Why Every Small Business Needs an Operating Agreement—Even Single-Member LLCs

Kat Grant
May 5
3 min read

Forming a limited liability company (LLC) is a popular choice for small business owners in both Missouri and Illinois. LLCs offer flexibility, tax advantages, and personal liability protection—without the formalities of a corporation. However, many business owners overlook one crucial document: the operating agreement.

Whether your LLC has multiple members or you’re a solo entrepreneur forming a single-member LLC, an operating agreement is not just helpful—it’s essential. Here’s why.

What Is an Operating Agreement?

An operating agreement is a legally binding document that outlines how your LLC will be governed. It defines the rights and responsibilities of members, how decisions are made, how profits and losses are allocated, and what happens if a member leaves the company.

While Missouri and Illinois do not require LLCs to file operating agreements with the state, both strongly recommend them—and courts may expect to see one in the event of a dispute.

Common Misconception: “I Don’t Need One—It’s Just Me”

Even if you’re the sole owner of your LLC, an operating agreement can provide critical legal protections. Without one, your business defaults to state law—often written for multi-member LLCs—leading to confusion and potential exposure. For example:

In Missouri, RSMo § 347.081 allows LLC members to adopt an operating agreement but doesn’t mandate it. Without one, courts will rely solely on the statute in legal disputes.
In Illinois, 805 ILCS 180/15-5 recognizes operating agreements as controlling the LLC’s affairs. Without it, default rules apply, which may not reflect your intentions.

Key Protections an Operating Agreement Provides

Clarifies Ownership and Control
Specifies the member’s ownership interest, management authority, and how decisions are made—helping avoid internal confusion or conflict later.
Reinforces Limited Liability Status
Demonstrates that the LLC is a separate legal entity, which is important if you ever need to defend your personal assets in a lawsuit or creditor claim.
Establishes Procedures for Major Events
Covers what happens if the owner becomes incapacitated, sells the business, adds a partner, or passes away. Without clear guidance, these situations can lead to costly legal uncertainty.
Customizes Financial and Tax Rules
Defines how profits and losses are allocated, how capital contributions are handled, and what the LLC’s tax classification should be (e.g., S-Corp election).
Improves Credibility and Professionalism
Some banks and investors require a copy of your operating agreement to open accounts or approve funding. Having one in place signals legitimacy and structure.

What Happens Without One?

Relying on default state law may lead to unintended outcomes. For example, if your LLC adds a member informally and then experiences a dispute, the lack of an operating agreement could complicate ownership rights or profit sharing. Without written procedures, simple issues—like whether you need a vote to take out a loan—can turn into legal problems.

In litigation, the absence of an operating agreement may weaken the separation between your personal and business assets, especially in single-member LLCs where courts may scrutinize corporate formalities.

Flat-Fee Legal Support for Small Businesses

At Beck & Grant, we help Missouri and Illinois business owners draft clear, enforceable operating agreements tailored to their specific goals and structure. Our flat-fee business services ensure that you get reliable legal guidance without surprise costs. Whether you're forming a new LLC or updating an existing agreement, our business attorneys can help protect your investment and simplify your operations.

Beck & Grant LLC