Operating Agreement for a Single-Member LLC: Essential Provisions

Owners who run an LLC alone often ask, "Who would I be making an agreement with?" The answer is the LLC itself, and the document is worth writing for three reasons: it shows the company is a distinct entity, it satisfies banks and others who ask, and it gives your family and business a plan if something happens to you.

Provisions that matter most

1. Formation, name, and purpose

State the LLC's legal name, state of formation, date, registered agent, and principal office. Keep the purpose broad, such as "any lawful business," so a change of direction does not require an amendment.

2. Sole member and ownership

Identify the sole member and confirm that the member owns 100 percent of the membership interest. Record the initial capital contribution. Add a schedule you can update when the member contributes more money or property.

3. Management

State whether the LLC is member-managed or manager-managed. For a solo owner, it is usually member-managed. Include language that the member has full authority to sign contracts, open accounts, borrow, hire, and bind the LLC. If you might want a family member or employee to sign checks in your absence, describe how to authorize that.

4. Separate existence

Include a short covenant that the LLC will maintain its own books, bank accounts, and records, hold assets in its own name, and sign contracts as the LLC. Such clauses are not magic, but they express the intent to operate separately and remind you to do so. See piercing the corporate veil.

5. Capital contributions and loans

Explain that the member may contribute additional capital or lend money to the LLC, and that loans should be documented in writing with terms. Say whether the member is required to contribute more (usually not). The distinction between contributions and loans matters later for owner draws and distributions and, if the LLC elects S status, for basis.

6. Distributions and draws

State that distributions are at the member's discretion, subject to legal limits (solvency tests under state law). Keep it simple. If the LLC later becomes an S-corp, add language that distributions will be proportional to ownership. See S-corp distributions explained.

7. Tax classification

State that the LLC intends to be a disregarded entity for federal income tax purposes unless the member elects otherwise. If an S-corp election is planned, mention it and add appropriate provisions. See single-member LLC taxes.

8. Death, incapacity, and succession

This is the section that most single-member agreements omit and most families later wish existed. Consider:

• Who takes over management if the member is incapacitated? Naming a successor manager or agent allows the business to keep paying employees and vendors.
• What happens on death? State law often allows the estate to hold the interest and to admit a successor as a member, but the default rules can leave the LLC without a decision maker for a period. The agreement can name a successor or specify how the estate's representative can act.
• Transfer of the interest to a trust or heirs. Coordinate with your estate plan.
• Bank and vendor access. Make sure someone can access accounts if you cannot.

Involve an estate attorney where the LLC holds substantial value.

9. Admission of new members

State how a new member can be admitted (with the sole member's written consent) and that the agreement will be amended and restated when that happens. This is not a substitute for a full multi-member agreement, but it recognizes the change. A new member changes the tax classification, as described in multi-member LLC taxes, and often changes management too.

10. Indemnification

Provide that the LLC will indemnify the member and any managers for acts in good faith on behalf of the LLC, subject to limits. This matters if you appoint a manager or officers.

11. Records and accounting

Identify the accounting method and the location of records. State that the member may inspect all records, and that the books will be kept separately from the member's personal records.

12. Dissolution

Describe the events that end the LLC, such as the member's decision, a judicial decree, or an event specified by statute, and how remaining assets will be handled after creditors are paid. See dissolving an LLC.

13. General provisions

Governing law, amendments in writing, severability, and entire agreement clauses. Add a signature and date.

What a good short agreement looks like

Many single-member agreements run three to six pages. Length is not the goal. Coverage of the topics above is. Plain, direct language is a strength, because a bank, insurer, or successor will read it.

Common mistakes

• Using a generic template that refers to multiple members, "the Members," and voting rules that do not apply.
• Never signing it. An unsigned draft has limited value.
• Not updating it after a change in ownership, tax status, or management.
• Ignoring successor planning.
• Contradicting the agreement in practice, such as mixing funds despite a separation clause.
• Skipping state-specific requirements. A few states have particular rules for LLC agreements, such as writing or signature requirements. Check yours.

When an attorney is worth the cost

If your LLC holds real estate, employs a team, has lenders, or anticipates a partner, invest in a professional draft. For a small solo consulting LLC, a well-prepared template reviewed for your state may be enough. Either way, coordinate with your tax adviser so the document matches your tax plan. See operating agreement guide for the general structure.

For help lining up your agreement with tax elections and bookkeeping, AE Tax Advisors can help, and a discovery call is a simple start. This is educational content, not legal advice.