How to Start an LLC in Tennessee
Tennessee is commonly called the Volunteer State, but the state relies on a large network of small businesses to keep its economy running. With no state taxes, a very low cost of living, and a central location in the South make Tennessee a top choice for small business owners who are forming an LLC. If you are looking to join this community of entrepreneurs, formally starting your LLC is a simple process. To launch this type of business, follow this step-by-step guide.
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Many business owners choose an LLC as their business structure for tax benefits and personal asset protection, but another benefit is the simple process to form a business. With some preparation, you can have an LLC established very quickly and begin operations with little bureaucracy.
Name your LLC
Have a name in mind? See if it’s already listed in the state’s business directory. If the name comes up in a search, it’s taken. If it doesn’t, it’s yours to claim.
While you may have brainstormed names for your business or even chosen one, before you fully commit, it is important to understand Tennessee’s rules surrounding business names. Any name you choose must meet the following requirements:
- The name must be distinguishable from all other business names in Tennessee. The state provides a business name search to help you check on name availability.
- The name must include a designator that shows the company is an LLC. This can be the full term “limited liability company” or an abbreviation like “LLC” or “L.L.C.” You cannot use any designators that reference a corporation.
- Names cannot suggest the business has an illegal purpose or is a government agency. It also cannot suggest the business has a purpose other than its registered one.
- Some words and phrases require written approval from the state, like “bank” or “insurance.”
Once you identify a name that meets all these requirements and is right for your business, you can do one of two things. If you are ready to file for your LLC, doing so will ensure you can use your chosen name and no one else can. Otherwise, it is a good idea to reserve your business name through the state’s application. For a $20 filing fee, you can prevent others from using the name for four months.
Additional naming considerations
The state’s rules on naming LLCs will be the most important to consider, but there are other things to think about as a business owner. Potential customers will likely use search engines to find you, so understanding what results from your name brings up is important. If you notice other businesses with the same name or that your planned URL is taken, it may be worth considering whether this can cause confusion. Similarly, checking for available social media handles is a good way to determine if a name fits your needs.
Name reservation is possible. You can reserve a business name in Tennessee for four months.
Select a registered agent
Part of filing for your LLC includes naming a registered agent to serve as the point of contact between your LLC and the state. If any legal documents, service of process, or other correspondence is sent to your business, the registered agent is responsible for receiving the document and ensuring it is passed along properly.
A registered agent can be either an individual or a business entity, so long as they have a physical address within Tennessee that can be used for correspondence. Part of being named registered agent also means that there is availability during normal business hours to receive mail. This address cannot be a P.O. box.
Any of the following can be a registered agent:
- An individual over 18 who lives in Tennessee at the registered office address. They can be affiliated with the LLC or not.
- A domestic corporation whose business office is the same as the registered office.
- A foreign corporation authorized to transact business in Tennessee at the registered office.
Some business owners will choose a registered agent service to ensure that availability is always met and there is no risk of missing a notice.
File Articles of Organization
Before you can officially say you have an LLC in Tennessee, you must submit Articles of Organization to the Secretary of State and have them approved. This involves providing important information about your business, like the name and registered agent, and filing the information either by mail, hand delivery, or online.
The information you will need to provide on Articles of Organization is the following:
- The name of your LLC
- Name and complete mailing address of your registered agent and registered office
- The closing month of your fiscal year
- An effective date for the document if it is not immediate (up to 90 days in the future)
- Management structure of the LLC
- Period of duration if it is not perpetual
- Physical street address of the LLC
- Email address for the business
- Name and signature of each LLC organizer
Once this has been approved, your LLC officially exists in Tennessee. It will also be searchable in the public record at this time.
You can fill out and submit your LLC formation documents here.
The cost to form an LLC in Tennessee varies based on the number of members in the LLC. The cost is technically $50 per member, but there is a minimum of $307 no matter the number of members. There is also a maximum of $3,000.
Tennessee processing time
Filing the Articles of Organization and receiving approval has a 24-hour turnaround time when completed online, and an expected timeframe of 3 to 5 business days when done by mail.
Create an LLC operating agreement
Though it is not legally required by state laws, every LLC owner should take the steps to protect their business operations by establishing an operating agreement during formation. These documents help to set clear expectations for the business’s daily operations, as well as make decisions simpler. As an additional benefit, an operating agreement can also help to solidify your business as a legal entity and protect your personal assets if they are put into question.
While you can include anything you’d like in an operating agreement, there are a lot of free templates online to help you cover the most important topics. Even in a single-member LLC where these may feel redundant, addressing them will offer a legal formality that could be beneficial later.
The primary topics covered in an operating agreement are:
- Management structure: In addition to information about the business and its members, this should cover whether the company is member-managed, manager-managed, or a single-member LLC.
- Decisions: You should always specify if an LLC will be managed by members or appointed managers. In addition, spell out who is responsible for making what decisions and when a vote will be called. In the case of a vote, specify how votes are allocated and what constitutes winning the vote.
- Capital: This should address how much each member invested in the business already, as well as how more funds will be raised in the future.
- Distributions: Profits and losses will need to be divided among the members. While this is typically done evenly, you can specify another arrangement.
- Changes to membership: Cover the scenarios of a member leaving the company or even passing away, as well as how a new member can be added.
- Dissolution: If the business ends at any point, the agreement should cover what dissolution looks like in terms of responsibilities and asset division.
Operating agreements are internal documents, so once yours is completed, you can keep copies on hand without filing them anywhere.
