Creating a company is a complex process. Before you start working actively, carefully read the rules and regulations of the opening procedure and make an action plan. For instance, using an operating agreement might help you if you are an entrepreneur who wants to create an LLC.
An operating agreement is a legal document containing information about your limited liability company or LLC. The main reason for creating the operating agreement is the delineation of the LLC’s liability and personal liability of the corporation’s members. This document is designed to reduce risks and exclude personal financial losses of LLC members.
The document contains details about the company’s structure, its management, and a compilation of regulations and major domestic policies. For example, the operating agreement can highlight how new members are accepted in the limited liability company. The rules also regulate the process of dismissing members from the LLC.
In Tennessee, the operating agreement is an important legal document for small companies and large business corporations. This paper contains the basics of the company’s internal policies and various aspects of the business, such as contribution statements, company procedures, LLC membership lists, and more.
According to the Tennessee legislation, an operating agreement is not mandatory for all companies since they can still conduct business even in its absence. However, if the LLC members think in advance about such an agreement and its benefits, they will avoid many risks. For example, if a lawsuit is filed against a company without an operating agreement, the LLC depositors may suffer significant personal losses since they will be personally responsible for the company’s activities. In such a situation, all LLC members will lose their individual assets to cover the losses.
However, filling out the operating agreement will protect the members of the LLC froml such risks. In case of a legal claim against the company, only the company will be responsible, not the depositors. In other words, this document separates the investors’ private assets from the company’s finances—they are not obliged to lose them because of the company’s activities.
The operating agreement has the same structure as any other legal document. So, in this paper, you must include the following elements:
All parties should read the document carefully to ensure that they clearly understand the document’s language. If they have any doubts, they can consult with an attorney for assistance.
You can also specify any other information in your application. In each state, including Tennessee, the form has two options: a multi-member LLC operating agreement and a single-member LLC operating agreement.
In short, the difference is the number of the owners. So, if the owner of the company is one person, they should fill out a single-member LLC operating agreement. Otherwise, several owners enter into a multi-member option. The details largely depend on your entity’s business purposes. The advantage of this agreement is that it establishes the procedure for the company’s formation and functioning. It also guarantees the same conditions for the activities of all participants and owners. All owners pursue the same goals, so they cooperate for the benefit of the firm.
LLC owners and members face significantly fewer risks of monetary and capital losses. All LLC-related matters, including an operating agreement compilation, are regulated under the Tennessee Code Annotated (Public Acts, Charter № 286). The definition of an LLC operating agreement is given in Section §203(a).
Every entity owner’s liability and responsibility are limited, hence, the name. Due to the liability differentiation, the business losses aren’t shared equally between the owners, which is a distinctive feature of companies of this type that combine features of large corporate entities and medium-sized business entities.
In general, the operating agreement should not conflict with Tennessee state laws. Thus, the company must prepare all Federal, State, and local income tax and information returns for the Company and ensure that such tax and information returns are timely filed.
This section contains detailed instructions for creating an LLC.
1. Choose the Name of your LLC.
Your company name must be unique and available for use. You cannot take the name of a company that already exists because it will not be registered. Your organization should not include abbreviations and words that people can mistake for government agencies.
Then, you need to download an application form. Choosing one of the two options (for local companies and foreign ones), pay attention to your organization’s specifics. After downloading the necessary documents, enter the company name in the blank field.
2. Registered Agent Election
In Tennessee, each limited liability company has to choose the Registered Agent for representation purposes. This person has a right to act on behalf of the business company. So, the RA can act as a contact person in litigation against the LLC and receive general correspondence to the company.
To become a Registered Agent, you need to be a resident of Tennessee. Another option is to own a business that is authorized to operate in the state. In both cases, you have a right to be a RA of the company.
3. Registration Documents
Select your LLC type and complete the registration documents. There are also two types of these papers depending on whether your company is domestic (within Tennessee) or foreign (initially formed outside Tennessee).
If your LLC is foreign, you need to add a Certificate of Existence to your application. It must be authenticated by an official in the initial jurisdiction and dated within two months of filing.
4. Filing Fee
As part of the next step, each LLC member has to pay a registration fee—$50 per person. The total amount should not be less than $300 and not more than $3000. You can pay the fee online using your credit card. You can also use a paper check, but in this case, you will need to attach the check to the application and send it to the Secretary of State’s email.
5. Operating Agreement
This part of the guide is optional. The operating agreement establishes the company’s domestic policies and rules for its members. It allows the managing members to put provisions in place to govern the company’s general operation. It includes the rights, responsibilities, and financial interests of each of the LLC’s members. As the form is not obligatory by law, there is no need to fill it with the State. However, each member of the corporation has to have a copy of this document.
6. Employer Identification Number (EIN)
The EIN is a nine-digit number that the Internal Revenue Service gives to the company to get tax information from the business organizations. This allows your business to legally pay the employees and conduct a variety of financial transactions.