Tennessee LLC Operating Agreement
The Tennessee LLC Operating Agreement is the core document that is referred to when issues concerning a Tennessee limited liability company (“LLC”) need to be resolved.
The LLC Operating Agreement is the most important document for your Tennessee LLC.
In the case of a single member LLC, without the formality of an LLC Operating Agreement, the LLC can closely resemble a sole proprietorship, which does not limit your personal liability for business debts of the LLC.
With respect to a multi-member LLC, the LLC Operating Agreement reflects the agreement among the members with respect to the affairs and management of the LLC and governs the relationship amongst the members of the LLC. By having an LLC Operating Agreement, the members will be provided with a clear set of rules that all members have agreed upon greatly reducing the likelihood of disagreement between them in the future. A LLC Operating Agreement will also greatly reduce financial and management misunderstandings, and make sure your business is governed by your own rules -- not default rules created by the state of Tennessee.
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The LLC operating agreement does not have to be filed with any state agency. All states, including the state of Tennessee will enforce valid operating agreements entered into among LLC members. The operating agreement will only be enforced against the persons who are parties to the agreement. Therefore, it is extremely important that all members of an LLC sign the operating agreement.
Your Tennessee Limited Liability Company
LLC Filing Office
Limited partnerships and LLCs taxable as partnerships are subject to the franchise and excise taxes in Tennessee. Neither a general partnership nor a single-member LLC whose sole member is a corporation is subject to the tax. The franchise tax is imposed at the rate of 25 cents per $100 or major fraction thereof, of a taxpayer’s net worth. Net worth is defined as the difference between a taxpayer’s total assets and total liabilities. An excise tax of 6% is imposed on the net earnings from business done in Tennessee. Tennessee imposes an annual fee of $50 per member of the LLC. Tennessee also requires all partnerships and LLCs to pay an annual 6 percent tax on stock dividends and bond interest received.
State LLC Act
The Tennessee LLC Act is contained in Title 48, Chapter 201-248 of the Tennessee Code.
On June 1, 2005, Tennessee Governor Phil Bredesen signed into law the Tennessee Revised Limited Liability Company Act (the "New Act"), which became effective on January 1, 2006.
The New Act applies only to (i) any LLC formed in Tennessee on or after January 1, 2006 and (ii) any LLC formed in Tennessee before January 1, 2006 that files an amendment to its articles of organization in which it elects to be governed by the New Act. The Old Act continues to govern all LLCs formed in Tennessee before January 1, 2006 that do not elect to be governed by the New Act.
Important Statutory Rules
One of the most significant changes from the Old Act to the New Act is the change in available management structures for LLCs. The Old Act contained two possible management structures for LLCs: member-managed and governor-managed. Under the New Act there are three possible LLC management structures. The first is a member-managed structure, which is similar to the member-managed structure under the Old Act in that members have powers like those of general partners of a general partnership. The second structure is a manager-managed structure, in which the members elect managers that have powers similar to those of general partners of a limited partnership. The third is a director-managed structure, in which the LLC has a board of directors and officers like a corporation. Also, the requirement that each LLC have an individual acting as Chief Manager, as well as the concept of having a Chief Manager at all, have both disappeared in the New Act. If there is to be a chief executive, that person may now be called any title desired by the LLC.
Admission of Members
Unless otherwise provided, new interests in the LLC must be issued with the consent of all the members. Unless otherwise provided in the Operating Agreement, the admission of a transferee as a member must be approved by the members holding a majority of the capital interests of the LLC.
Amending the Operating Agreement
Unless otherwise provided in the Operating Agreement, amendments to the Operating Agreement require approval of a majority of members.
Under the New Act, the termination of a membership interest never automatically triggers the dissolution of an LLC.
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