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Do you need an operating agreement for you LLC?


The short answer is almost always, yes. The limited liability company (LLC) business form has become popular in Minnesota since the legislature authorized it back in 1992 because it combines the protection from personal liability afforded to owners and managers of a corporation, with the tax advantages of a partnership.

The LLC is such a flexible form that you can even have an LLC with a single member. This allows you the autonomy of a sole-proprietorship but eliminates the dangerous personal liability for the debts of the business that is the shortcoming of that organizational form.


If you are a single member LLC, an operating agreement, or bylaws, is essential to ensure your limited liability status is preserved, by ensuring there are sufficient formalities that differentiate your personal finances from those of the business.

It can be tempting to treat all of your finances as a unitary whole when you operate as a single-member LLC, but don't do it. Those seemingly tedious and almost meaningless "paper" distinctions are essential to prevent your entity choice of LLC from being disregarded and your being held personally liable for the debts and liabilities of the business.

By sitting down with your attorney and carefully drafting a member agreement that fits your business, and then scrupulously following the formalities of that agreement, you can protect your personal assets should any difficulties develop.

In Minnesota, an LLC can be disregarded by "piercing the corporate veil" in the same manner as for a corporation, and cases involving that procedure apply to LLCs. While it is done rarely, it can occur, so ask your attorney what you need to do to prevent this from happening. 

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