Do You Really Need an Operating Agreement for a Single-Member LLC in Arizona?
Protect Your Personal Assets with a Proper Operating Agreement
Forming a single-member LLC in Arizona offers important legal protection — especially limited liability.1 However, simply filing your Articles of Organization does not fully protect your personal assets.
Without a written Operating Agreement, your LLC may not be treated as a separate legal entity.
This article explains why every Arizona single-member LLC needs an Operating Agreement to safeguard personal liability protections.
Why Limited Liability Protection Is Not Automatic for LLCs
The primary reason to form an LLC is to separate your personal assets from your business debts and lawsuits. This protection is known as limited liability.1 However, limited liability is only upheld if you treat your LLC as a truly separate entity. Courts can 'pierce the corporate veil'2 — holding you personally liable — if your business fails to follow certain legal formalities. One of the most critical formalities is maintaining a detailed Operating Agreement.
How an Operating Agreement Protects Your Personal Assets
1. Establishes Legal Separation Between You and Your Business
An Operating Agreement shows you intend to operate the LLC as a separate, independent entity. It defines decision-making, distributions, and business operations, supporting the legitimacy of your LLC.
2. Strengthens Your Defense Against Lawsuits
If your business is sued, your Operating Agreement becomes critical evidence that your LLC is a true legal entity — not your personal 'alter ego'. In fact, courts have pierced the corporate veil specifically due to the absence of operating agreements and other formalities. In Dombroski v. WellPoint, Inc., the court emphasized that failing to maintain separate company records and legal formalities contributed to piercing the corporate veil and holding the owner personally liable.5> Arizona courts apply similar principles, including considering the absence of company documents like an Operating Agreement when deciding whether to hold business owners personally liable.
3. Required for Financial Transactions
Banks, lenders, investors, and even vendors often ask for a copy of your Operating Agreement.4 Without it, you may face obstacles opening a business bank account, securing financing, or entering business contracts.
4. Clarifies Business Rules Even for a Sole Owner
Although you may be the only member now, an Operating Agreement creates a clear structure for management, tax treatment (such as electing tax status like an S-Corp3), adding members, and dissolving the business if needed.
Risks of Not Having an Operating Agreement for a Single-Member LLC
Without a written Operating Agreement:
Your limited liability may be easier to challenge in court.
Courts may apply default Arizona LLC rules that don't fit your business goals.
You may lose business opportunities due to missing legal documentation.
Your personal assets are more exposed if the LLC is seen as an extension of yourself.
Key Provisions Every Arizona Single-Member LLC Operating Agreement Should Include
A strong Operating Agreement should clearly address:
Business name, purpose, and principal office location
Identity and authority of the sole member
Management structure and decision-making rules
Profit and loss allocation
Procedures for electing tax status (such as S-Corp)
Terms for dissolution or transfer of ownership
Arizona-Specific Considerations for Operating Agreements
- Arizona does not require Operating Agreements to be filed with the Arizona Corporation Commission.1
- However, the Arizona LLC Act recognizes Operating Agreements as enforceable legal contracts.1
- Keeping your Operating Agreement — along with your Articles of Organization, EIN, and IRS election forms — is part of properly maintaining your LLC.
Final Thoughts: Strengthen Your Arizona LLC's Liability Shield
If you formed a single-member LLC in Arizona but don't have a written Operating Agreement, you could be exposing your personal assets to unnecessary risk. An Operating Agreement is not just paperwork — it is the foundation that maintains your LLC’s legitimacy and protects your future.
Need help drafting a customized Single-Member LLC Operating Agreement? Contact Obsidian Ridge Law today to ensure your business is legally protected from the start.
Footnotes
1. Arizona Revised Statutes § 29-3201 et seq. – Arizona LLC Act (https://www.azleg.gov/arsDetail/?title=29)
2. Cornell Law School Legal Information Institute – Piercing the Corporate Veil (https://www.law.cornell.edu/wex/piercing_the_corporate_veil)
3. IRS – S Corporations Overview (https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations)
4. U.S. Small Business Administration (SBA) – Open a Business Bank Account (https://www.sba.gov/business-guide/launch-your-business/open-business-bank-account)
5. Dombroski v. WellPoint, Inc., 119 Ohio St. 3d 506 (2008)
