Article III · Knoxville, TN
Corporate governance
Governance is the set of rules that answers one question: when the owners disagree, what happens? Companies rarely fail because the governance documents were imperfect. They fail because nobody read them until the disagreement had already started, and by then the rules were whatever someone had filed years earlier without much thought.
We write and repair the governing documents of closely held Tennessee companies — bylaws, operating agreements, shareholder and member agreements, board and committee charters, and the buy-sell provisions that determine what an exiting owner is paid and how that number is calculated.
We also handle the unglamorous maintenance that decides whether your liability protection holds up: keeping minutes and consents current, documenting decisions that require owner approval, and maintaining accurate ownership ledgers. When a buyer, lender, or opposing lawyer eventually examines your records, that history is either there or it is not, and it cannot be created retroactively.
Deadlock: the most preventable way a company dies
Two owners, fifty percent each, no tie-breaker. It is the most common ownership structure among small companies and the most dangerous, because it feels like the fair arrangement right up until the moment it becomes a trap.
The damage is not that one owner wins. It is that nobody can act. The company cannot approve a budget, hire, borrow, sell, or in some cases even authorize its own tax filings. Meanwhile the business continues to need decisions daily. What remains is a negotiated buyout under duress, or a court proceeding for judicial dissolution — slow, public, expensive, and rarely producing a result either owner would have chosen.
Every mechanism that prevents this has to be agreed before there is a dispute, because each one visibly favors somebody once a specific conflict exists.
- Odd-numbered board or neutral tie-breaker
- A third director, sometimes an outside professional both owners trust, who votes only when the two principals are split. Simple and effective, but requires genuinely agreeing on the person.
- Shotgun (buy-sell) clause
- One owner names a price; the other must either buy at that price or sell at it. Self-policing, because naming an unfair number is dangerous. Works badly where one owner clearly lacks the capital to buy.
- Escalation then mediation
- A defined sequence — a cooling-off period, then mediation, then binding arbitration — before anyone may seek dissolution. Slower but preserves the relationship more often than a forced sale.
- Unequal split by design
- The simplest answer, and often the right one: 51/49, or 50/50 economics with control assigned to one owner. Uncomfortable to negotiate at the start, considerably less uncomfortable than the alternative.
Buy-sell terms: agreeing the number before it matters
An owner will eventually leave. They will retire, die, become disabled, divorce, go bankrupt, get bought out, or simply want out. The only question is whether the terms were decided while everyone was still cooperating.
A departing owner and a remaining owner will never independently arrive at the same valuation. The departing owner sees the years they contributed and the company’s upside; the remaining owner sees the work still ahead and the risk they are carrying alone. Both are arguing sincerely. Without an agreed method there is no neutral fact to settle it.
A workable buy-sell provision specifies what triggers a purchase obligation, how the price is determined, and — the part most often left out — where the money comes from. A valuation formula with no funding mechanism produces an obligation the company cannot meet. Life insurance on the owners is the usual answer for death; installment payment terms over a defined period handle most of the rest.
Any reasonable valuation method works. A multiple of earnings, an independent appraisal on a set schedule, or a fixed price the owners revisit annually are all defensible. What fails is silence.
Corporate records, and why the boring part matters
Minutes, consents, and ownership ledgers are the first thing owners stop maintaining and among the first things a buyer’s lawyer asks for. The gap between those two facts causes real problems.
The records serve two purposes. First, they are meaningful evidence that the entity is genuinely separate from its owners — the separation that stands between a business creditor and your personal assets. A company that never documented a single decision has weakened the protection it formed the entity to obtain.
Second, they get examined. In any sale, financing, or investment, someone will ask to see the governing documents, the ownership ledger, and the consents authorizing significant past decisions. Reconstructing eight years of missing records under a diligence deadline is expensive and occasionally impossible, and gaps invite price reductions or escrow holdbacks.
The maintenance required by a small company is genuinely modest — an annual consent, documentation of major decisions, and a ledger updated whenever ownership changes. The cost of keeping it current is a fraction of the cost of rebuilding it.
When the company has outgrown its documents
Most governance work we do is not drafting from scratch. It is repair: a company formed by three friends now has eleven employees, an outside investor, a line of credit, and an operating agreement that describes none of it.
The signs are consistent. Decisions get made by whoever is available rather than by whoever has authority. Equity has been promised in conversations that were never documented. The ownership ledger, if one exists, no longer matches what people believe they own. Nobody is certain what vote is required to approve a large purchase.
None of this is urgent, which is exactly why it persists — until a bank, a buyer, a regulator, or a departing owner makes it urgent all at once. Bringing the documents back in line with reality is far cheaper as maintenance than as an emergency.
Scope
What this covers
- Bylaws and operating agreements
- The core governing document drafted or rewritten around your real ownership structure, voting thresholds, and the way decisions actually get made in practice.
- Owner and shareholder agreements
- Transfer restrictions, rights of first refusal, drag-along and tag-along terms, and the treatment of an owner who departs, dies, or divorces.
- Buy-sell provisions
- A defined valuation method and funding mechanism agreed in advance, so an exit is arithmetic rather than a negotiation between people who have stopped cooperating.
- Deadlock resolution
- Tie-breaking procedures for evenly split ownership — the failure mode that most often ends a two-owner company.
- Board and officer structure
- Clear allocation of authority: which decisions an officer may make alone, which require the board, and which require the owners.
- Corporate records and minutes
- Annual consents, meeting minutes, and ownership ledgers maintained so the record is clean when it is examined in diligence.
