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Why Single Member Maryland LLCs Need Operating Agreements

The Maryland LLC Act does not require that limited liability companies draft a written operating agreement. However, it is beyond question that having such an agreement is essential to govern the relationship between two or more owners. Less certain is the need for a written operating agreement when the LLC has only one individual as an owner. After all, that sole member can unilaterally do anything legally permissible under the LLC Act without the need for approval from or notice to anyone else. Why then should a sole LLC owner invest the time and expense to acquire a Maryland small business attorney-drafted LLC operating agreement. Three key reasons show why it is actually vital that single-member LLCs have such a document.
  • The Maryland LLC Act is written primarily for multi-member companies. The law governing Maryland LLCs contains many default provisions designed to address problems which exist with multi-member LLCs, but are inappropriate for single-member firms. For example, the mandatory rule that all LLCs have at least one member and the default provision that members shall cease to be members upon their personal bankruptcy, death or disability. Such provisions can wreak havoc on a single member LLC if opt-out rules are not drafted into a written operating agreement.
  • Single owners need a "user manual". If drafted properly a single-member Maryland LLC operating agreement provides owners with a step-by-step guide on how to operate the company in all areas, including funding, management obligations and relations with third-parties. This regularly prevents mistakes during business operations.
  • Operating Agreements provide legitimacy when dealing with others. Business partners, banks, and other third-parties will often not deal with an LLC that doesn't have a documented operating agreement which sets forth the identities and responsibilities of the owner. For example, they will want verifiable proof that the owner is authorized to act on behalf of the company and the tax and financial structure of the company. Only a well-crafted Operating Agreement can provide this information.



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The Kramer Law Firm LLC represents small business clients throughout Washington, D.C. and Montgomery and Prince George's Counties in Maryland, including the communities of Bethesda, Bowie, Chevy Chase, Gaithersburg, Germantown, Laurel, Potomac, Rockville and Silver Spring and all of the surrounding areas.

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