I recently received a call from someone preparing an application for the Paycheck Protection Program. This prospective client called me because the bank that received his PPP application asked him for the operating agreement for his Limited Liability Company (LLC). He said, “I’m the sole owner.” What is the purpose of an LLC operating agreement? Why do I need it?

I’m answering his question on this video and blog because I thought other people might be wondering the same thing.

Sec. 101.001 of the Texas Business Organizations Code defines “company agreement” as any agreement, written or oral, of the members concerning the affairs or the conduct of the business of a limited liability company. Your Company agreement or operating agreement is the legal document that governs the relationship between the members and managers (if any), and provides how decisions are made within your company.  The operating agreement allows the owners to determine how the LLC is to be (1) organized, (2) managed, (3) controlled, (4) financially structured, (5) merged, (6) terminated, (7) dissolved, and (8) liquidated. Owners of LLCs need to have an operating agreement to properly shield themselves from the liabilities of the business. This means that LLC owners who do not follow business formality run the risk of having their LLC shield pierced. Will the company that sold you an online form be there for you when the court decides your business is merely your alter ego?