The Partnership Agreement for a Tennessee LLP

For a limited liability partnership, the internal rulebook is the partnership agreement. It is the LLP's equivalent of an LLC's operating agreement or a corporation's bylaws — the document that says how the partners own, run, and share the business among themselves. Tennessee does not require you to file it with the state, and you should not; it stays private between the partners.

What the agreement controls

The partnership agreement sets the terms the partners live by: how profits and losses are split, who has authority to make which decisions, how new partners are admitted, and what happens when a partner leaves, retires, or dies. It is the difference between a partnership run on clear, agreed terms and one exposed to disputes because nothing was written down.

The role of Tennessee's default rules

When the partnership agreement is silent on something, Tennessee's Revised Uniform Partnership Act supplies default rules to fill the gap. Those defaults are a safety net, not a substitute for a real agreement. For instance, the default rule generally splits profits equally among partners regardless of what each contributed — which is rarely what partners with unequal contributions actually want. Writing your own agreement lets you override the defaults with terms that fit your firm.

The partnership agreement and the LLP's liability shield are related but distinct. The shield comes from registering the partnership as an LLP with the state; the agreement governs how the partners operate. But how you run the firm under that agreement affects how well the shield holds up.

Why the agreement supports the shield

• It reinforces that the LLP is a real, separate entity. Courts look at whether a business is operated as a genuine entity when someone challenges its liability protection. A written agreement, followed in practice, is evidence that it is.
• It sets rules that keep finances separate. Provisions on capital accounts, distributions, and record-keeping help the partners avoid commingling personal and firm money — the kind of blurring that can undermine the shield.
• It defines authority. Clear rules about who can bind the firm reduce the risk of a partner creating obligations no one agreed to, which protects both the firm and the other partners.

The shield already protects a partner from liability for the other partners' wrongful acts. The partnership agreement adds the internal discipline that keeps the firm operating cleanly enough to preserve that protection.

Because LLPs are so common among licensed professionals, the partnership agreement often carries extra weight. In a practice with real revenue, malpractice exposure, and licensing considerations, the terms partners agree to shape careers and financial outcomes for years.

Considerations specific to professional firms

• Compensation formulas. Professional firms often use nuanced compensation models — origination credit, productivity, seniority, or some blend. The agreement is where these are pinned down so no one is guessing at year end.
• Malpractice and insurance. The agreement can address how the firm carries professional liability insurance and how claims are handled, complementing the statutory shield.
• Licensing continuity. Provisions can address what happens if a partner loses their license or leaves the profession, which is a real risk in a licensed practice.
• Buy-in and buy-out. Bringing a new professional into partnership and buying out a departing or retiring one are pivotal events. The agreement should specify how they are valued and paid, so a partner's exit does not become a crisis.

A general template rarely captures these nuances. Professional practices usually benefit from having an attorney familiar with the field draft or review the agreement.

A thorough partnership agreement anticipates the situations that cause disputes and answers them in advance. The best time to agree on these terms is at the start, when everyone is aligned, not in the middle of a disagreement.

The essential provisions

• Partners and contributions. Who the partners are, what each contributed in cash, property, or services, and any obligation to contribute more later.
• Profit and loss allocation. The percentage or formula for splitting income and losses, which does not have to be equal and does not have to match contributions.
• Draws and distributions. How and when partners take money out of the firm, and any limits or priorities.
• Management and voting. Which decisions each partner can make alone, which require a vote, and what threshold — majority, supermajority, or unanimous — different decisions need.
• Admitting partners. The process and vote required to bring in a new partner, and the terms of their buy-in.
• Withdrawal, retirement, death, and expulsion. What happens to a partner's interest in each case, how it is valued, and how it is paid out.
• Transfer restrictions. Whether and how a partner can transfer their interest, and any rights of first refusal.
• Dispute resolution. How disagreements are handled — mediation, arbitration, or another mechanism — before they escalate.
• Dissolution. The circumstances under which the firm winds up and how remaining assets are distributed.

A partnership agreement is not a document you sign once and forget. As the firm changes, the agreement should keep pace so it continues to reflect how the partners actually operate.

When to revisit it

• A partner joins or leaves. Any change in the partner roster should be reflected, especially since it affects both the agreement and the per-partner state fee.
• The compensation model changes. If the firm adjusts how it splits profits or compensates partners, update the agreement to match.
• The business shifts direction. New lines of service, new locations, or a change in the firm's scope may call for updated management or authority provisions.
• The law changes. Periodically confirm the agreement still aligns with current Tennessee partnership law.

Keeping the agreement current avoids a gap between what the document says and what the partners are really doing — a gap that becomes a problem precisely when a dispute or a departure forces everyone to look at the paperwork. Mainstay Filing does not draft the substantive terms of your partnership agreement — that is work for your attorney — but we make sure the state-facing registration that anchors your LLP status is filed correctly and kept current.