Generally, a single-member operating agreement is a legal agreement for an LLC with only one (1) member/owner. This form is to be used to help solidify the LLC's status as separate from the owner's personal assets, this form is to be used. Any officers, registered agents, and managers, as well as any other positions of authority in the company, should be listed. After completion, the document should be retained in the business's main location and not filed with government offices.
In order to prove the authenticity of a single-member operating agreement, it is highly recommended that it be signed in the presence of a notary public and the date captured as well.
What is a Single-Member LLC?
Single-member LLCs are often set up for tax planning purposes and to help separate an owner from their assets and/or liabilities. If the LLC has only one member, all revenue generated by the LLC will be reported at the same tax rate as the individual member's income. Single-member LLCs do not pay taxes at the entity level unless a state tax or levy is imposed. This explains why it is highly advised that any small business, real estate project, or other tangible or intangible revenue-generating assets should create an LLC.
To sum up, a single-member LLC is separate from you personally, but it is also unique from a corporation. Your federal tax return will include this amount, but the debts and obligations it has won't be your responsibility.
Single-member Operating Agreement by State
Below you can find a list of States that might require you to have a State-specific Operating Agreement:
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Washington D.C.
A 5-Step Guide to Forming a Single-Member LLC
The process of forming an LLC involves a filing fee, and it can usually be completed within a week depending on the state laws and procedures. Most states follow these steps:
1. Identify duplicate names
Search the State business database for the name of the LLC. Prior to registering the LLC, it is recommended to research the name. The incorporation of entities is controlled by one of the state's offices, most commonly the Secretary of State. There is an online portal that allows a user to search for a name and see if a company, corporation, or partnership already exists with that name.
- Name Reservation – Reservation of names is possible if no common matches exist. In order to be certain their name is available before filing, an applicant can file a "Name Reservation" for a small fee, which, depending on the State, will be reserved for thirty (30) to one hundred and twenty (120) days.
- Trademark Office (USPTO) – Before filing an application, a search in the USPTO's Trademark Database should be conducted to ensure that the name of the business is not already registered for use. Remember that if a name is trademarked, the name that goes along with the use case under which is trademarked is not allowed. For example, a business cannot register as the name of “PayPal LLC” and offer the same money transfer services as it does in the US.
2. Define the organization's articles of incorporation
Almost all states now allow you to fill out the application online through the Articles of Organization. Prepare the following questions/documents before applying:
- The first day of business or the effective date.
- Certificate of Status - A document or seal indicating a business's official status.
- Name of LLC - Must end in "Limited Liability Company", "L.L.C. ", "LLC"
- Postal Address
- Management
- Admin/Officer(s)
- Business location - The main office.
- The purpose of the business
- Company Representative - an agent registered with the company. Normally it's the company's legal counsel, but it can be the owner.
Utilize the State-specific guide and only pay the state-required fees to set up an LLC.
3. Paying the filing fee
A filing fee varies by state ($50 to $800) is required to register an LLC. Payment may be made online or by sending a check made payable to the State office. Following the payment of the registration fee, it usually takes anywhere from 5 to 30 days for the new entity to be processed.
4. Writing an operating agreement
This is the only legal document that establishes the business's ownership. Written in this way, partners, employees, spouses, and other individuals cannot claim ownership by saying they were promised (verbally). Also, it's recommended that a notary public acknowledge the single owner's signature.
5. Obtain an EIN (Employer Identification Number).
As soon as the LLC is created, this will be the first step to take. An employer identification number (EIN) is needed to open a bank account and pay taxes for the business. As a result, until this is completed, the LLC cannot generate any revenue. Either online or by mail, it's free and you can get your EIN in less than 15 minutes.
- To Apply Online – www4.irs.gov/modiein/individual/index.jsp
- Direct mail – IRS Form SS-4 (instructions)
An LLC may start doing business after obtaining its EIN.
The Single-Member LLC Operating Agreement: Writing Tips
The sections below are all within the Single-member LLC Operating Agreement and must be thoroughly completed. Remember this is the SOLE document showing the entire modus operandi of the business, so handle it with care.
- Name of Your LLC
- State of Jurisdiction (Choose Your State)
- Select Type ( Single-member or multi-member)
- Principal Place of Business
- Registered Agent and Office
- Member Contributions ( Distributions, Bank account operations, and Company management)
- Member Meetings
- Assignment of Interests
- Ownership of Company Property (Applies to Single-Member ONLY)
- Right of First Refusal (Multi-Member Only)
- Admission of New Members
- Withdrawal Events (Multi-Member Only) includes Dissolution and Liquidation plus Representation of members and Notices
- Amendments (indemnification- applicable to single-member and Miscellaneous)
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