Single-Member LLC Operating Agreement
What Is a Single-Member LLC Operating Agreement?
The Operating Agreement is a document created by the member of a Limited Liability Company (LLC) to provide a framework of how the entity will operate.
Most states do not require a single-member LLC to have an Operating Agreement but are still worth considering because without one, the LLC may be subject to generic state rules that may be detrimental to the business.
LLC Operating Agreement Templates
What should be included in an Operating Agreement?
Unlike the Articles of Organization (or Certificate of Organization, Certificate of Formation, etc) that were initially filed with the Secretary of State’s office, the Operating Agreement is an internal document.
When setting up the structure of the LLC, the Operating Agreement can be as simple or complex as desired. A few of the most common items that are included in an LLC Operating Agreement (in no particular order) include:
- Legal name of the LLC
- Principal place of business
- Physical address where the main functions of the business are performed
- Business purpose
- A business purpose or statement of purpose s brief description of what the LLC does. This is typically the same information that was filed in the Articles of Organization / Certificate of Formation. Some LLCs will use this to have a more specific purpose as its easier to update the Operating Agreement than the state filing.
- Capital contributions – In a single-member LLC, the member will show 100% ownership.
- Registered Office and Registered Agent
- LLCs in every state require a physical presence. This should be identical to the name of the person indicated in the Articles of Organization / Certificate of Formation. The Registered Agent can be a member, somebody living in the state of formation or a commercial registered agent who can receive legal notices on behalf of the LLC.
- Duration of the LLC
- Most LLCs plan to be in existence forever until the member decides to close or dissolution of the business. In this case, simply list “Perpetual”. Some LLCs only plan to be operating for a set amount of time (typically investment-related businesses) and would indicate the date of closure.
- Tax Classification
- One of the major benefits of the LLC as a business entity is the ability to elect the entity’s tax status. By default, a single-member LLC will be considered a disregarded entity by the IRS and taxed like a sole proprietorship. There is also the option to elect corporation tax status. Whichever status is elected, be sure to include it in the operating agreement.
- Tax Year and Accounting Method
- Most LLCs choose the calendar year for their tax year which runs from January 1 – December 31. The LLC can choose a fiscal year which is any consecutive 365 days.
- Remember that the Limited Liability Company is not typically taxed itself (known as pass-through taxation) and each member is taxed based on the profits or losses of the LLC. Even though a profit was made by the LLC, there may not have been any cash distributed to the member, resulting in the member having to come up with cash personally to cover the tax burden.
- The accounting method refers to how income and expenses are tracked. There are two choices which include the cash method or the accrual method. Cash basis is going to be what most LLCs (and most small businesses for that matter) will select. Under the cash method, income is not recognized until cash is actually received and expenses are not deducted until they are paid, while the accrual method requires income to be recognized when the sale occurs and expenses are recorded.
Once the LLC Operating Agreement it’s completed, simply print and have the member sign. In some states, a signature isn’t required but still a good idea to document who agreed to the Operating Agreement. The agreement does not have to be notarized. Be sure to keep a signed copy for the business records and store in a safe place.
Single-Member LLC Operating Agreement Template
SINGLE-MEMBER LIMITED LIABILITY COMPANY OPERATING AGREEMENT
FORMED IN THE STATE OF TEXAS
This Agreement, entered into on ______________, 20____, is a
SINGLE-MEMBER LIMITED LIABILITY COMPANY OPERATING AGREEMENT, entered into by and between _________________, LLC, a ___________________________ (State) LLC (the “Company”) and ______________________________ of _________________________(Address), hereinafter known as the “Member”
WHEREAS the Member desire to create a limited liability company under the laws of the State of Texas and set forth the terms herein of the Company’s operation and the relationship between Member.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Member and the Company agree as follows:
1. Name and Principal Place of Business
The name of the Company shall be _________________________, LLC. The principal place of business of the Company shall be at _______________________________________, City of ____________________, in the State of Texas or at such other place of business as the Member shall determine.
The Company was formed on _______________________, 20_____, when the Member filed the Articles of Organization with the office of the Secretary of State pursuant to the statutes governing limited liability companies in the State of Texas (the “Statutes”).
