A Tennessee entrepreneur may choose to set up a business as a limited liability company (LLC). This type of legal structure gives the owner benefits of the limited liability features that typically come with a corporation as well as the amazing tax perks and flexibility of operations a partnership offers.

GETTING STARTED

Naming the LLC

  • The first and most important step in creating a LLC is to choose a name. In the state of Tennessee, the name of an LLC must contain the words Limited Liability Company or the abbreviation for those words which would be L.L.C. or LLC.
  • In addition, certain words that may result in confusion because they are already being used by Federal or State agencies, such as ‘FBI’, are strictly prohibited. Also prohibited are words such as ‘bank’, which is considered to be a restricted word. Using restricted words requires the LLC to file additional paperwork for approval.
  • Once a name is chosen, a search must be performed to ensure the name is available and is not being used by another Tennessee company or agency. A search can be performed to see if a business name is available in Tennessee.
  • Assuming a website will be designed for the business, it is a good idea to search now to see if the desired URL and domain name is available so that it can be secured.

Select a Registered/ Statutory Agent

  • A registered agent, sometimes referred to as a statutory agent, must be selected for the LLC. A registered agent is an owner or a third-party individual who is designated to accept tax and other legal documents on behalf of a business. Tennessee requires that the registered agent reside in the state or that it be a corporation who is authorized to conduct business in Tennessee.

Filing Articles of Organization

  • It is necessary to file the Articles of Organization for a Tennessee LLC with the Tennessee Secretary of State to officially form a Tennessee LLC. Articles of Organization must include the following:
  • Business Name
  • Name Consent (Written Consent for Use of Indistinguishable Name if applicable)
  • Name and Address of Registered Agent
  • Fiscal Year Close Month
  • Type of Business
  • Number of Members at Date of Filing
  • Principal Office Address
  • Members (Owners)
  • The Articles of Organization must be signed by all members and filed with the Tennessee Department of the Secretary of State. The fee is $50 per member with a total fee minimum of $300 and maximum $3000. These fees are non-refundable.

Create Operating Agreement

  • The state of Tennessee does not require an Operating Agreement to form an LLC.

RUNNING YOUR BUSINESS

Getting Your EIN

  • An EIN is an employee identification number, issued by the Internal Revenue service. Sometimes it is also called a Federal Tax Identification Number. It’s a unique number issued to each business. You’ll need an EIN to open a business bank account; file Federal and State Taxes; and hire employees.
  • Before you get your EIN make sure your new business has been properly formed before applying and be wary of paid sites. EINs are free direct from the IRS.
  • The easiest way is to apply online for an EIN. Note, the IRS website has office hours, and is only available Monday through Friday, 7am to 10pm. Yes, we also agree this is one of the most ridiculous things we’ve ever seen. You can call 1-800-829-4933, between 7am to 7pm of your time zone, Monday to Friday. Snail mail: You can download the form and mail it in.

Keeping Business and Personal Accounts Separate

  • Get a business bank account for your business. This will help you protect your personal assets from potential creditors and lawsuits, and will also make life a lot easier come tax time. 
  • Get a business credit or debit card. This will help you keep your expenses separate and easier to track.

Accounting

  • No matter what business you run, accounting software and processes is a must for any small business. If you have an accountant, ask them which software they work with and recommend. A good accounting system is necessary to track income and expenses, so you can easily see if you’re making money and make filing income taxes so much easier.
  • Always try and find something that will: sync with all of your bank and credit card accounts automatically – not just downloads, but auto sync; auto-match vendors, customers and other accounts; and let you accept credit cards and ACH drafts with ease. This can be applied for online, as can unemployment

Employee Taxes

  • Businesses with employees in Tennessee must register with the IRS as well as the state’s Department of Revenue and set up accounts for Unemployment Insurance Tax. Tennessee State Unemployment Insurance (UI) Taxes are managed by the Department of Labor.
  • Please note there is no State Withholding tax in the State of Tennessee. The business must however register as an employer by filing Form LB-0441with the Tennessee Department of Revenue (TNDOR).

Sales and Use Tax

Franchise Tax

  • Businesses are required to pay a franchise tax in Tennessee. The franchise tax is based on the greater of net worth or tangible personal property owned or used in Tennessee for that tax year. The tax rate is 0.25%.

Excise Tax

  • LLCs in Tennessee are required to pay an Excise Tax. This tax is based on net earnings or income for the tax year and is taxed at a rate of 6.5%.

Insurance

Worker’s Compensation Insurance

  • Worker’s Compensation Insurance is required for all Tennessee LLCs with employees. This state mandated insurance provides coverage for employees who are injured on the job or suffer from a work-related illness or disability.

State General Liability Insurance

  • A Tennessee LLC should obtain General Liability or Commercial Insurance. This protects the business assets and pays any costs for legal claims.

KEEPING YOUR LLC COMPLIANT

  • Every Tennessee LLC must file an Annual Report with the Secretary of State by the first day of the fourth month following the last date of the LLC’s fiscal year. The cost for this annual report is $50 per member with a total fee of a minimum of $300 and a maximum of $3000 and can be filed here with the Secretary of State.
  • If the Report is not received by the date required by the State of Tennessee, they offer a 60-day grace period. However, if the Annual Report is not received within the 60-day grace-period, the State will dissolve and shut down the LLC.

FILING A FOREIGN LLC IN TENNESSEE

  • A foreign LLC is required to file a Certificate of Authority to register with the state of Tennessee if selling goods or services in the state and must collect State Sales Tax. The cost to file is $50 per member with a total minimum fee of $300 and maximum $3000.

ABOUT HOW TO START AN LLC

I'm an entrepreneur myself. When talking to others who want to start their own business, they often get wrapped up in the nitty gritty of paperwork and forming the company. They forget that what really matters is customers, sales, and profit. That's why I created How to Start an LLC.org: a simple resource and guide so you can spend less time on forming your company, and more time on building it.

My lawyers want me to remind you that I'm not a lawyer and that I'm completely unqualified to offer legal advice. This site is meant to serve as a reference for you on your journey. If you have questions or concerns, please contact a qualified lawyer (or accountant) to help you. Also, as a general rule, never take random legal advice on the internet.