Articles of Organization

The formation of a Tennessee LLC means that you have to file articles of organization (along with the $125 filing fee) with the Business Services Division of the Tennessee Department of State. The articles, which must be signed by at least two persons organizing the LLC, must include:

• The LLC’s name
• The address of the LLC’s registered office
• The name of the LLC’s initial registered agent there
• The names and addresses of the organizer(s)
• Whether one or more members are personally liable for the LLC’s debts
• Whether the LLC will be member-managed or board-managed
• The number of members on the date the articles are filed
• Whether the LLC’s dissolution can be triggered by action by all or some of the board of governors
• Whether and how board governance rights can be transferred
• Whether the LLC will begin when the articles or filed or on a future date (cannot be more than 90 days from the filing date)
• The street address (including county) of the LLC’s principal executive office
• Whether the LLC has the power to expel a member
• The period of the LLC’s duration (may be perpetual or for a specified time period)
• Whether members or other parties have preemptive rights

The filed articles must be signed by a member, manager, organizer, or fiduciary (if the LLC is the hands of a receiver, trustee, or other court-appointed fiduciary) and indicate the name and title of the person signing the document.

Your new LLC is officially “organized” once the original articles of organization and one duplicate or conformed copy is delivered to the Secretary of State by one or more organizers. The articles must contain a statement which makes it clear that it is being filed pursuant to the Tennessee Limited Liability Company Act.

The articles must be executed (signed) by an organizer if the LLC has not yet been formed, or if the directors or board have not yet been selected. If the LLC has already been formed, or if the directors or board have been selected, a filed document must be executed by the chair of the board of directors, or by its president or other authorized manager if an LLC action is taken.

The articles may also include a grant of authority to one or more members, managers, or governors to execute instruments for the transfer of real property, and any restrictions and conditions with respect to such authority

Registered Agent and Office

Tennessee LLCs have to continuously maintain both a registered agent and registered office in the state—the person or office designated to receive official state legal and administrative correspondence. An LLC registered agent may be an individual who resides in Tennessee or a business entity authorized to conduct business there. The registered agent’s business office must be the same as the corporation’s registered office.

The registered office may be—but doesn’t have to be—the LLC’s place of business.

Operating Agreement

The LLC’s next most critical document is its operating agreement. Having an operating agreement is not officially required by the state, but it’s a very important internal document that sets forth how the LLC will run. The operating agreement should list the LLC’s members, how much each one has invested, how any profits will be distributed, and how much relative weight each member has when voting. It can be amended or repealed as specified in the agreement itself or by state law.

The operating agreement can also include requirements for meetings (notice, quorum, voting rules, etc.) and similar functions, but it doesn’t have to. Often, however, it does include operating constraints and allowances that are already contained in state law and regulations. It also may contain constraints on the members’ authority to change or repeal the operating agreement or any provision thereof.

Membership in the LLC

A Tennessee LLC must have at least one member, who may be a natural person or a business entity. Members may acquire an interest in the LLC either in proportion to their contribution or in some other way that is in accordance with the LLC’s operating agreement or articles of organization.

The contributions of a member to the LLC may consist of cash, property, services rendered, or a binding obligation (such as a promissory note) to make these kinds of contributions in the future.

An LLC member may not resign except in accordance with the operating agreement or articles of organization, or his or her resignation is considered “wrongful.” If a member resigns or withdraws wrongfully, that member forfeits governance rights in the continued operation or the termination process of the LLC. The withdrawing member is only entitled to receive the lesser of the fair market value or the original contribution of the member's interest—but if the LLC terminates, the member is entitled to receive his or her distribution. In either case, the member is entitled to his distribution or interest within six months of withdrawal, and the member is liable to the LLC and all its remaining members for any damages caused by the wrongful withdrawal.

Tennessee has an unusual statutory structure and naming convention for LLC management. As in other states, Tennessee state law allows for management of the LLC by all members. However, member-managed (and other) LLCs are expected to fill at least two “manager”: positions (which must be held by two separate individuals): a chief manager and a secretary. In reality, these are officer—not manager—positions.

The chief manager functions as LLC president and is responsible for insuring that management orders are executed—a common CEO day-to-day responsibility. The secretary is charged with maintaining the records of the LLC—again, a typical officer job.

The person(s) who can be chosen instead of the members to manage the LLC are not called managers, but “governors,” who are selected to serve on the board of governors.

Most smaller LLCs opt for member management.

Ongoing Requirements

All board-governed Tennessee LLCs must keep the following types of records open and available for inspection at its main office:

• Names and addresses of the chief manager, secretary, and all members and governors
• Names and addresses of each assignee of financial rights, and a description of the rights assigned for each
• A copy of the articles of organization and any amendments
• A copy of the operating agreement and any agreements about membership interests
• Copies of the LLC’s federal, state, and local income tax returns for the past three years
• The LLC’s financial statements and accounting records
• Records of all members proceedings (if any)
• Any written consents or agreements from members
• Records of all board of governor proceedings for the past three years
• A list of all contributions, who gave them, and their consensus value
• The LLC’s most recent annual report to the Tennessee Secretary of State

If the LLC is member-managed, the same records are required as if the LLC is board-governed, except for those items relating to governors. The member-managed LLC must also keep available financial information about the status of the business and the LLC’s financial condition.

