Operating agreements: why a one-person LLC still needs one

An operating agreement is the rulebook for an LLC: who owns it, who makes decisions, how money comes out, and what happens if an owner leaves or dies. Because most states never ask to see it, a lot of owners never write one. That is a mistake, and it is one you usually discover at the worst moment.

Some states require one

A handful of states, including New York, California and Delaware, require an LLC to have an operating agreement. New York also requires it to be adopted within 90 days of forming. Even where it is not required, it is expected.

If you do not write one, the state writes it for you

Every state has default rules for LLCs that apply when there is no agreement. They were written to be generic. They may split profits in a way you did not intend, require unanimous agreement for decisions you thought you could make alone, or say nothing useful about what happens if you die.

An operating agreement replaces those defaults with your own rules.

Why it matters with only one owner

The main point of an LLC is that the company's debts are the company's, not yours. That protection depends on the company being treated as a separate thing.

When a creditor or a court looks at a one-person LLC, one of the first questions is whether it was run like a real company. A signed operating agreement, a separate bank account and company records are the evidence. Without them, it is easier to argue the LLC was just you under another name.

It also answers practical questions:

• Banks often ask for it before opening a business account
• Succession: who can run the company if you are ill or die, so your family is not locked out of the bank account
• Adding a partner later is much easier when the rules already exist

What it should cover

• Owners and their ownership percentages
• How decisions are made, and which ones need everyone
• How profits are distributed
• Whether the LLC is run by its members or by managers
• What happens when an owner wants out, becomes unable to act, or dies
• How a new owner can join
• How the company is dissolved

With more than one owner

Here it is not optional in any practical sense. Most partnership disputes are about things that would have taken ten minutes to agree on at the start: who can sign, how to value a share, what happens if one person stops working. Agreeing on them while everyone is friendly is the whole point.

The short version

Write it when you form, sign it, keep it with the company records, and update it whenever ownership changes.