LLC Operating Agreement in Tennessee

An operating agreement in Tennessee is one of the most important yet not necessary documents that every LLC is familiar with. In Tennessee, if you’re looking to form a Limited Liability Company, you must draft the operating agreement. In Tennessee, it is not mandatory to draft one. Having an operating agreement leads to the formation of a well-organized LLC.

As the LLCBuddy editors did their research on the document, it has a list of key components that must be written while drafting the operating agreement. In this article, all the ins and outs are shared about Tennessee LLC operating agreement. You can download a Free LLC Operating Agreement Template on this page.

What is an LLC Operating Agreement in Tennessee

When you form an LLC in Tennessee, drafting an operating agreement is one important task for you. An LLC Operating Agreement in Tennessee is a legal document that outlines the ownership and operating procedures of a Limited Liability Company. It serves as a contract between the LLC members, detailing how the company will be run and how various business situations will be handled. While not all states require LLCs to have a formal Operating Agreement, having one is highly recommended for all LLCs, regardless of size or number of members.

Key points about LLC Operating Agreements:

It’s an internal document, not typically filed with the State
It can be written or oral, though written is strongly preferred for clarity and legal protection
It sets the rules for how the LLC will operate, superseding default state laws
It can be customized to fit the specific needs and wishes of the LLC members

Download Free Operating Agreement Template for Tennessee LLC

You can now download a free template of an operating agreement for your LLC in Tennessee. Get the PDF form from the link shared below. This is absolutely free and can be used as per your LLC’s requirements.

Disclaimer: This template is a general guide and should be created to the specific needs and criteria of your LLC. Legal advice is recommended to ensure that the operating agreement complies with Tennessee state laws and meets the requirements of all members involved.

Get Free Operating Agreement Template

Get Professional Help

When we talk about filing any business document, especially something that is part of an internal affair, it is suggested to get professional services. There are a bunch of best LLC services in Tennessee that offer operating agreement templates and help you draft them. Some service providers, such as ZenBusiness offer operating agreement services at an additional charge if you form your LLC. If you purchase their top-tier LLC formation packages, this service is included in the package.

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Key Components of an LLC Operating Agreement in Tennessee

A comprehensive LLC Operating Agreement in Tennessee typically includes several essential components. Let’s explore each of these in detail:

0. Definition of Terms

Before we proceed to the main components, here is an important one: ‘Definitions’. Some LLCs in Tennessee prefer to add this part to their operating agreement for the clarity of the documents and what is written inside it. In this section, the definitions of terms, words, and phrases are explained in relation to the limited liability company, the owner(s), members, managers, agents, and business.

1. Basic LLC Information

This section provides fundamental details about the LLC:

LLC name that is registered in Tennessee
Principal place of business (Tennessee for a domestic LLC)
Date of formation
Purpose of the business
Duration of the LLC (if not perpetual)
Names and addresses of members

2. Ownership Structure

This component outlines how the LLC is owned:

Names of all members
Percentage of ownership for each member
Types of membership (if applicable, such as voting and non-voting members)
Rights and responsibilities associated with each ownership level

Table: Example of Ownership Structure

Member Name	Ownership Percentage	Membership Type
John Doe	40%	Voting
Jane Smith	35%	Voting
ABC Corp	25%	Non-voting

3. Management Structure

This section defines how the LLC will be managed:

Whether the LLC is member-managed or manager-managed
If manager-managed, how managers are selected and removed
Roles and responsibilities of managers and/or managing members
Voting rights and procedures for major decisions
Meeting schedules and procedures

4. Capital Contributions

This component details the financial investments made by members:

Initial capital contributions of each member
Valuation method for non-cash contributions
Procedures for additional capital calls
Consequences for failure to make required contributions

5. Profit and Loss Allocation

This section outlines how the company’s profits and losses will be distributed among members:

Method of calculating profits and losses
How profits and losses are allocated (often in proportion to ownership percentages)
Timing of allocations
Any special allocations or exceptions

6. Distributions

This component covers how and when profits will be distributed to members:

Frequency of distributions (e.g., quarterly, annually)
Method of determining distribution amounts
Procedures for approving distributions
Limitations on distributions (e.g., maintaining adequate reserves)

7. Membership Changes

This section addresses how changes in membership are handled:

Procedures for admitting new members
Rules for transferring membership interests
Buyout provisions for departing members
Rights of first refusal for existing members
Procedures for involuntary withdrawal or expulsion of members

8. Dissolution and Liquidation

This component outlines the process for winding up the LLC’s affairs:

