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Forming a Tennessee LLCTennessee LLC Operating Agreement takes a lot of planning. Between the Articles of Organization, Annual Reports, franchise and excise taxes, and more, there’s a lot to consider. And paperwork and startup costs aren’t the only necessary tasks. You’ll also want to set up your LLC to run smoothly and avoid legal troubles after it’s been registered with the state.

That’s where the LLC operating agreement comes in.

Time-Saving Hack: There are a handful of online business formation service that can form an LLC for you and include a free customizable operating agreement. ZenBusiness, though, is the only one that offers a free operating agreement in every package.

 

What is an LLC Operating Agreement?

An operating agreement gives your business structure and official procedures. It designates ownership, establishes operations, defines member responsibilities, and provides legal protection. Essentially, it lays out everything someone might need to know about your LLC. And it’s an internal document, so there’s no filing or fees involved.

Whether you’re starting a multi-member or single-member LLC, we strongly recommend completing an operating agreement. It’ll benefit and protect you for as long as you’re in business.

 

Am I Required to Have an Operating Agreement in Tennessee?

No, technically your LLC is not required to adopt an operating agreement in Tennessee. But if you don’t want your business to be at a disadvantage, if you want the stability and security necessary for it to thrive, if you want protection for your personal assets and legitimacy in front of courts and banks, you should create an operating agreement.

 

Benefits of Creating an Operating Agreement

You want what’s best for your business. Months or years in the future, you want it to be a profitable and thriving endeavor. Having an operating agreement in place will set up your LLC for sustained success.

It requires some legwork, but it’s well worth it. Just look at some of the benefits:

  • Officially designates how the ownership is split up (the percentage each member/manager owns), so there are no disputes.
  • Standardizes office and company operations to improve efficiency
  • Outlines the procedures for member additions and resignations, registered agent changes, dissolutions, and more, so there is no confusion.
  • Avoids Tennessee’s “default rules,” which define baseline procedures for any LLC without an operating agreement and aren’t necessarily the best for your business.
  • Grants you greater respect from Tennessee courts.

 

Free Tennessee LLC Operating Agreement

Staring at a blank screen can be daunting when you’re trying to draft an important legal document. Where do you start? Unfortunately, the Secretary of State website – which contains a wealth of LLC information – is silent on operating agreements.

But have no fear! There are a lot of useful resources and free templates available online. While most of these templates are good options, we recommend this one, created by Northwest Registered Agent. It’s an ideal jumping off point to get you started.

Whether you’re using a template or starting from scratch, here’s a quick and easy guide for what to include:

Owner or Member Information: Names and mailing addresses.

Company Information: Your LLC’s name, registered office, and principal office.

Registered Agent Information: The name of your registered agent, their address, and contact information.

LLC Formation: The date you filed or will file your Articles of Organization with the Secretary of State.

Business Purpose: The type(s) of business your LLC will be doing in Tennessee.

Term: How long your LLC in Tennessee will be valid, typically until you file for termination.

Capital Contributions: The amount of money each member has invested in the LLC.

Profits, Losses, and Distributions: How income and debts are allocated among members and methods for distributing funds.

Ownership Percentage: How much of the company each member owns.

Management and Roles: The managerial structure and decision-making processes, naming who is in charge or certain operations.

Compensation: How members/managers are compensated and reimbursed.

Bookkeeping: Accounting procedures and member account policies.

Tax Treatment: Whether your LLC will be taxed as a Sole Proprietorship, Partnership, S-Corporation, or C-Corporation.

Member Additions: The procedure for bringing on new members – how they will be admitted, if they’re entitled to income, any expenses they will owe, their roles, etc.

Member Withdrawal: Procedures for the resignation, expulsion, retirement, or death of an existing member.

Amendment Procedures: How your LLC will approve changes to the operating agreement. Usually, it’s through a majority vote by the members.

Dissolution: What happens when you terminate your LLC. How your members will split up the remaining assets or debts.

