Tennessee LLC Operating Agreement Template

In Tennessee, your limited liability company (LLC) is not required to have an operating agreement in place. But it’s highly recommended, as an effective operating agreement can help avoid disputes and lawsuits that could threaten the stability of your LLC. 

What is an LLC Operating Agreement?

A Tennessee LLC operating agreement is an important legal document that details who owns the business and provides essential information pertaining to member duties. An LLC operating agreement establishes the financial relationship between members and the basics of the working relationships between those members and the managers who oversee daily operations. 

The operating agreement is not filed with the state, but instead remains private. It’s advisable to hire an attorney to ensure your operating agreement is thorough and legally binding.

What Should Your Tennessee LLC’s Operating Agreement Include?

The operating agreement should clearly define:

1. Percent of Ownership: Clearly define each member’s percentage of ownership in the LLC. This will be important for determining profit and loss distribution, as well as voting power within the company. Percentages should add up to 100%.
2. LLC Management Structure: Specify whether the LLC will be member-managed or manager-managed. In a member-managed structure, all members are involved in the day-to-day operations and decision-making, while in a manager-managed structure, either one or more members or outside individuals are appointed to manage the business. If the LLC has a board of directors, the operating agreement will also include the role and responsibilities of the board members and how they are compensated. 
3. Members’ Roles and Responsibilities/Decision Making: Detail the roles, responsibilities, and decision-making authority of each member or manager. This should cover voting rights, the decision-making process, and the specific powers granted to members or managers.
4. Capital Contributions and Distributions: Define the initial capital contributions made by each member and the process for additional contributions. Specify the method and frequency of profit and loss distributions to members, which may be based on ownership percentage or other agreed-upon terms.
5. Record Keeping and Financial Reporting: Outline the requirements for maintaining financial records, such as accounting methods and fiscal year-end. Specify the process for preparing and distributing financial reports to members, including annual financial statements and tax documents.
6. Tax Classification: Indicate the tax classification of the LLC, which is typically either a partnership, a disregarded entity (for single-member LLCs), or an S or C corporation. This selection will determine the tax treatment of the LLC’s income and losses.
7. Member Meetings: Specify the frequency, purpose, and procedures for member meetings. This should include requirements for notice, quorum, and voting rules, as well as guidelines for special meetings and the appointment of a meeting chairperson.
8. Admission and Removal of Members: Outline the process for admitting new members, such as required approvals, capital contributions, and the assignment of ownership percentages. Detail the procedures for removing a member, whether voluntary or involuntary, and the consequences for the departing member’s ownership interests.
9. Transfer of Ownership: Define the restrictions and procedures for transferring ownership interests, such as the right of first refusal, consent requirements, and valuation methods. This section should also address the treatment of ownership interests in the event of a member’s death, disability, or bankruptcy.
10. Dispute Resolution: Establish a method for resolving disputes between members or between members and the LLC. Common approaches include negotiation, mediation, arbitration, or litigation. Specify the governing law and jurisdiction for any legal proceedings.
11. LLC Dissolution: Outline the circumstances under which the LLC may be dissolved, such as a unanimous vote, a specified event, or a member’s departure. Detail the process for winding up the business, distributing assets, and filing necessary documents with the state.
12. Amendments to the Operating Agreement: Specify the procedures for amending the operating agreement, such as the required vote, notice, and approval process. This section should also address the process for updating the operating agreement to comply with changes in state law or other regulatory requirements.

An LLC operating agreement provides legal and financial recourse for a number of situations. If conflicts arise between LLC owners pertaining to any of the above issues, the operating agreement will provide clarity. The specific language of the operating agreement lays out exactly how such conflicts will be resolved, how the business is structured, the dynamics of operations, and more. 

Though Tennessee has default rules on the books that address some of the issues that might arise between LLC members, your LLC operating agreement would override these default laws and give you greater control. 

How Much Does an Operating Agreement Cost? 

Creating an operating agreement is free if you just draw it up yourself. Alternatively, you can pay for guidance from an online business advisory like ZenBusiness.

This is an extremely important document, so it’s recommended that you hire a professional service or law firm. If you choose to use an attorney to help you create this document, the price will be around $500 for a single-member LLC and $2,500 for a multi-member LLC. 

Who Needs my LLC Operating Agreement?

One of the key reasons to have an operating agreement in place is that it makes your LLC more appealing to financial backers. Banks are likely to request to see your operating agreement when you apply for a loan. If you seek funding from investors, they will also want to see your operating agreement. 

Conclusion 

Though not legally required in Tennessee, an operating agreement is a crucial document for LLC operations, ensuring your company is able to access adequate financing and settle any disputes. Keep in mind, you do not need to file your operating agreement with any state body. You simply need to take certain steps to ensure it’s legally binding and keep it in your records. 

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