LLC Operating Agreement Tennessee | The Complete Guide


Steve Goldstein
Steve Goldstein
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Starting an LLC may involve filing articles of organization with the state and establishing internal ground rules for how your business should operate. Establishing your credibility as a legal entity is a part of the plan.

Every LLC in Tennessee is encouraged, but not required, to have an operating agreement to safeguard the company’s operations, from organization to dissolution. It ensures that all LLC members understand their roles and responsibilities. This page guides you in making a Tennessee operating agreement.

Tennessee LLC Operating Agreement Content

An operating agreement is a legal document detailing the LLC’s organizational structure and operational procedures. Topics not restricted to a single member or multi-member LLC will be covered. While these provisions might not influence day-to-day operations, they must be included for legal reasons.

  • Ownership: The operating agreement details who the members are and how ownership is divided, be it a sole proprietorship or LLC. Sole proprietorship refers to a single person with total control over a business, also known as a single-member LLC. Multi-member LLC members can have either equal or varying ownership interests.
  • Management: Your LLC could be member-managed or manager-managed. The former means members can decide regarding contracts with third parties; the latter means only designated managers can do so. Using “manager-managed” instead of “hands-on” can reduce administrative work. Management’s authority is also limited in the Operating Agreement.
  • Voting: Define each owner’s voting rights and voting thresholds, such as a majority vote, supermajority vote, and unanimous consent. A variety of approvals are needed for each type of decision.
  • Changes in Membership Structure: If someone leaves the company, how will roles and ownership be transferred? A member buyout and/or replacement procedure must be outlined in the LLC’s governing document.
  • Contributions: All types of contributions are accepted. In order to fund their ownership interests, members will have to invest in the collective funds.
  • Equity Splits: Determine equity for each member, taking into consideration things like their contributions, responsibilities, and fairness. Maintaining fairness in your equity split will help prevent future disagreements.
  • Transfers: You may want to consider outlawing transfers of ownership interests without the consent of all owners. It’s always a good idea to include permitted transfers, such as first refusal, drag-along rights, tag-along rights, and estate planning transfers.
  • Business Restrictions: To protect the privacy of the company, including confidentiality obligations. You may also ban the owners from owning competing businesses.
  • Intellectual Property: Detail; the ownership of intellectual property created by members. Make sure all company-created intellectual property is owned by the company. You can find alternative ownership/license structures if necessary.
  • Taxation: Determine how you will be taxed and plan accordingly. Remember, however, that you must file an LLC annual report and might be required a sales tax.
  • Guaranteed Payments: Determine if any of the members should receive Guaranteed Payments, which are like a salary, particularly if your LLC is taxed as a partnership.
  • Distribution & Dividends: Explain to all members how the funds will be allocated. A pass-through entity will impose tax distributions regardless of profit distributions.
  • Dissolution: The LLC should be dissolved if all members elect to cease operations. It is important to identify how you will end your business in your operating agreement.

Note that the operating agreement, though not a legal requirement in most states, is vital in the operation of your LLC. Should your members have issues with the business, you can deal with it with guidance from the operating agreement.

Get Help from a Registered Agent

Developing an operating agreement could be tedious at times. Besides, since it deals with how your business operates, then it would be best to have professionals help you with it to make sure you get everything right. Getting help from registered agents would be your best bet. Here are three of our best LLC services that can provide you with registered agents to free you of worries:

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Importance of a Tennessee LLC Operating Agreement

Tennessee does not require you to create an operating agreement when you own an LLC. The majority of states require their business entities to draft an operating agreement that allows them to inspect the structure of the business. Tennessee doesn’t need you to take this step. It is possible to form an LLC without penalty fees

This step is essential to ensure that your LLC to be protected from any disputes or misunderstandings. Here are some reasons why LLC members should be required to sign an LLC agreement.

  • To safeguard the company Operating agreement: It sets out the rules for LLC. If the members are unable to follow the rules, they will be operated according to the rules of the government. This agreement will save the LLC and provide some additional advantages
  • The LLC looks trustworthy: Investors look at the credibility of the business when researching businesses. Operating agreements are an excellent way to ensure that the LLC look professional. It shows that the members care about the company and would like it to comply with all regulations. This helps in growth by attracting more investors.
  • The LLC’s status has to be protected: LLCs are well-known for their limited liability status. If the operating agreement clearly defines this and the government is aware of it, they will not be confused. Operating agreements are an opportunity to prove that they’re not the same.
  • To resolve any conflicts: In future, there can be some conflicts related to the decisions and distributions. The operating agreement has the processes, requirements, and rules for the members of the company. If they are required to do a job then they should look up the specifics in the agreement before they get on with it.
  • LLC flexibility is aided by Limited Liability Companies. Limited Liability Companies are expected to be flexible because it is part of their character. Operating agreements are what allow these LLCs to have such a nature. The freedom of the LLC lies in the confirmation provided by the operating agreement, so it’s pretty important.
  • In order to open business accounts, it is necessary for the owner to keep a copy. This is why it’s difficult for a business to open bank accounts if they don’t have an operating agreement.

F.A.Qs

Does Tennessee require an operating agreement?

In order to clearly state the purpose of a business as well as its ownership interests, a written operating agreement is strongly advised in Tennessee.

What if an LLC has no operating agreement?

You and other members of the LLC will be unable to reach any agreements if you do not have an operating agreement. Even worse, your LLC must follow the state’s default operating conditions.

Can I write my own operating agreement?

It is required by law in California, New York, Maine, and Missouri, but it is not in Tennessee. Although it is not legally required, creating a written agreement is strongly advised. You may self-notarize and distribute the documents.

How to Edit Operating Agreement of LLC in Tennessee

Operating Agreement of LLC in Tennessee can be edited when all the members agree to the amendment(s). You do not need to file it with the state.

Editing an operating agreement is a relatively simple process, but it is important to follow the proper steps to ensure that the changes are legally binding and enforceable. Here are some steps on how to edit an operating agreement of an LLC in Tennessee:

Firstly, it is important to review the current operating agreement to identify the areas that need to be edited. Common reasons for editing an operating agreement include adding or removing members, changing ownership percentages, updating capital contributions, and modifying the distribution of profits and losses.

Once the necessary changes have been identified, the next step is to draft an amendment to the operating agreement. An amendment is a legal document that outlines the specific changes that are being made to the original operating agreement. The language used in the amendment should be clear and precise to avoid any confusion or misinterpretation.

After drafting the amendment, it is important to have all members of the LLC review and approve the changes. Unanimous consent is typically required for amendments to the operating agreement, but the specific requirements may vary depending on the terms outlined in the original agreement.

Once all members have approved the changes, the next step is to execute the amendment. This involves signing the document in the presence of a notary public to ensure that the amendment is legally binding. The signed and notarized amendment should then be kept with the original operating agreement for future reference.

It is also important to update any relevant documents, such as the Articles of Organization or Operating Agreement cover page, to reflect the changes made to the operating agreement. This will help ensure consistency and avoid any potential confusion or discrepancies.

In conclusion, editing the operating agreement of an LLC in Tennessee is a straightforward process that requires careful consideration and attention to detail. By following these steps and seeking professional legal advice if necessary, business owners can ensure that their operating agreement accurately reflects the current structure and operations of their LLC.

In Conclusion

The operating agreement is an important document for your Tennessee LLC. However, it is not mandatory to file in many states. It is strongly recommended to file the operating agreement even if it is not required in your state. Get a professional LLC service to file your operating agreement properly.

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