The purpose of the Company is to engage in and conduct any and all lawful businesses, activities or functions, and to carry on any other lawful activities in connection with or incidental to the foregoing, as the Member in their discretion shall determine.
The term of the Company shall be perpetual, commencing on the filing of the Articles of Organization of the Company, and continuing until terminated under the provisions set forth herein.
For purposes of this Agreement “net profits” and “net losses” mean the profits or losses of the Company resulting from the conduct of the Company’s business, after all expenses, including depreciation allowance, incurred in connection with the conduct of its business for which such expenses have been accounted.
The term “cash receipts” shall mean all cash receipts of the Company from whatever source derived, including without limitation capital contributions made by the Member; the proceeds of any sale, exchange, condemnation or other disposition of all or any part of the assets of the Company; the proceeds of any loan to the Company; the proceeds of any mortgage or refinancing of any mortgage on all or any part of the assets of the Company; the proceeds of any insurance policy for fire or other casualty damage payable to the Company; and the proceeds from the liquidation of assets of the Company following termination.
The term “capital transactions” shall mean any of the following: the sale of all or any part of the assets of the Company; the refinancing of mortgages or other liabilities of the Company; the receipt of insurance proceeds; and any other receipts or proceeds are attributable to capital.
A “Capital Account” for the Member shall be maintained by the Company. The Members Capital Account shall reflect the Member capital contributions and increases for any net income or gain of the Company. The Members Capital Account shall also reflect decreases for distributions made to the Member and the Members share of any losses and deductions of the Company.
6. Books, Records and Tax Returns
The Company shall maintain complete and accurate books and records of the Company’s business and affairs as required by the Statutes and such books and records shall be kept at the Company’s Registered Office and shall in all respects be independent of the books, records and transactions of the Member.
The Company’s fiscal year shall be the calendar year with an ending month of December.
The Member intends that the Company, as a single member LLC, shall be taxed as a sole proprietorship in accordance with the provisions of the Internal Revenue Code. Any provisions herein that may cause may cause the Company not to be taxed as a sole proprietorship shall be inoperative.
7. Bank Accounts
All funds of the Company shall be deposited in the Company’s name in a bank account or accounts as chosen by the Member. Withdrawals from any bank accounts shall be made only in the regular course of business of the Company and shall be made upon such signature of the Member.
8. Management of the Company
The business and affairs of the Company shall be conducted and managed by the Member in accordance with this Agreement and the laws of the State of Texas.
__________________, as sole member of the Company, has sole authority and power to act for or on behalf of the Company, to do any act that would be binding on the Company, or incur any expenditures on behalf of the Company. The Member shall not be liable for the debts, obligations or liabilities of the Company, including under a judgment, decree or order of a court. The Company is organized as a “member-managed” limited liability company. The Member is designated as the initial managing member.
9. Ownership of Company Property.
The Company’s assets shall be deemed owned by the Company as an entity, and the Member shall have no ownership interest in such assets or any portion thereof. Title to any or all such Company assets may be held in the name of the Company, one or more nominees or in “street name”, as the Member may determine.
Except as limited by the Statutes, the Member may engage in other business ventures of any nature, including, without limitation by specification, the ownership of another business similar to that operated by the Company. The Company shall not have any right or interest in any such independent ventures or to the income and profits derived therefrom.
10. Dissolution and Liquidation
The Company shall dissolve and its affairs shall be wound up on the first to occur of (i) At a time, or upon the occurrence of an event specified in the Articles of Organization or this Agreement. (ii) The determination by the Member that the Company shall be dissolved.
Upon the death of the Member, the Company shall be dissolved. By separate written documentation, the Member shall designate and appoint the individual who will wind down the Company’s business and transfer or distribute the Member’s Interests and Capital Account as designated by the Member or as may otherwise be required by law.
Upon the disability of a Member, the Member may continue to act as Manager hereunder or appoint a person to so serve until the Member’s Interests and Capital Account of the Member have been transferred or distributed.
