When you form an LLC, you need an LLC Operating Agreement. Even if you are on your own, it shows that you are respecting the corporate formalities, it shows professionalism and helps prevent creditors from trying to pierce the corporate veil and get your personal assets. If there is more than one owner, an operating agreement is even more important to establish the rules of the road at the outset.
Why do you need an operating agreement?
- To protect the business' limited liability status. Operating agreements give members protection from personal liability to the LLC. Without this specific formality, your LLC can closely resemble a sole proprietorship or partnership, jeopardizing your personal liability.
- To clarify verbal agreements. Even if members have orally agreed to certain terms, misunderstanding or miscommunication can take place. It is always best to have the operational conditions and other business arrangements handled in writing so they can be referred to in the event of any conflict.
- To protect your agreement in the eyes of your state. State default rules govern LLCs without an official operating agreement but the default rules are very general.
There are the states that require you to create an operating agreement.
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