#RVABizLaw Tip of the Day: Solopreneurs Should Consider a TOD provision in their LLC Operating Agreements

Even single-owner LLCs should have a written Operating Agreement. Even though it should be relatively short (5-6 pages at the most in most situations), a written Operating Agreement is useful to: (i) memorialize the ownership and management structure of the LLC (e.g., confirming the title you choose to use when signing contracts, printing business cards, etc.), (ii) demonstrate that you are respecting the separate legal existence of the LLC (helpful to preserve limited liability protection), and (iii) in some cases, satisfy lender requirements. Another less common strategy is to include a transfer-on-death (“TOD”) provision in the Operating Agreement designating a person (or entity) to whom you would like your 100% LLC membership interest to be transferred upon your death. This language can help facilitate the ownership transfer process, promote a more efficient ownership succession plan, and avoid the probate process for this particular asset, which could constitute a significant part of your estate. TOD provisions can be very short and simple, but business owners should carefully consider whether and to what extent such a provision fits in with their overall business succession and estate planning objectives. Contact us if you’d like to learn more or discuss updating your company’s Operating Agreement.