Even Single Member LLCs Need Written LLC Agreements

Investors regularly make the mistake of assuming they do not need a written LLC agreement when they form a single-member entity. In the absence of a written LLC agreement, statutory default rules apply, which often come with surprising consequences.

A Hypothetical

Let us consider, for example, you purchase a fourplex in your own name then transfer title to your newly formed LLC.  You fail to execute an LLC agreement, however, and then you die. What happens to the fourplex? What happens to the LLC?

Without a written LLC agreement, the Washington State default rules kick in. RCW 25.15.131 (1a) states a person is dissociated as a member of an LLC upon death. Additionally, RCW 25.15.265 (4) states that dissolution of the LLC will occur ninety days after the dissociation of the last remaining member. Therefore, ninety days after your death, the LLC will be forced to dissolve and the fourplex will be liquidated. The forced liquidation of the fourplex will occur regardless of market environment.

There are several other default statutory rules that would be imposed upon your heirs.  If you had a written LLC agreement establishing an alternative course of action, a forced sale of the fourplex (among other problems) could have been prevented. 

Considerations

Written LLC Agreements are necessary in single-member and multi-member LLCs alike. Omitting a written LLC agreement for your single-member LLC will cost you in the long run. Whether it is allowing for indemnification or preventing the application of statutory default rules, there are significant benefits to a written LLC agreement. Take the time to execute a properly drafted single-member LLC agreement.

BERESFORD BOOTH PLLC has made this content available to the general public for informational purposes only. The information on this site is not intended to convey legal opinions or legal advice.