The Tennessee LLC Operating Agreement is a binding document that is used by any business of any size, dictates explicitly how your business should operate.
From member listings to company policies, the operating agreement is a necessity when opening an LLC. Whether its sole ownership or with multiple partners, contents of an operating agreement can protect you and/or your partners from personal liability.
According to the 2019 Tennessee Code Title 48, Chapter 249, the operating agreement includes everything from management to finances to buyouts and much more. Laws such as the Operating Agreement Laws – § 48-206-101 and the State Definitions – § 48-202-101(30) also supports having an operating agreement in place when establishing an LLC in Tennessee.
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In this article, you will find out everything you need to know about Tennessee LLC operating agreement and how to go about creating one for your business.
Types of Operating Agreement
Considering its extensive scope, it is not a statutory requirement if you’re in Tennessee to have the operating agreement. However, it is essential to incorporate and implement it. There are two major types of the Tennessee LLC operating agreement:
Single Member LLC Operating Agreement
Single Member LLC Operating Agreement is for sole owners of LLC, explaining in detail how the responsibilities, policies, and other decisions will be made. This document can also help a sole owner make a distinction between their assets and those of the company.
Download: Microsoft Word (.docx)
Multi-Member LLC Operating Agreement.
Multi-Member LLC Operating Agreement as the name suggests makes provisions for multiple owners of a company. It comprises policies that these owners (members) can implement in the day-to-day operations. Also, if the LLC is going to be run by managers, it should be stated.
Download: Microsoft Word (.docx)
Multi-Member Operating Agreement
The Tennessee LLC Multi-Member operating agreement is a binding document used by businesses with multiple owners (members) in the day-to-day operations. It also includes procedures and requirements for members of the LLC to act on.
The operating agreement state each members’ duties, financial commitments, how profits and losses will be shared, and many more. Without an operating agreement, members of the LLC would be liable for any legal action taken against the LLC. What’s worse? The members may be mandated by law to forfeit their assets for a claimant suing the LLC.
All the members of the LLC are to discuss the tenets of the documents before it is drafted and validated.
Secondly, you need to choose your LLC type and input the corresponding documents. The types include domestic LLC, a new company you want to file within Tennessee, or foreign LLC – an existing company already launched outside Tennessee. You should file a Certificate of Existence for foreign LLCs which an official within that region has validated. It should also be dated within two months of filing the LLC.
Why Operating Agreement?
Starting a business comes with a lot of considerations such as: In the midst of all these, tendering your Articles of Organization and filing your business as a Limited Liability Company (LLC) comes with a truckload of paperwork.
Drafting an operating agreement along with your Articles of Organization makes all the difference when starting your business. Thus, getting a Tennessee LLC operating agreement is highly recommended if you’re in the state.
As earlier stated, the Tennessee LLC operating agreement isn’t a necessity. However, its benefits cannot be overlooked. So why should you create one?
The operating agreement outlines the ownership of the proposed company. Partners and staff must be privy to this information. There are also provisions for the new company owner if the previous owner leaves the business.
Protect liability status
This document also ensures that the personal assets of the members of the company are separated from the LLC. It’s a significant problem that most business owners and partners face because there’s no distinction between their assets and those of the business under state law. The operating agreement sets everything straight.
Avoid default rules
Another benefit to the operating agreement is that you can set specific regulations guiding the operations of your business. Just as each state has unique rules for LLCs, your rules mustn’t contradict the ones in Tennessee.
Banking and investors
More often than not, financial institutions would require your business to have an operating agreement before approving a loan or signing you up. It’s the same thing with investors. They don’t invest their money in a business they don’t perceive as legitimate. So having an operating agreement gives you a competitive advantage when applying for a loan or attracting juicy investors.
Misunderstandings and disagreements are almost bound to occur in the course of running a business. But you can revert to the operating agreement for clarification and direction.
While it is unnecessary, business owners and members may regulate their internal affairs by creating an operating agreement. It is disclosed in the Tennessee Code Section 48-249-203(a).
Multi-member LLCs typically have a clash of interests. The operating agreement is a comprehensive document that will provide business objectives, vision, and expectations with an organogram revealing their responsibilities.
Operating Agreements are essential in running a business smoothly, whether single or multi-membered. To become valid, all members of the company must sign it.
Information to be Included
No matter which type of LLC you’re running, the following areas must be addressed in the operating agreement. You should know that some of the specifications may not be relevant to single-member LLCs. But you should include them for formality’s sake.
This information includes:
The operating agreement will contain information about when the company was established and launched. It should also clearly state its owner. In the case of multi-member LLC, the document should also note if the owner is equal or if separate fractions of ownership are assigned.
This part of the document must include the amount of money each member of the company has contributed towards its growth and development. This section will also address how additional contributions will be made in the future.