Events that trigger Tennessee LLC dissolution (e.g., vote of members, achievement of purpose)
Procedures for winding up the business
Distribution of assets upon dissolution
Roles and responsibilities during the liquidation process

9. Dispute Resolution

This section provides mechanisms for resolving conflicts:

Mediation or arbitration clauses
Procedures for Internal Dispute Resolution
Designation of jurisdiction for legal proceedings
Allocation of legal costs of LLCs in Tennessee in case of disputes

10. Amendment Procedures

This component specifies how the Operating Agreement can be changed:

Voting requirements for amendments
Notice procedures for proposed amendments
Any provisions that cannot be amended without unanimous consent
Amendment of LLC in Tennessee can be done only if all the members agree to that

How to Draft an LLC Operating Agreement in Tennessee

As mentioned, this document does not need to be filed with the state. Drafting an effective LLC Operating Agreement requires careful consideration and attention to detail. It is recommended to get professional help for the documentation. Here are steps to guide you through the process:

Gather Information: Collect all necessary information about the LLC and its members, including business purpose, ownership structure, and management preferences.
Review State Laws: Familiarize yourself with the LLC laws in your state to ensure compliance and take advantage of any beneficial provisions.
Use a Template or Seek Professional Help: While templates can be a good starting point, consider consulting with an attorney to ensure the agreement meets your specific needs.
Include All Essential Components: Ensure all key components discussed earlier are addressed in the agreement.
Customize for Your Business: Tailor the agreement to your specific business needs, considering factors like industry, size, and long-term goals.
Address Potential Scenarios: Think through various scenarios that could affect the business and include provisions to handle them.
Be Clear and Specific: Use clear, unambiguous language to prevent misinterpretation.
Review and Revise: Have all members review the draft and provide input. Revise as necessary to address concerns.
Consider Future Needs: Draft the agreement with potential future changes in mind, such as the growth or addition of new members.
Execute Properly: Ensure all members sign the agreement. While notarization is typically not required, it can add an extra layer of authenticity.

Optional Provisions in an LLC Operating Agreement in Tennessee

While the components mentioned above are essential, many LLCs in Tennessee choose to include additional provisions to address specific needs or concerns related to their members or LLCs:

Confidentiality and Non-Compete Clauses
Intellectual Property Rights
Indemnification Provisions
Tax Elections
Succession Planning
Special Allocations
Drag-Along and Tag-Along Rights
Reserve Requirements
Meeting Procedures
Records and Reporting

Requirements for LLC Operating Agreements in Tennessee

While the basic structure of an LLC Operating Agreement is similar across the United States, individual states may have specific requirements or default rules that can affect how these agreements are drafted.

In Tennessee, filing an operating agreement while forming an LLC is not mandatory to draft one. As mentioned earlier, having an operating agreement makes the LLC well-organized and transparent. One of the most important points in an operating agreement is the LLC tax structure in Tennessee. Having an LLC operating agreement (even though it is not mandatory) is very important while forming an LLC in Tennessee.

It’s crucial to consult the specific laws of the Tennessee where the LLC is formed when drafting an Operating Agreement. This ensures compliance with state-specific requirements and takes advantage of any beneficial provisions in state law.

Importance of an LLC Operating Agreement in Tennessee

The significance of an LLC Operating Agreement cannot be overstated. Here are several reasons why having a well-drafted Operating Agreement is crucial:

Establishes Structure: It clearly defines the company’s management structure, roles, and responsibilities.
Protects Limited Liability Status: A comprehensive Operating Agreement helps maintain the separation between the LLC and its members, reinforcing the limited liability protection.
Prevents Conflicts: By clearly outlining procedures for various scenarios, it helps prevent and resolve disputes among members.
Customizes Rules: It allows members to create rules tailored to their specific needs, rather than relying on default state laws.
Attracts Investors: A well-structured Operating Agreement can make the LLC more attractive to potential investors or buyers.
Facilitates Business Operations: It provides a roadmap for day-to-day operations and decision-making processes.
Ensures Continuity: The agreement can include provisions for business continuity in case of member departure or other significant events.
Clarifies Financial Matters: It specifies how profits, losses, and distributions will be handled, preventing financial disagreements.

