Tennessee Revised Limited Liability Company Act
Tennessee Revised Limited Liability Company Act is a new piece of legislation governing how limited liability companies (LLCs) can be set up in Tennessee.3 min read
2. Operating Agreement
3. What Information to Include in Your Documents
4. LLC Structures
5. Limited Liability
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.
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.
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.
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.
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.
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