Dissolution

A Tennessee LLC is dissolved when any one of the following events occurs:

• When the time for expiration specified in the articles of organization arrives
• By agreement of the organizers or members as laid out in the articles of organization or operating agreement
• An event specified in the articles of organization or operating agreement
• A court order mandating dissolution
• Action by the Tennessee Secretary of State
• Withdrawal by a member
• A merger in which the LLC is not the surviving organization

The LLC may prevent dissolution when a member leaves the LLC if, within 90 days, there is at least one remaining member, and the remaining member(s) agree to continue the business by a majority vote or a percentage provided in the articles of organization.

Taxes

An LLC by its nature offers some specific advantages over a corporation’s organizational structure, especially when it comes to taxes. This includes access to more deductions, since the LLC is not required to be a separate tax entity like a corporation. Instead, it is considered a “pass-through” entity for tax purposes, meaning that LLC owners report business profits and losses on their individual tax returns.

The Tennessee individual income tax rate is six percent of eligible income.

Charter

Before it can legitimately commence operations in the state, a new Tennessee corporation must file a charter (usually known as articles of incorporation in other states) with the Business Services Division of the Tennessee Department of State. The charter must be executed (signed) and delivered by at least one incorporator—who must be a natural person of legal age—and accompanied by a filing fee of $100. The following information must be included in the charter:

• The name and address of each incorporator
• The number of shares the corporation is authorized to issue
• The street address (including county) of the corporation's initial registered office
• The name of the corporation’s initial registered agent there
• The street address of the corporation’s initial principal office
• A statement that the corporation is for profit
• Any other stock information that must be disclosed under Tennessee law

Tennessee also permits optional provisions to be integrated into the charter, such as:

• The names and addresses of the initial directors
• The corporate purpose(s)
• Provisions for regulating the powers of the corporation, its board of directors, and shareholders
• Provisions for managing the business and regulating the affairs of the corporation
• Limitations on a director's or officer's liability for money damages to the corporation or its shareholders in certain situations

Tennessee law also requires that a copy of the charter is filed in the Office of the Register of Deeds in the county where the corporation’s principal office is located.

Registered Agent and Office

Every Tennessee corporation must have a registered agent in the state—the person or office designated to receive official state correspondence, both administrative and legal. The registered agent is required to sign the articles of incorporation, indicating acceptance of the appointment as registered agent.

The registered agent must be either a Tennessee resident whose business office is the same as the registered office, or a corporation authorized to conduct business in the Volunteer State that has a business office identical to the registered office.

Bylaws

Bylaws lay out the corporation’s basic managerial and legal operating principles that manage their internal affairs. Tennessee corporations must keep a copy of their bylaws at their principal executive office, but are not required to file them with the state. At its initial meeting, the incorporators or the board of directors should adopt corporate bylaws, and then keep them updated as time goes on.

The board of directors of a corporation may adopt, amend, or repeal bylaws, unless the articles reserve this right to the shareholders. Bylaws normally address:

• Shareholders and directors meetings
• The authority, number, and tenure of directors
• Voting procedures
• The duties, responsibilities, and tenure of officers
• How stock is issued
• How and when annual financial information is provided to shareholders

Directors and Officers

A corporation’s board of directors consists of one or more individuals in accordance with the corporate charter or bylaws. The number of directors may be increased or decreased by amending the charter or the bylaws.

Officers are listed in the initial bylaws or elected by the board of directors, and may appoint other officers in accordance with the bylaws. There must be at least a president and a secretary. At least one officer has the responsibility of preparing minutes of director and shareholder meetings, and for maintaining and authenticating corporate records.

An officer may hold more than one office in the corporation (except for the offices of president and secretary) unless otherwise prohibited by law or by the corporation’s bylaws.

Required Reports

Your corporation must file a report with the Tennessee Secretary of State each year by the first day of the fourth month after the close of its fiscal year. The report must state:

• The corporation's name and where it was incorporated
• The street address of the corporation’s registered office, including county
• The name of the corporation’s registered agent there
• The street address of the corporation’s principal office
• The names and addresses of the corporation’s directors and principal officers
• The federal employer identification number (FEIN) of the corporation, or its corporation control number as assigned by the secretary of state.

The corporation must, within four months after fiscal year-end, mail its shareholders a financial report. The corporation must also report in writing to shareholders about any expenses advanced to a director or any authorized or issued promissory notes or shares.

Taxes

Tennessee's corporate tax structure consists of a flat rate of 6.5 percent on all corporate income. Among states levying corporate income taxes, Tennessee's rate ranks 30th highest nationally.

Tennessee corporations are subject to an annual excise tax and a franchise tax. The minimum annual franchise tax is $100.

“S corporation” status is recognized by the Tennessee Secretary of State. A “subchapter S” corporation (frequently referred to as an “S corp”) is treated as a pass-through entity for tax purposes in the same way as a sole proprietorship or partnership. The S corp does not file a tax return on its own behalf; instead, all tax-related data for the S corp is filed as part of the owner’s individual income tax.