You don’t always need to include all of the above. If any don’t apply to your LLC, feel free to leave them out. Still, it’s a good idea to cover as many bases as possible. Even if you’re a single-member LLC, you should consider including as many sections as possible to accommodate future changes. Otherwise, years into the life of your business, you may run into a dispute over something you didn’t include, and you won’t be able to fall back on the operating agreement.

After you finish a draft of your operating agreement, give a copy to each LLC member. You will need their approval before it can take effect. Because it’s strictly an internal document, there’s no need to file it with the Secretary of State. Just keep it with your other business documents; you’ll most likely need to revise it later.

 

Making Changes to Your Operating Agreement

For better or worse, your business is going to change. As you begin doing business in Tennessee and, hopefully, raking in profits, the LLC will grow and evolve. It will develop different needs and more complicated processes. Keep everything running smoothly but updating your operating agreement as changes occur.

First, all LLC managers/members must approve the change. To seek approval, follow the guidelines you already outlined in your operating agreement for ratifying amendments.

Because it isn’t recorded with the state, modifying your agreement is as simple as making changes to the Word document or PDF you keep in your own files.

For example: your registered agent resigns and, following Tennessee law, you appoint a registered agent service to take their place. Simply pull up your electronic file, enter the new agent information, save it, and print a copy. Make sure you keep a draft of the previous document as well so you can track the changes you’ve made, just in case the state ever has any questions.

 

Hiring an Attorney

Worried that you might miss a critical detail? Uncomfortable with legal minutiae? If you want to ensure your operating agreement provides for all possible outcomes and disputes, you might consider hiring an attorney to review it or write it entirely.

Some attorneys have a flat rate for drafting an operating agreement; others bill by the hour. Either way, you’ll only need their assistance for a limited period of time. Use a site like Avvo to find the right fit for your business. Avvo’s database lets you sort by location, rate, and more – it even shows Tennessee lawyers that specialize in LLCs.

 

Hiring an LLC Formation Service

The LLC formation process, with its forms and fees, might make you want to throw up your hands and surrender. Don’t do that! Instead, consider hiring an online service like ZenBusiness or Northwest Registered Agent.

An online service like we mentioned earlier can quickly take care of all your necessary filings. Plus, they’ll create a customized operating agreement for you!

Given the amount of time you would spend drafting an agreement from scratch, a formation service is worth it. Not only will you receive a meticulously researched and crafted operating agreement, but you’ll also be able to spend more time growing your business, planning your next move, or just relaxing.

 

References

By this point, it’s clear that your operating agreement has significant authority over your LLC’s internal procedures and external actions. And while the Secretary of State website doesn’t provide much information on it, the Tennessee LLC Act gives an outline for how it functions.

Section 203 of the LLC Act states that a company’s operating agreement “regulate[s] the affairs of the LLC and the conduct of its business and govern[s] relations between or among the members, holders, managers, directors, officers, and the LLC, as applicable.” Nearly every aspect of your LLC falls under these provisions. This doesn’t mean, however, that the operating agreement is all-powerful. There are certain things that it cannot do.

For example, the agreement may not authorize any actions that break state or federal law. Nor can it exempt your LLC from the state’s business maintenance requirements and their associated penalties. So, if you skip your Annual Reports or fail to maintain a valid registered agent, your operating agreement will not stop the state from administratively dissolving your LLC.

Creating an operating agreement is a big undertaking, but it’s incredibly important for the health of your business. Follow this guide and your LLC will be prepared to thrive for years to thrive.


About Aaron Franklin

Frustrated by all the options and aggressive online sales tactics, my team and I created BestLLCServices.com to cut the clutter and bring clarity to entrepreneurs starting a Limited Liability Company. Our focus is on reviewing and comparing the top LLC formation services while also crafting free resources that help you start a business. We sincerely believe finding the right service and free information should be a simple process so you can get started with minimal friction.