Having an LLC established with the state of Tennessee is the first and most important step to being a business owner. However, you will also need to comply with a number of other requirements, both before beginning operations and on a recurring basis.
Get your EIN
The Internal Revenue Service is responsible for collecting and tracking all federal taxes, for both individuals and businesses. For individuals, this is done using your Social Security Number, a unique nine-digit number that is tied to your record as a taxpayer. Businesses are issued a similar number called an Employer Identification Number, or EIN.
EINs are free to obtain, but you must apply for them through the IRS. The majority of businesses are required to do this before any taxes can be filed, with an exception of businesses that have no employees and no excise tax obligations. But even if your LLC doesn’t require an EIN, it is useful to have.
One of the best reasons to have an EIN is that banks often require them before you can open business accounts. Additionally, anytime you need to provide a tax ID, a business with no EIN would use the owner’s personal Social Security Number. Sharing this information can put your personal identity at risk, and EINs are less sensitive.
You can get your EIN by visiting the IRS website.
Get Tennessee business licenses
While Tennessee manages most business activity at the state level, that is not the only licensing jurisdiction you will need to pay attention to when starting your LLC. Along with state-level permits, both the local and the federal government have their own requirements surrounding licenses and permits.
For the state of Tennessee, the main state-level license is the sales tax certificate. This license, often known as a seller’s permit, is meant to register you for Tennessee business and sales tax. Any business in Tennessee that intends to sell or lease taxable goods and services will need to obtain this license through the Department of Revenue. There is a $15 fee to apply, and renewal happens automatically when you file and pay business taxes each year.
The other potential state licensing will apply to professions or industries regulated by the state. Similarly, if an activity is regulated by the federal government, there is licensing that is required at that level.
Each local government within Tennessee can also have its own set of mandates around business licensing. For example, most cities in Tennessee have their own business tax that each LLC must pay and therefore register for within that jurisdiction. It is important to contact the local government office where your business is located to understand all licenses you are responsible for obtaining.
Open business bank accounts
When planning for potential issues with an LLC, one thing on every business owner’s mind is piercing the corporate veil. This happens when it is found that a business is not being operated as a separate financial entity from its owners and the owners then become responsible for business financial obligations. In essence, this removes the personal liability protection from an LLC and puts your assets at risk.
The easiest way for this to happen is to share a bank account between your personal expenses and your business. Instead, a separate checking account should be in place for your business to demonstrate that it is its own financial entity. This also makes accounting simpler in the long term.
Along with the simplicity and protection of a business checking account, you can also open credit cards in your business’s name and build a credit score for the LLC.
Review LLC tax rules in Tennessee
Any LLC in the country is eligible to be treated as a pass-through entity when it comes to taxes. This means that rather than paying corporate taxes at a higher rate, LLCs can claim profits on the member’s personal income tax. While this is also true in Tennessee, the state imposes some additional taxes on LLCs, like a franchise tax and excise tax.
Both the franchise and excise tax will be paid through the state Department of Revenue. The franchise tax is calculated as a small percentage of the business’s net worth, while the excise tax represents a percentage of net earnings from all businesses done in Tennessee. Even if an LLC is taxed as a corporation, these taxes would apply.
File an annual report
Regardless of tax election, all LLCs are required to submit an annual report to Tennessee, either by mail or online. The annual report, known as a Statement of Information in other states, is due by the first day of the fourth month following the close of your LLC’s fiscal year. For example, if your fiscal year ends on December 31st, your annual report would be due by April 1st. There is a filing fee of $50 per member, with a minimum of $300 and a maximum of $3,000.
Filing an annual report keeps your company in good standing.
Get insurance for your LLC
Since you have no doubt invested a lot of time and money into your LLC, it makes sense that you want to protect the business. Having insurance to do this is not a requirement, but can give you peace of mind and allow you to focus on daily operations without worrying about what would happen in the worst case scenario.
Most LLCs opt for general liability insurance, which is a broad policy aimed at protection from lawsuits. Things like property damage caused by an employee or a customer being injured on your property are common examples of claims under general liability insurance.
If you are a professional service provider, it is also common to have professional liability insurance. Also called errors and omission coverage, this insurance covers claims of malpractice or errors done in the line of business.
Insurance can also protect your employees. In fact, Tennessee does mandate workers’ compensation insurance for some businesses. If a business has five or more employees, including LLC members, it must have this coverage.
Additional resources to help you set up a business in Tennessee
Tennessee’s Secretary of State’s office has a division dedicated specifically to managing and supporting small businesses, including LLCs. This Division of Business Services offers a number of resources on the state website to make the process simple and transparent.
- Next Steps for New Businesses
- Tennessee Smart Start Guide for new businesses.
- Contact information for the division itself.
What taxes do LLC startups pay in Tennessee?
An LLC’s profits are most often passed through to the members of the LLC and treated like income on their personal tax returns. However, Tennessee charges both franchise taxes (based on a business’s net worth) and excise taxes (based on profit) to LLCs in the state. Additionally, they may be responsible for employment, sales tax, and federal taxes.
How much does an LLC cost in Tennessee?
The fee to file Articles of Organization and form an LLC in Tennessee is dependent on the number of members. For 1 to 6 members, the fee is $307. Each additional member is another $50, with a cap of $3,000 total.
When are annual reports due in Tennessee?
Each LLC in Tennessee will be able to designate the end of its own fiscal year. Annual reports are then due on the first of the month which is four months after that fiscal year ends. So if the fiscal year ends on June 30th, the annual report would be due October 1st.
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