Percentage of ownership
In a multi-member LLC, all members have equal ownership rights by default. However, it is possible that ownership of the company may not exactly be equal. In that case, the operating agreement must state the ownership percentage of each member to the LLC.
Rights and responsibilities
By default, all LLC members must have the same voting power, with the results determined by a majority vote. However, each company may deploy different rules and voting requirements in this regard. Thus, each adjustment agreed upon must be included in the operating agreement. It also addresses steps that should be taken in case a member fails to attend a meeting.
Duties of members
The Tennessee LLC operating agreement should also include the powers and responsibilities of the members and managers of the LLC in clear terms. It should also state if other managerial positions are filled by directors, holders, or supervisors. Clearly defining the responsibilities of members is vital due to several scenarios that could pan out in the future.
Profit and loss
Ordinarily, all members of an LLC should share the profits and losses of the business equally. However, not all companies are run that way. Therefore, the operating agreement must state how profits and losses will be shared to prevent an internal crisis.
The operating agreement should also state how meetings amongst members and staff will be organized. You should consider these meetings’ frequency, purpose, location (physical or virtual or both), and duration.
Buyout and buy-sell rules
The document should also contain provisions for buying and selling properties and assets. Also, criteria can be established to remove managers or members from the LLC and transfer their powers. In the state of Tennessee, a member, with the approval of other members, can transfer their financial and governing rights to someone else.
Apart from stating the duties and powers of members or managers, the operating agreement should also note the requirements for dissolving the LLC. In addition, it should reveal the actions and responsibilities of each member during the dissolution. For instance, if the members decide to be no part of the LLC, it should be dissolved.
How to Write Multi-Member Agreement?
Follow these simple steps to write a Tennessee multi-member operating agreement:
After downloading the document, the document’s effective date and the members’ full names should be attributed.
The commencement of the document should be agreed upon and registered in the format (mm/dd/yyyy). In addition, the name of the company, its objectives, official location, registered agent, and terms of the agreement should be written down. Also, additional information such as the requirement for admission of new members should be considered here.
Information in sections
Members of the LLC will decide on the distribution of profit and losses, contributions, their powers and duties, employee payroll, payment of expenses, tax returns, transfer of membership, and dissolutions.
Members are also expected to review and update the amendments, governing law, attorney fees, captions, notices, severability, and other effects.
For the operating agreement to take full effect, all members must submit their full names and attach their signatures to the document.
At this point, the public notary will complete the remaining part of the document, attach their signature, seal, and return it to the members. Each member must have a copy of the operating agreement for record and reference purposes.
Operating Agreement Template
Creating a Tennessee LLC operating agreement is easy when you’ve got a template to work with. Thankfully, we’ve got free downloadable templates right here.
These files are available in several formats, so you can easily edit and input information and adjust your document according to your needs.
How to Form Operating Agreement?
If you’re in Tennessee and looking to submit an LLC, it is recommended that you follow these simple steps:
Your LLC must appoint third-party personnel called the registered agent who will receive official paperwork on the company’s behalf. The registered agent must be residing and conducting business in Tennessee.
You need to choose your LLC type and input the corresponding documents. The types include domestic LLC, a new company you want to file within Tennessee, or foreign LLC – an existing company already launched outside Tennessee. You should file a Certificate of Existence for foreign LLCs which an official within that region has validated. It should also be dated within two months of filing the LLC.
To file your LLC, the state of Tennessee mandates you to pay $50 per member. For a multi-member LLC, you will make a minimum payment of $300 and a maximum of $3,000. You can opt to pay online with your credit card and follow the prompts or send a money order along with the documents to
The Secretary of State, Snodgrass Tower, ATTN: Corporate Filing, 312 Rosa L. Parks Ave, Nashville, TN 37243.
After filing your LLC with the Secretary of State’s office, you can create an operating agreement. We’ve already addressed what should be included in such a document. But, first, you must determine if the document will be a single member or multi-member LLC operating agreement.
You need to apply for an Employers’ Identification Number (EIN) – it’s a 9-digit number issued by the IRS. It will enable your business to report on taxes, pay your workers, and other financial commitments. You can apply for the EIN on the official IRS website or submit Form SS-4 via mail.
Frequently Asked Questions
Yes, the state of Tennessee does not mandate you to file the operating agreement. However, having one in place sets the precedents on how your business will be run. The document will also protect you from personal liability status, get investment opportunities from investors, and prevent conflicts between members and managers.
It’s highly recommended to create your operating agreement before filing the Articles of Organization to the state. Most banks would require you to submit an operating agreement before opening a business account for the LLC.
You’re not required to file it to the Secretary of State. However, it is for members of the LLC to keep for reference and record purposes.