Single Member LLC Operating Agreement Ohio: Everything You Need to Know
Single member LLC operating agreement Ohio designates the authority of the sole member of an LLC to operate the business without following the laws that the state has on books for multiple member LLCs and corporations. 3 min read
What Is a Single Member LLC Operating Agreement Ohio?
Single member LLC operating agreement Ohio designates the authority of the sole member of an LLC to operate the business without following the laws that the state has on books for multiple member LLCs and corporations. These include holding annual meetings or voting approval to make business decisions.
The necessity for creating the operation agreement arises because lawmakers in Ohio did not conceive, when establishing laws regulating the formation of LLCs, that this type of business entity would be owned and operated by only one individual. Without a single-member operating agreement, the sole owner, or single member, of the business may be found to be in default of laws developed to regulate the operations of multiple-member LLCs. The result might be that the personal assets of the sole manager would be at risk to creditors and other third parties.
The Need to Demonstrate “Separateness” and Other Reasons for an Operating Agreement
Several factors dictate the necessity of have a single member LLC operating agreement in Ohio:
- National and, in particular Ohio, case law has found that members of LLCs are at particular risk for “piercing the veil,” or not acting according to laws established for LLC governance to separate the assets of the entity from the personal assets of the members. The single member operating agreement can absolve the member from needing to meet many of those statutory requirements.
- Banks often require an operating agreement to determine the single member’s authority to open accounts and sign checks. In addition, lending institutions want to see an operating agreement before investing money in an LLC.
- If a single member dies without an operating agreement, the assets of the entity may be treated differently than if an agreement is in place. LLC default statutes in Ohio provide that upon the death of a single member LLC, the LLC is dissolved. This means that the business cannot pass onto another individual even if that was the intention of the owner while alive. An operating agreement can prevent this.
The Single Member LLC Operating Agreement
The statutes that govern the formation of an LLC in Ohio do not require that a single member LLC be filed with the state. However, to provide the ultimate protection of the member’s assets from legal claims from debtors and other third parties, it is highly recommended the single LLC member prepare one and keep it with the LLC’s official records.
In addition, the operating agreement establishes the policies and procedures for running the business, and having this item on record may prove helpful should the LLC take on new members or hire managers to run the operation.
How to Prepare a Single Member LLC Operating Agreement
Drafting a single member LLC operating agreement is a fairly simple process. At each stage of the document’s preparation, the member will be asked to review and authorize each component.
- Download a free template of an LLC operating agreement for Ohio.
- Provide the company name and member information.
- Provide a description of the purpose of the business. This can be either “to engage in an conduct any and all legal business,” or a specific description of the purpose.
- Enter the address of the business and indicate if it is different from the mailing address of the business.
- Provide the name of the registered agent for the business.
- Determine whether the LLC will be member-managed or manager-managed.
- Establish whether the business will be set up for a fixed time or operate until dissolved by the member(s).
- Determine IRS tax status. Most single member LLCs will select that profits and losses will “pass-through” the business and be reported on the member’s individual personal tax return.
- Respond to the question as to amount of the capital contribution, if any, the member will invest in the LLC.
- Sign and date the form.
- Have the form notarized and store with LLC records.
One other important step an LLC single member can take to avoid “piercing the veil” is to open and use a business account in the name of the LLC and make all financial transactions using this account.
One of the big advantages for a sole owner of a company in setting up a business as an LLC is that, unlike a sole proprietorship, personal assets are protected. Taking this extra step of preparing a single member LLC operating agreement just makes sense.
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