Tennessee LLC governance: a membership interest split in two, and why that split runs the whole company

Most states treat a membership interest as one thing that bundles control and money together, with a “transferable interest” carved out for creditors. Tennessee is more explicit. Its LLC act formally splits a membership interest into two separate kinds of property: governance rights, the power to vote and manage, and financial rights, the right to distributions. The two can be transferred independently, and someone who holds only financial rights is not a member at all, but a defined status, a “holder of financial rights,” who owes no duties to anyone. Once you see that split, the rest of Tennessee’s LLC law falls into place, because nearly every important provision is really a rule about which of the two rights it is talking about.

That design is the thing to understand about Tennessee governance, and this page leads with it rather than re-teaching the general default mechanics on the site’s default rules guide. The split decides who runs the company, who gets paid, what a creditor can take, and why a single-member LLC is uniquely exposed.

The split that runs everything

Start with the two-part interest, because every other rule refers back to it.

A Tennessee membership interest is governance rights plus financial rights, and the two are separate property that can move independently.

Under T.C.A. § 48-249-102 and the transfer provisions that follow, a Tennessee LLC interest is made of governance rights, the voting and management power, and financial rights, the economic entitlement to distributions. A member can transfer financial rights to someone while keeping governance rights, and the recipient becomes a “holder of financial rights,” a person who gets the money but has no vote, no management role, and, by statute, no fiduciary duties to the company or the other members. That is the same structure that makes the charging order work, on the protection page: a creditor reaches only the debtor’s financial rights and ends up a holder of financial rights, entitled to distributions and nothing else. The split is not an abstraction. It is the mechanism the whole act uses to separate control from money.

It is also why a single-member LLC is exposed.

Because a single member can freely transfer governance rights, the split that protects a multi-member LLC is exactly what leaves a solo owner unprotected.

In a multi-member LLC, transferring governance rights to admit a new member requires the other members’ consent, which is what keeps a creditor or an outsider from gaining control. In a single-member LLC there are no other members, and Tennessee’s statute lets the sole member transfer governance rights freely. So the same governance-rights concept that protects the multi-member company, control cannot pass without consent, becomes the vulnerability in the single-member one, because there is no one whose consent is required. The governance page and the protection page are describing the same rule from two directions.

The three ways to manage

On top of the split, Tennessee gives an unusually wide choice of management structure.

A Tennessee LLC can be member-managed, manager-managed, or director-managed by a board, and the choice is made in the articles.

Under T.C.A. § 48-249-401, a Tennessee LLC picks one of three structures: member-managed, where the members run it; manager-managed, where designated managers do; or director-managed, where a board of directors governs like a corporation’s board, with officers running operations. The choice is designated in the articles of organization, a public document, so a Tennessee LLC’s basic governance shape is on the public record. The director-managed option suits a larger venture that wants corporate-style centralized governance while keeping LLC tax treatment. Whichever structure the company picks, it is holders of governance rights who exercise the control, which brings the analysis back to the split.

The duties, defined narrowly

Tennessee sets fiduciary duties, then draws them tightly and leaves a member room to act in self-interest.

Tennessee limits a member’s fiduciary duties to loyalty and care, and a member does not breach merely by furthering the member’s own interest.

Under T.C.A. § 48-249-403, the only fiduciary duties a member of a member-managed LLC owes are the duty of loyalty, accounting for company profits and opportunities and refraining from adverse dealing, and the duty of care, along with the obligation of good faith and fair dealing. The statute then adds a safe harbor: a member does not violate a duty simply by furthering the member’s own interest. A holder of financial rights, having no governance role, owes no duties at all. The LLC documents can tailor these duties further, though the obligation of good faith and fair dealing survives. The result is a fairly contractarian regime where duties are narrowly defined and self-interest is expressly permitted, so a passive investor relying on a fiduciary floor should confirm what the documents actually preserve.

The decisions members keep

Even in a manager- or director-managed LLC, Tennessee reserves certain decisions to the members.

Some fundamental actions require member approval no matter who manages the company, including using the company’s property to buy out a charged interest.

Under T.C.A. § 48-249-401, several decisions stay with the members even when managers or a board run the company: amending the operating agreement when no method is specified, amending the articles, admitting a new member, and using the LLC’s property to redeem an interest subject to a charging order. That last one connects governance back to creditor protection, because it means the company cannot unilaterally spend its assets to buy off a member’s creditor without the members’ say. Amending the operating agreement defaults to unanimous consent when the documents do not set another method, so a majority owner cannot rewrite the deal alone. The through-line is the split again: these reserved powers are held by the governance-rights holders, and the operating agreement is where a company decides how those powers are shared.

The bottom line

Tennessee splits a membership interest into governance rights and financial rights, separate property that can transfer independently, under T.C.A. § 48-249-102.

A holder of only financial rights is not a member and owes no duties, which is the mechanism behind the charging order and the reason a creditor is limited to distributions.

The same split explains the single-member exposure, because a sole member can transfer governance rights freely while a multi-member LLC cannot without consent.

A Tennessee LLC can be member-managed, manager-managed, or director-managed by a board, chosen in the articles.

Fiduciary duties are limited to loyalty and care, a member may further the member’s own interest without breaching, and several fundamental decisions stay with the members regardless of who manages.

What this page does not cover

This page is about the rules that run your company from the inside. How outside creditors reach a member’s interest, the exclusive charging order, and the strong entireties shield are on the protection page. The franchise and excise tax, the family and obligated-member exemptions, and the series LLC are on the structure and cost page. The per-member filing fees and the April deadline are on the filing page.

Last verified August 2026.