Tennessee LLC Operating Agreement Under Revised Law

Key Takeaways

• The Tennessee Revised LLC Act allows greater flexibility in LLC management, including new structures like director-managed and family LLCs.
• Operating agreements in Tennessee LLCs do not need to be in writing unless required by company documents.
• LLCs must include specific information in formation documents to comply with the revised act, including management type and registered agent details.
• A Tennessee LLC operating agreement should outline internal processes, member roles, voting rights, and ownership shares.
• Additional optional provisions—such as dispute resolution and member withdrawal—can enhance the clarity and effectiveness of the agreement.

Tennessee Revised Limited Liability Company Act is a new piece of legislation governing how limited liability companies (LLCs) can be set up in Tennessee. The drafters of the new act have cut the number of chapters from 46 to 11 to make it easier to be reviewed.

Changes in the Revised Act

The organization of the new act is much improved compared to the previous law. If you choose to be governed by the revised act, your LLC will need to update its documentation and ideally adopt a new operational agreement. However, a new operational agreement and articles of organization are not mandatory.

Significant changes in the revised act include:

• The introduction of concepts in line with LLC regulations in other states
• The changing of some mandatory regulations to optional provisions
• The introduction of the concept of a family LLC
• The inclusion of a new form of LLC, a director-managed LLC, which operates a bit like a corporation

Despite these changes, you will likely see little change to the way your LLC operates in practice after you've made the necessary updates to your documentation.

Operating Agreement

Another important difference in the revised act is that your operating agreement does not need to be in writing. The only exception to this is if your articles of organization or operating agreement specifically require the agreement to be in writing.

Operational agreements can be very specific or wide-ranging, depending on your LLC's needs.

If you need to alter your operating agreement, the revised act says that the procedure for changing it must be contained within the LLCs documents. If no provision exists, you can only change the agreement with the support of all LLC members.

Why a Tennessee LLC Operating Agreement Matters

Even though the Tennessee Revised Limited Liability Company Act doesn’t require an operating agreement to be in writing, it is strongly recommended that members of an LLC create a written one. A Tennessee LLC operating agreement outlines how the business is managed, how profits and losses are distributed, and the rules for member responsibilities, voting rights, and internal operations.

Here’s why having a clear, written operating agreement is important:

• Legal protection: It reinforces the liability shield between the LLC and its members.
• Dispute prevention: It outlines how disagreements among members should be handled.
• Banking and financing: Many banks require an operating agreement to open a business bank account.
• Tax clarity: It defines how the LLC will be taxed (e.g., as a partnership or corporation).

Additionally, single-member LLCs benefit from an operating agreement because it supports their legal separation from the owner in the eyes of the IRS and courts.

What to Include in a Tennessee LLC Operating Agreement

While operating agreements are customizable, a comprehensive Tennessee LLC operating agreement typically includes the following elements:

• LLC name and principal business address
• Statement of purpose
• Formation date and registered agent information
• Duration of the LLC (perpetual or a set term)
• Ownership structure: including percentage of membership interests and capital contributions
• Management structure: specifying whether the LLC is member-managed, manager-managed, or director-managed
• Voting rights and decision-making rules
• Profit and loss distribution
• Meeting procedures
• Rules for adding or removing members
• Procedures for dissolution or winding up

For multi-member LLCs, clear provisions on dispute resolution and buyout rights can be crucial. If no amendment procedures are outlined, the agreement may only be changed with unanimous member consent.

What Information to Include in Your Documents

Your LLC's documentation must include certain pieces of information to comply with the revised act. These include:

• A name for the LLC that complies with paragraph 48-249-106
• The address and postal code of your LLC's registered office
• The name of your LLC's registered agent
• The address and postal code of your LLC's main office
• A declaration setting out whether your LLC is director-managed, manager-managed, or member-managed

If your company intends only to conduct business outside the state, you also need to submit a statement that the LLC is barred from doing business in Tennessee. Another optional piece of information you may need to include is the length of time your LLC will operate. However, this is only necessary if you want to dissolve the company after a set period of time.

Filing Your LLC With the State of Tennessee

To legally form your LLC in Tennessee, you must file Articles of Organization with the Tennessee Secretary of State. These can be submitted online or by mail and must include:

• The LLC name (following the naming rules under § 48-249-106)
• Registered office address and agent information
• The mailing and principal office addresses
• A statement of management structure (member-, manager-, or director-managed)

Once approved, you’ll receive a stamped copy of the Articles. From there, you should:

• Obtain an EIN from the IRS
• Draft your Tennessee LLC operating agreement
• Register for necessary state taxes with the Department of Revenue
• Apply for local licenses and permits if required

LLC Structures

The new provisions for structuring your LLC are dealt with in section 48-249-401 of the revised act. Unlike the previous law, the revised LLC act provides for three different management models: member-managed, manager-managed, and director-managed.

• A member-managed model is much like a member-managed LLC under the previous act
• A director-managed LLC is run more like a corporation
• A manager-managed LLC operates more like a limited partnership

If you opt for a member-managed LLC, the revised act states that all members will have equal rights. All issues will be decided by a majority vote among the membership.

To create a manager-managed LLC, a majority of the members must approve each manager. The managers then enjoy equal rights in running the company and take decisions by a majority vote of the managers.

If your LLC is director-managed, it means the board of directors manages all business affairs and exercises all powers.

Limited Liability

One major benefit of an LLC, as the name suggests, is that members are not held personally liable for the company's actions. This means that personal assets are typically protected, although there are certain instances where a court may overrule this.

In line with the previous law, the Tennessee Revised Limited Liability Company Act declares that members, managers, or directors of LLCs are not responsible for the company's acts, whether in relation to tort or contract.

The act also makes clear that an LLC member is not personally liable for the actions of another member or representative of the LLC. However, it is possible to hold a member responsible based on their own personal acts.

Frequently Asked Questions

1. Do I need to file a Tennessee LLC operating agreement with the state?
   No. Operating agreements are internal documents and do not need to be submitted to the Secretary of State. However, they should be kept with your LLC records.
2. Is a written operating agreement required in Tennessee?
   No. Tennessee allows oral or implied agreements unless your Articles of Organization or operating agreement specify that it must be written.
3. Can I create a Tennessee LLC operating agreement myself?
   Yes, you can create your own. However, it's wise to use a template or consult an attorney to ensure you meet state-specific requirements and address potential future conflicts.
4. What happens if I don’t have an operating agreement?
   Without one, your LLC will be governed by default rules under the Tennessee Revised LLC Act, which may not reflect the preferences of your members.
5. Can I change my LLC’s operating agreement later?
   Yes, but you must follow the amendment process outlined in the existing agreement. If none exists, all members must agree to the change.

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