What You Need to Know About Forming a Single Member LLC
Are you ready to take that lucrative side gig and turn it into your full-time job and you are now thinking about incorporating? Or perhaps you already are a small business owner who has not had the time to think about all the requirements for that LLC that you formed online a few months ago? Is your sole proprietorship growing, and you are interested in protecting your personal assets from potential business liabilities? If so, contact Law Group of Northwest Arkansas LLP today at (479) 316-4760 or use our online contact form.
Single Member LLC Formation
Often times small companies start out with only one person when they form their LLC business structure. In those cases, you would be considered a Single Member Limited Liability Company (SMLLC). As a SMLLC, it is very important to maintain all formalities as you can face even more scrutiny than multi-member LLCs.
Piercing the corporate veil (another way of saying your LLC could lose the limited liability benefits that made you form in the first place and subject you to personal liability for the debts and actions of the LLC) can be a very serious issue. Therefore, it is extremely important to make sure you operate your SMLLC with the same care as a multi-member LLC.
The main things to remember as a SMLLC are to keep all assets separate and to observe all corporate formalities even if you don’t feel very corporate! Operating agreements are key to any SMLLC as they can serve as evidence that the LLC is in fact an entity distinct from its member. It may feel silly to think that you as a single person LLC need an operating agreement, but you really do!
If you are a professional, such as a dentist, physician, lawyer, psychologist or veterinarian, you may also need to make additional filings and register with the appropriate professional boards in your state.
The small business lawyers at the Law Group of Northwest Arkansas LLP can make sure that you are in compliance with Arkansas, Missouri, Oklahoma, Tennessee, Florida, Maryland, and Virginia professional regulations and requirements.
Why are Operating Agreements Essential?
In Arkansas, LLC operating agreements are recommended by the State pursuant to Arkansas Code Section § 4-32-102 (11). They also will help you preserve your limited liability status in the event of litigation and they add to the credibility of your business. Operating agreements are legal contracts that outline the ownership structure and procedures of the LLC business entity such as:
- Voting rights
- How to conduct member votes
- Deciding on how the business is managed
- Determining the powers reserved to the members versus the managers (if any) and what can be done with and without a vote
- Establishing procedures for new members and who gets to approve new members
- Setting out what happens when a member wants to leave
- What to do in the event of death or incapacity of a member
- Determining the tax election for the LLC
- Distribution of assets and liabilities
- Dissolution clauses
- Assignability of interests
- Confidentiality and restrictive covenants
- Accounting for conflict resolution
- Succession planning
You may be saying to yourself, but I am only one person! Do I really need to do all this? Yes! You really do need to do everything a multi-member LLC would do to ensure that you maintain your status as a separate entity. Small LLC members should comply with all larger company formalities.
Importance of an Operating Agreement
Additionally, you are going to need a bank account and maybe a line of credit, right? Operating agreements are often required by financial institutions in order to open bank accounts or lines of credit for the LLC as well as using an FEIN number, if you have one. Make sure to call your bank and find out what requirements they may have so you can be prepared when you open your business account. The experienced small business attorneys at the Law Group of Northwest Arkansas LLP can help you walk through the FEIN process.
While talking about bank accounts, it is very important to remember that you cannot commingle your assets with those of the LLC. You need to maintain a separate bank account for personal expenses so that they are not charged to the business account. It is also important to properly capitalize the LLC to protect against piercing the veil. The small business attorneys at the Law Group of Northwest Arkansas LLP can explain and guide you on how to follow the corporate formalities that will help keep your personal assets and business assets separate.
Ultimately, a well-tailored operating agreement that you follow can protect your SMLLC from legal or judicial scrutiny. The small business attorneys at the Law Group of Northwest Arkansas LLP can help you by drafting a custom operating agreement which takes into account the unique features of your business. We can also offer helpful suggestions and reminders for all the other formalities that you must maintain in order to keep your status as a separate entity.
Contact a Small Business Attorney Today
Do you have more questions? Ready to set up an LLC or another entity type? Need us to help you with your operating agreement? Contact us at (479) 316-4760 for legal advice today. Our turnaround time is usually under two weeks to help clients form a new SMLLC!