, and more. This may seem more obvious or necessary when we are talking about a multi-member company or partnership. However, what about single member LLCs? What about companies that are owned by only one person? Is all this legal documentation formality really necessary?
The simple answer is YES. And, here’s why:
- Control: Every State has laws governing Limited Liability Companies. If you don’t draft an Operating Agreement, you are required to follow those laws as written. That may or may not be in your benefit. Why would you give up this control? It is your company. You control what happens.
- Loans: Do you want a business loan? Do you plan to grow in the future and think you might be extra money? You better have an Operating Agreement. Banks look for Operating Agreements as another layer of your legitimacy.
- Death Planning: What happens if you are in a serious accident or die? Hopefully, you have a personal Will. You can try to designate what happens to your Company in your Will. However, that’s not full-proof. Use your Operating Agreement to make plans.
- Separating Business and Personal: Your LLC will protect your personal money if you set everything up properly. That includes having an Operating Agreement. Courts will often look for an Operating Agreement when determining whether you acted personally or on behalf of the business.
- Initial Intentions: Part of your Operating Agreement will state the purpose of your company and all of your initial intentions for running it. This is important to know as the Company grows.
When you are a sole owner of a Company, the Operating Agreement can seem unnecessary. However, it is the type of thing that you don’t know you need until it is too late. At Gym Lawyers PLLC, we try to head off legal problems before they are problems. We’ve saved clients thousands of dollars by taking the time to do these things now. Nobody likes attorneys until they needs one. We are trying to prevent you from needing one.
