Mark Kohler explains why filing paperwork with the state isn't enough: you need an operating agreement that spells out ownership, decision-making, profit splits, and succession. Without it, even a single-member LLC defaults to state rules that can freeze assets and destroy liability protection in a lawsuit.
Chapters
I've watched businesses worth $300,000, $500,000, over $1 million get frozen in a dispute because no one wrote down the basics and had an operating agreement. Mistake number 5, you have a filing, not an operating agreement. The hard truth is if all you have is a stamped certificate or the articles of organization from the state, you don't have a complete LLC, you have a receipt. A real LLC has an operating agreement, and that's where the actual rules live. It's kind of like the bylaws of a corporation. Who owns it? Who can make decision? What happens if someone wants out? What happens if someone dies? How are the profits distributed? When do we have to contribute more money? You may say, well, Mark, I'm the only owner, so it doesn't matter. Well, without it, you're stuck with the state's default rules if you're unable to make a decision or if something happens to you, or if you're in a lawsuit and you're trying to show you really treated the LLC like a legit company and you don't even have an operating agreement. You need the guts of an LLC to have a real LLC.