Common Mistakes to Avoid in LLC Operating Agreements in Tennessee

When drafting an LLC Operating Agreement, it’s important to be aware of common pitfalls. Here are some mistakes to avoid:

Being Too Vague: Lack of specificity can lead to misunderstandings and disputes. Be clear and detailed in all provisions.
Failing to Address Exit Strategies: Not including procedures for member withdrawal or company dissolution can lead to complications later.
Ignoring State-Specific Requirements: Each state has its own LLC laws. Failing to comply with these can invalidate parts of your agreement.
Overlooking Tax Implications: The Operating Agreement should align with your intended tax treatment (e.g., partnership vs. corporation).
Neglecting to Plan for Growth: Failing to include provisions for adding new members or changing the management structure can hinder future expansion.
Inconsistent Provisions: Ensure all parts of the agreement work together cohesively without contradictions.
Inadequate Dispute Resolution Mechanisms: Without clear conflict resolution procedures, minor disagreements can escalate into major legal battles.
Ignoring Intellectual Property: Failing to address ownership and use of intellectual property can lead to disputes, especially in technology-based businesses.
Not Considering Different Classes of Membership: If you plan to have different types of members (e.g., managing vs. silent partners), this should be clearly defined.
Failing to Update: An Operating Agreement should be a living document, updated as the business evolves. Neglecting to do so can leave it outdated and less useful.
Overcomplicating the Agreement: While comprehensive, the agreement should still be understandable. Overly complex language can lead to confusion.
Not Addressing Capital Calls: Failing to outline procedures for additional capital contributions can lead to funding issues.
Neglecting Confidentiality: Not including provisions to protect sensitive business information can put the company at risk.
Failing to Define Voting Rights Clearly: Ambiguity in voting procedures can lead to deadlocks in decision-making.
Not Considering Buy-Sell Scenarios: Failing to address how ownership interests can be bought or sold can lead to complications if a member wants to exit.

Tennessee Details for LLC Formation

State Name: Tennessee
State ID: TN
Alternative Name: The Volunteer State
State Capital: Nashville
State’s Motto: Agriculture and commerce
State GDP: 480,050
State Population: 7,080,262
Tax Office: Tennessee Department of Revenue
SOS Office: Corporate Filings, 312 Rosa L. Parks Avenue, 6th Floor, William R. Snodgrass Tower, Nashville, Tennessee 37243
Insurance Office: Tennessee Department of Commerce and Insurance, Insurance Division
License Office: Tennessee Secretary of State

FAQs

What is an LLC operating agreement in Tennessee?

An LLC operating agreement in Tennessee is a legal document that outlines the ownership and operating procedures of a limited liability company in the state.

Do I need an operating agreement for my LLC in Tennessee?

While it is not legally required to have an operating agreement for your LLC in Tennessee, it is highly recommended to have one in place to clearly define the roles and responsibilities of the members.

Can I use a template for my LLC operating agreement in Tennessee?

Yes, you can use a template for your LLC operating agreement in Tennessee, but it is recommended to have a lawyer review and customize it based on your specific needs and the laws of the state.

How do I create an LLC operating agreement in Tennessee?

To create an LLC operating agreement in Tennessee, you can either draft one yourself using a template or hire a lawyer to help you customize one for your business.

Are operating agreements publicly available in Tennessee?

In Tennessee, operating agreements are not required to be filed with the state and are generally kept private among the members of the LLC.

Can an operating agreement be amended in Tennessee?

Yes, an operating agreement in Tennessee can be amended or updated by a vote of the members as specified in the original agreement.

What happens if there is no operating agreement for an LLC in Tennessee?

If there is no operating agreement for an LLC in Tennessee, the state’s default LLC laws will govern the operation of the company, which may not be in the best interest of the members.

Are operating agreements mandatory for LLCs in Tennessee?

Operating agreements are not mandatory for LLCs in Tennessee, but having one in place can help prevent misunderstandings and disputes among the members.

Can an LLC operate without an operating agreement in Tennessee?

Yes, an LLC can legally operate without an operating agreement in Tennessee, but it is generally advisable to have one to establish rules and procedures for the company.

Can an operating agreement protect assets in Tennessee?

Yes, an operating agreement in Tennessee can help protect the personal assets of the members by clearly delineating the separation between the business and individual finances.

How can an operating agreement benefit an LLC in Tennessee?

An operating agreement can benefit an LLC in Tennessee by providing a roadmap for decision-making, outlining member responsibilities, and protecting the company’s legal structure.

What key provisions should be included in an operating agreement for an LLC in Tennessee?

Key provisions to include in an operating agreement for an LLC in Tennessee are member roles and responsibilities, profit-sharing arrangements, voting procedures, and dispute resolution mechanisms.

Can an operating agreement be enforced in Tennessee?

Yes, an operating agreement for an LLC in Tennessee can be enforced by the courts if the terms are clear, agreed upon by the members, and not in violation of state laws.

Does Tennessee require LLCs to have operating agreements?

Tennessee does not require LLCs to have operating agreements, but having one in place can help prevent misunderstandings and conflicts among the members.

Can an operating agreement protect against lawsuits in Tennessee?

