Operating Agreement LLC Tennessee

A Tennessee Limited Liability Company (LLC) Operating Agreement is an important internal contract that outlines how the LLC will be governed. This document defines the company’s ownership structure, management framework, and internal rules. Sometimes referred to as a Tennessee Operating Agreement or Tennessee LLC Company Agreement, it serves as the primary legal record documenting membership rights and responsibilities.

Although many business owners prepare the agreement during the formation process, it remains an internal governance tool that clarifies how the LLC will operate and how members will make decisions.

Is a Tennessee Operating Agreement Required?

Tennessee law does not require most LLCs to adopt an Operating Agreement. Under the Tennessee Revised Limited Liability Company Act, creating one is optional unless the LLC is board managed, which requires a written Operating Agreement.

For member managed and manager managed LLCs, an Operating Agreement is not legally required but is strongly encouraged. Without one, the LLC automatically follows Tennessee statutory rules in Title 48, Chapter 249, which may not reflect the members intended structure or business practices.

Why a Tennessee Operating Agreement Matters

Maintains limited liability protection

A written Operating Agreement helps show that the Tennessee LLC is a separate legal entity. This is especially important for single member LLCs, which may otherwise resemble sole proprietorships. The Operating Agreement helps demonstrate to courts and creditors that the business is distinct from the owner personally.

Establishes internal rules and expectations

Without an Operating Agreement, Tennessee’s default statutes determine how the LLC handles voting, distributions, fiduciary duties, and dispute resolution. These default rules may not align with how members prefer to operate the business. A written Operating Agreement allows members to customize most internal procedures.

Required by financial institutions and third parties

Banks, lenders, and accountants often request an Operating Agreement to confirm ownership, verify authority to act on behalf of the LLC, or approve financing and bank accounts.

Key Provisions to Include

A complete Tennessee Operating Agreement typically includes the following:

Basic Company Details

• LLC name
• Business purpose
• Principal office
• Duration
• Federal tax classification
• Tennessee LLC names must include Limited Liability Company, LLC, or another accepted abbreviation.

Registered Agent and Office

• Identifies the Tennessee registered agent responsible for receiving legal notices
• Any change must be filed with the Tennessee Secretary of State

Member Information

• Names and addresses of all members
• Ownership percentages
• Initial contributions

Capital Contributions

• Cash, property, or services contributed by each member
• Clarification that members are not automatically entitled to interest on contributions

Management Structure

• Whether the LLC is member managed, manager managed, or board managed
• Board managed LLCs must describe this structure in a written Operating Agreement

Profit and Loss Allocation

• How profits and losses will be allocated
• How and when distributions will be made
• Distributions allowed only when the LLC can satisfy its debts and obligations

Tax Election

• Federal tax classification chosen by the LLC
• Note that certain elections, including S corporation status, require additional IRS filings

Voting Procedures

• Voting rights
• Quorum requirements
• Decision-making thresholds
• Many Tennessee LLCs base voting on ownership percentage unless stated otherwise

Transfers of Interest

• Procedures for adding or removing members
• Rules for transfers due to withdrawal, death, or expulsion
• Buyout procedures

Records and Bookkeeping

• How financial records, meeting notes, tax filings, and annual reports will be maintained
• Tennessee’s annual reporting requirements

Compensation

• How members, managers, or officers will be compensated if compensation is provided

Dissolution

• Events that may trigger dissolution
• Steps for winding up operations
• Filing termination documents with the Tennessee Secretary of State

Amendments

• How the Operating Agreement may be amended
• Most Tennessee LLCs require written member consent for changes

Management Options for Tennessee LLCs

Tennessee allows several management structures:

Member Managed

Members participate in daily operations and may legally bind the LLC. Voting power usually corresponds to ownership percentages.

Manager Managed

Members appoint one or more managers to handle daily operations. Managers may be members or non members. The members retain authority over major decisions.

Board Managed

Tennessee permits LLCs to operate with a board of directors. This structure must be described in a written Operating Agreement and functions similarly to a corporate board.

Creating and Maintaining the Tennessee Operating Agreement

Drafting and Signing

The Operating Agreement is an internal document that does not require submission to the Tennessee Secretary of State. It becomes effective once it is signed by all members. Notarization is optional.

Recordkeeping

The agreement should be stored with the LLC’s permanent records at its principal office. Each member should keep a signed copy for personal reference.

Amending the Agreement

Amendments must be made in writing and signed by the required members. When revising the agreement, the LLC should:

• Prepare the updated version
• Circulate it for review
• Obtain signatures
• Store the updated document with company records

If the amendment affects information previously filed with the Tennessee Secretary of State, such as the registered agent or management structure, the LLC must file the appropriate update.