Tennessee LLC Operating Agreement — What to Include and Why It Matters

An operating agreement is a written contract among the members of an LLC that sets out how the company is owned and run. It is the LLC equivalent of a corporation's bylaws and shareholder agreement rolled into one, but far more flexible — LLCs exist precisely so owners can shape the arrangement to fit their deal rather than following rigid corporate formalities.

Tennessee governs LLCs under the Tennessee Revised Limited Liability Company Act, and that statute is designed to let members set their own terms through an operating agreement. Where your agreement is silent, the statute's default provisions fill the gap. So you are not choosing between "having rules" and "not having rules" — you are choosing between your rules and the state's. For anything that matters to how you and your co-owners actually intend to run the company, you want your rules to control.

Is it required in Tennessee?

No. Tennessee does not require you to file an operating agreement, and it is not part of your Articles of Organization. You adopt it internally and keep it with your company records. But "not required" is not the same as "not important" — for a multi-member LLC it is close to essential, and even single-member LLCs benefit from having one.

It is easy to assume a solo owner does not need an operating agreement — there is no one to agree with. But the document does real work even for a single-member LLC.

First, it reinforces the legal separation between you and the company. One of the factors a court weighs when deciding whether to pierce the liability shield is whether you treated the LLC as a genuinely separate entity. A signed operating agreement is evidence that you did — that the LLC has its own governance and is not just you under a different label.

Second, banks, lenders, and investors often ask to see it. An operating agreement can be a prerequisite for opening certain accounts or securing financing.

Third, it plans for the future. It can name who takes over if you die or become incapacitated, how the LLC would be sold or dissolved, and how ownership could transfer — questions that matter even when there is only one owner today. Writing them down now beats leaving them to Tennessee's defaults and your heirs' guesswork later.

For an LLC with more than one member, the operating agreement is where partners turn a handshake into a durable arrangement. The most valuable provisions are the ones that prevent disputes by settling hard questions before they become emotional.

Ownership and capital

• Ownership percentages (membership interests) — who owns how much of the company.
• Capital contributions — what each member put in to start, whether cash, property, or services, and whether future contributions can be required.
• Capital accounts — how each member's stake is tracked over time.

Money and management

• Profit and loss allocation — how earnings and losses are divided. This does not have to match ownership percentages, but if you want a split that differs, the agreement must say so.
• Distributions — when and how profits actually get paid out to members.
• Management structure — member-managed (all members run it) or manager-managed (designated managers run it, some members may be passive investors).
• Voting rights — what decisions require a vote, and whether votes are by percentage or per capita.

Change and exit

• Transfer of interests — whether a member can sell or assign their stake, and any rights of first refusal for the other members.
• Buy-sell provisions — what happens when a member wants out, dies, divorces, or becomes disabled, and how their interest is valued and bought.
• Adding new members — the process and approval needed.
• Dissolution — the vote required to wind up the company and how remaining assets are distributed.

These provisions are what turn "we'll figure it out" into a plan, and they are exactly where partnerships fall apart when nothing is written down.

Skip the operating agreement and the Tennessee Revised LLC Act's default rules govern everything the agreement would have covered. Those defaults are reasonable general-purpose rules, but they are not tailored to your deal — and they can produce results the members never intended.

For example, default rules may allocate profits or voting power in a way that does not reflect the members' actual contributions or expectations. Default rules govern what happens when a member wants to leave or dies, and those outcomes may not match what the members would have chosen. In a dispute, the absence of an agreement means there is no document to point to — you are left arguing over the state's defaults instead of the terms you all agreed to.

The cost of this shows up at the worst possible time: during a disagreement, a buyout, a death, or a dissolution, when emotions and money are both on the table. An operating agreement is cheap insurance against expensive fights. Writing it while everyone is on good terms is far easier than reconstructing intentions after a relationship sours.

An operating agreement only helps if it is done properly and kept alive.

Signing and storing it

Have all members sign the agreement. Keep the signed original with your permanent company records alongside your recorded Articles of Organization and your EIN confirmation. You do not file it with the Tennessee Secretary of State — it is an internal document — but you want it accessible when a bank, lender, or attorney asks.

Keeping it up to date

An operating agreement is a living document. When ownership changes, a member joins or leaves, or the management structure shifts, amend the agreement to reflect reality. An outdated agreement that no longer matches how the company actually operates can be as problematic as having none. Build in an amendment process — usually specifying the vote required to change the agreement — so updates are clean.

Getting it right

For a straightforward LLC, a well-drafted template can be a reasonable starting point. For anything with meaningful capital, multiple partners, unequal contributions, or investor arrangements, having a Tennessee attorney draft or review the agreement is money well spent — the operating agreement is a legal contract, and the stakes are your ownership and your protection. Mainstay Filing is a filing service, not a law firm, so while we handle your state-facing formation paperwork, we recommend an attorney for a custom operating agreement.