While an operating agreement cannot fully protect against lawsuits in Tennessee, it can help establish operating procedures and roles that may prevent disputes from escalating into legal action.

How can an operating agreement help with tax planning in Tennessee?

An operating agreement in Tennessee can help with tax planning by specifying profit distribution methods, allocating tax responsibilities among members, and outlining accounting practices for the LLC.

Is an operating agreement still valid if a member leaves the LLC in Tennessee?

Yes, an operating agreement in Tennessee remains valid even if a member leaves the LLC, as long as the remaining members agree to abide by its terms or make necessary amendments.

Can an operating agreement be customized for different types of LLCs in Tennessee?

Yes, an operating agreement for an LLC in Tennessee can be customized to fit the specific needs and requirements of the business, whether it is a single-member LLC, multi-member LLC, or manager-managed LLC.

Are there specific laws in Tennessee that govern LLC operating agreements?

While there are general LLC laws in Tennessee that apply to operating agreements, the specific terms and provisions of the agreement are largely determined by the members of the LLC.

Can an operating agreement be used to resolve disputes among members in Tennessee?

Yes, an operating agreement in Tennessee can include provisions for resolving disputes among members, such as mediation, arbitration, or buyout clauses, to prevent conflicts from escalating.

Can an operating agreement address succession planning for an LLC in Tennessee?

Yes, an operating agreement can address succession planning for an LLC in Tennessee by specifying how ownership interests will be transferred in the event of a member’s death, disability, or voluntary departure.

How can an operating agreement help with business continuity planning in Tennessee?

An operating agreement in Tennessee can help with business continuity planning by outlining procedures for replacing members, electing new managers, and maintaining the LLC’s operations in the event of unforeseen circumstances.

Can an operating agreement establish rules for admitting new members in Tennessee?

Yes, an operating agreement for an LLC in Tennessee can establish rules and procedures for admitting new members, such as requiring a majority vote or setting specific criteria for eligibility.

Are operating agreements required to be notarized in Tennessee?

Operating agreements for LLCs in Tennessee are not required to be notarized, but it is recommended to have signatures witnessed and dated to reduce the risk of disputes over the document’s authenticity.

Can an operating agreement limit the liability of members in Tennessee?

Yes, an operating agreement in Tennessee can limit the liability of members by clearly defining the company’s obligations and confirming the separation of personal assets from business liabilities.

Does Tennessee law require specific provisions to be included in an operating agreement?

Tennessee law does not require specific provisions to be included in an operating agreement, but certain key elements are generally recommended to protect the interests of the members and maintain the LLC’s legal structure.

Can an operating agreement be voided if it violates Tennessee state laws?

Yes, an operating agreement for an LLC in Tennessee can be voided if it violates state laws governing LLCs, which is why it is important to have the agreement reviewed by a lawyer familiar with Tennessee business regulations.

Can an operating agreement establish meeting requirements for an LLC in Tennessee?

Yes, an operating agreement for an LLC in Tennessee can establish meeting requirements, such as specifying the frequency and method of member meetings, to ensure that important decisions are made collectively and in accordance with the agreement.

What is the cost of creating an LLC operating agreement in Tennessee?

The cost of creating an LLC operating agreement in Tennessee can vary depending on whether you use a template, hire a lawyer, or utilize online legal services, but it is generally a worthwhile investment in protecting the interests of the members and the company.

What is an operating agreement for an LLC in Tennessee?

An operating agreement is a legal document that outlines the ownership structure and operating procedures of an LLC in Tennessee.

In Conclusion

An LLC Operating Agreement is a foundational document that plays a crucial role in the smooth operation and long-term success of a Limited Liability Company. It provides a framework for ownership, management, and operations, helping to prevent conflicts and ensure all members are on the same page regarding the company’s governance.

Key takeaways include:

While not always legally required, having a well-drafted Operating Agreement is essential for all LLCs.
The agreement should cover all crucial aspects of the business, from ownership structure to dissolution procedures.
State-specific requirements must be considered when drafting the agreement.
Regular review and updates of the Operating Agreement are necessary as the business evolves.
Professional legal advice can be invaluable in creating a comprehensive and effective Operating Agreement. We recommend using ZenBusiness which not only offers LLC formation at $0 but also offers operating agreement drafting at a reasonable price.

As businesses grow and change, so too should their Operating Agreements. Regular review and updates ensure that this vital document continues to serve its purpose, protecting the interests of all members and supporting the ongoing success of the LLC. Remember, while the process of creating an Operating Agreement may seem daunting, the security and clarity it provides are well worth the effort.

What is an LLC Operating Agreement in Tennessee