How it runs
What working together looks like
- 01
Call
Who owns what, how decisions are made now, and what prompted the question. Often the prompt is a specific event — an investor, a departure, a sale — which shapes everything else.
- 02
Document review
We read what actually exists: charter, bylaws or operating agreement, any owner agreements, the ledger, and the consent history. Frequently the first useful output is telling you what your current documents say, because nobody has read them recently.
- 03
Gap analysis
A written summary of where the documents and reality diverge, and which gaps carry real risk versus which are cosmetic.
- 04
Owner terms
The negotiation among owners on control, transfers, exits, valuation, and deadlock. The substance of the engagement.
- 05
Drafting and adoption
Amended or restated documents, adopted at the correct approval threshold, with the consents that make the adoption itself valid.
- 06
Records reset
A clean, current ownership ledger and a maintenance calendar so the documents do not drift out of date again.
Failure modes
What usually goes wrong
- Fifty-fifty with no tie-breaker
- The single most consequential governance error. It does not decide disputes; it guarantees paralysis when one occurs.
- Never reading the operating agreement after signing it
- Owners routinely discover during a dispute that the document says something quite different from what they remember agreeing to.
- Promising equity in conversation
- An undocumented promise of ownership becomes a real claim once the company has value, and the parties rarely remember the terms the same way.
- No valuation method for an exit
- Leaving the number to be agreed later means agreeing it at the exact moment the parties are least able to agree on anything.
- A ledger that no longer matches reality
- Once issuances, transfers, and repurchases stop being recorded, nobody can say with certainty who owns the company — which stops a sale outright.
- Ignoring what happens on death or divorce
- Without transfer restrictions, an owner’s interest can pass to a spouse, an heir, or a bankruptcy estate — leaving you with a co-owner you did not choose.
Fit
You probably need this if
If more than one of these is true, the call is worth the twenty minutes. If none of them are, we will tell you that too.
- Two owners hold fifty percent each and there is no tie-breaker
- Your bylaws or operating agreement have not been read since formation
- An owner wants to exit and there is no agreed way to value their stake
- You have issued equity without updating the ownership ledger
- You are bringing on a board member or outside investor
- Your company has grown well past the structure it was formed with
- A buyer or lender has asked for corporate records you cannot produce
Questions
Corporate Governance: common questions
What is the difference between bylaws and an operating agreement?
They serve the same function for different entity types. Bylaws govern a corporation and sit alongside the charter, directors, officers, and shareholders. An operating agreement governs an LLC and is typically far more flexible, because Tennessee’s LLC statute lets members structure management and economics largely as they choose. The practical difference is that an LLC operating agreement carries more weight, since fewer defaults are supplied for you.
What happens if two fifty-fifty owners cannot agree?
Without a tie-breaking mechanism, very little can happen at all — and that paralysis is itself the damage. The company cannot act, and the remaining paths are a negotiated buyout or a court proceeding for dissolution, both slow and expensive. This is preventable with a provision drafted while the owners still get along: a neutral tie-breaking director, a buy-sell trigger, or a defined shotgun clause.
Do I really need to keep minutes for a small company?
Yes, and it matters more for small companies than large ones. The corporate record is a meaningful part of what shows the entity is separate from its owners, which is what stands between a business creditor and your personal assets. It also gets examined closely in any sale or financing. Reconstructing years of missing records under diligence deadlines is far more painful than keeping them as you go.
How should we value an owner’s interest when they leave?
Decide the method before anyone leaves, and write it down. Common approaches are an agreed formula tied to earnings or revenue, an independent appraisal on a defined schedule, or a fixed price the owners revisit annually. Any of these is workable; what fails is silence, because a departing owner and a remaining owner will never independently arrive at the same number.
Can we amend our operating agreement after the fact?
Yes, subject to whatever amendment threshold the current agreement specifies — typically majority or unanimous consent of the members. The practical constraint is timing. Amendments are straightforward while everyone is aligned and nearly impossible once a dispute has begun, because by then each owner can see exactly who a given change would favor.
What is a buy-sell agreement and do we need one?
It is the set of provisions governing what happens to an owner’s interest when they leave — voluntarily, or through death, disability, divorce, or bankruptcy. It can sit inside the operating agreement or stand alone. If your company has more than one owner, you need one. The absence of it is what converts an ordinary departure into a dispute about what the departing owner is owed.
Can an LLC have a board of directors?
Yes. Tennessee’s LLC statute is permissive enough that you can build a board-like structure into an operating agreement — a manager-managed LLC with a board of managers is common, particularly once outside investors are involved. You get most of the governance structure of a corporation while keeping the LLC’s tax and distribution flexibility.
What happens to an owner’s interest if they die?
Absent transfer restrictions, the interest generally passes through the owner’s estate to their heirs, which can leave you in business with a spouse or child who has no involvement in the company and no interest in running it. This is what transfer restrictions and buy-sell provisions exist to prevent: they typically give the company or the remaining owners the right or the obligation to purchase the interest at a predetermined price.
Related work
- I
Business Formation
Choosing and standing up the right structure — LLC, partnership, or corporation — so the entity holds up when it matters.
- IV
Mergers & Sales
Guiding the legal steps when you buy, sell, or combine companies — from letter of intent through closing.
- V
Compliance
Making sure the business meets its obligations under local, state, and federal law — before someone else checks.
Where we do this work
Next step
Tell us what you're building.
A short call is enough to tell you whether this is work we should be doing for you, what it is likely to involve, and what it will cost. No obligation, and no charge for the conversation.