The Member (including, for purposes of this Section, any estate, heir, personal representative, receiver, trustee, successor, assignee and/or transferee of the Member) shall not be liable, responsible or accountable, in damages or otherwise, to the Company or any other person for: (i) any act performed, or the omission to perform any act, within the scope of the power and authority conferred on the Member by this agreement and/or by the Statutes except by reason of acts or omissions found by a court of competent jurisdiction upon entry of a final judgment rendered and un-appealable or not timely appealed (“Judicially Determined”) to constitute fraud, gross negligence, recklessness or intentional misconduct; (ii) the termination of the Company and this Agreement pursuant to the terms hereof; (iii) the performance by the Member of, or the omission by the Member to perform, any act which the Member reasonably believed to be consistent with the advice of attorneys, accountants or other professional advisers to the Company with respect to matters relating to the Company, including actions or omissions determined to constitute violations of law but which were not undertaken in bad faith; or (iv) the conduct of any person selected or engaged by the Member.
The Company, its receivers, trustees, successors, assignees and/or transferees shall indemnify, defend and hold the Member harmless from and against any and all liabilities, damages, losses, costs and expenses of any nature whatsoever, known or unknown, liquidated or unliquidated, that are incurred by the Member (including amounts paid in satisfaction of judgments, in settlement of any action, suit, demand, investigation, claim or proceeding (“Claim”), as fines or penalties) and from and against all legal or other such costs as well as the expenses of investigating or defending against any Claim or threatened or anticipated Claim arising out of, connected with or relating to this Agreement, the Company or its business affairs in any way; provided, that the conduct of the Member which gave rise to the action against the Member is indemnifiable under the standards set forth herein.
Upon application, the Member shall be entitled to receive advances to cover the costs of defending or settling any Claim or any threatened or anticipated Claim against the Member that may be subject to indemnification hereunder upon receipt by the Company of any undertaking by or on behalf of the Member to repay such advances to the Company, without interest, if the Member is Judicially Determined not to be entitled to indemnification as set forth herein.
All rights of the Member to indemnification under this Agreement shall (i) be cumulative of, and in addition to, any right to which the Member may be entitled to by contract or as a matter of law or equity, and (ii) survive the dissolution, liquidation or termination of the Company as well as the death, removal, incompetency or insolvency of the Member.
The termination of any Claim or threatened Claim against the Member by judgment, order, settlement or upon a plea of nolo contendere or its equivalent shall not, of itself, cause the Member not to be entitled to indemnification as provided herein unless and until Judicially Determined to not be so entitled.
This Agreement and the rights and liabilities of the parties hereunder shall be governed by and determined in accordance with the laws of the State of Texas. If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not affect the other provisions of this Agreement, which shall remain in full force and effect.
The captions in this Agreement are for convenience only and are not to be considered in construing this Agreement. All pronouns shall be deemed to be the masculine, feminine, neuter, singular or plural as the identity of the person or persons may require. References to a person or persons shall include partnerships, corporations, limited liability companies, unincorporated associations, trusts, estates and other types of entities.
This Agreement, and any amendments hereto may be executed in counterparts all of which taken together shall constitute one agreement.
This Agreement sets forth the entire agreement of the parties hereto with respect to the subject matter hereof. It is the intention of the Member that this Agreement shall be the sole agreement of the parties, and, except to the extent a provision of this Agreement provides for the incorporation of federal income tax rules or is expressly prohibited or ineffective under the Statutes, this Agreement shall govern even when inconsistent with, or different from, the provisions of any applicable law or rule. To the extent any provision of this Agreement is prohibited or otherwise ineffective under the Statutes, such provision shall be considered to be ineffective to the smallest degree possible in order to make this Agreement effective under the Statutes.
Subject to the limitations on transferability set forth above, this Agreement shall be binding upon and inure to the benefit of the parties hereto and to their respective heirs, executors, administrators, successors and assigns.
No provision of this Agreement is intended to be for the benefit of or enforceable by any third party.
IN WITNESS WHEREOF, the parties have executed this Agreement this _____ day of
Does a single-member LLC need an Employer Identification Number?
If your single-member LLC doesn’t have any employees, a separate EIN is, not required by the IRS. The identification number for the business is the owner’s Social Security Number.