Why Every Entrepreneur Needs an Operating Agreement (Even a Solo One)

Most entrepreneurs think of operating agreements as only necessary for partnerships. But even solo business owners benefit.

Think of it as your company’s rulebook. It lays out ownership, management, decision-making, and what happens if something goes wrong. For multi-member LLCs, it’s essential. Without one, state law fills the gaps, often in ways you won’t like.

One client started a catering business with her cousin. They didn’t have an operating agreement. When the cousin decided to leave, they fought over money, equipment, and clients. The business nearly collapsed. Compare that to another client who ran a solo LLC. His operating agreement outlined what would happen if he became incapacitated. When he had a health crisis, his spouse was able to step in and keep things running.

Even if you’re the only owner, an operating agreement adds legitimacy, makes banking easier, and can prevent disputes with family or creditors later. It’s not about bureaucracy. It’s about protection.