Are you looking to form a limited liability company (LLC) in Tennessee, but you’re not sure how the process works? There are several important steps to create a compliant Tennessee LLC that can do business in the state.
To get started, please reference our 6-step guide below or hire an affordable online LLC formation service.
Guru Tip: If you want help setting up an LLC, we recommend the LLC filing service ZenBusiness. It has excellent pricing, features and company values.
What is a Tennessee LLC?
The Tennessee LLC is one of the most popular business structures in the state. It’s a more casual and flexible type of business than a corporation, but includes the personal asset protection that’s lacking from sole proprietorships and general partnerships.
LLCs in Tennessee have simple formation and maintenance requirements, several options for how they can be taxed, and flexible management. From one-person businesses to multi-member LLCs with several owners, the LLC is a popular choice for a reason.
Setting up a brand-new Tennessee LLC in 6 Steps
For the first part of this guide, we’ll cover the 6 essential steps to setting up a Tennessee business that doesn’t have employees yet. These steps also apply to businesses with employees, but we’re keeping things streamlined to start. If you do have employees, make sure you complete these steps and the steps for employers (which we’ll cover later in the guide).
Step One: Choose a business name
Your LLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to consider when naming your business.
Legalities
In the state of Tennessee, you’re required by law to meet several requirements for your business name. Here’s a quick glimpse at the rules for LLCs:
- Your name must include the phrase “limited liability company” or the abbreviation “LLC” or “L.L.C.”
- Your name cannot include language that makes it seem as though your business is affiliated with the U.S. government, part of an organization, or similar affiliation (unless you have the authority and/or permission to do so)
- Your name may not imply that you conduct business that is against state law or contrary to the purpose stated in your Articles of Organization
- Your name must be “distinguishable on the records,” or distinct from the names of other state businesses
For more information on naming rules in Tennessee, please consult the Name Section of the Tennessee Limited Liability Company statutes.
Explanatory Naming
Another aspect to consider is including language that explains what your business does ― for example, if you’re starting a coffee shop, put the word “coffee” or “brew” in your LLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.” This helps potential customers know exactly what to expect from your business.
Matching Business Domain
Behind every successful business is a user-friendly website, which means you need a URL. A website is not a legal requirement, but we highly recommend it, and the best URLs match or closely reflect their business’s name.
To register a URL, we recommend GoDaddy. They make it easy to build a website for your company, guaranteeing that no one else can use or take the URL you want.
Once you’ve picked the perfect name for your business, you don’t want to lose it to another aspiring entrepreneur. Thankfully, Tennessee allows you to reserve your business name if you’re not quite ready to register your business. To do that, you’ll need to file the Application for Name Reservation and pay a $20 fee.
Filing this reservation protects your chosen name for your exclusive use for 120 days. You can file the reservation again if you need more time, too. You can learn more about name reservations here.
Step Two: Appoint a Registered Agent
Every LLC in Tennessee is required to designate a registered agent, which is the individual or registered agent service that receives government correspondence on behalf of your business, then forwards those documents to you.
When you appoint a Tennessee registered agent, here are the state requirements to be mindful of:
- Every entity that files with the Secretary of State (both domestic and foreign) must appoint a registered agent
- The agent must be an individual resident of the state OR a business entity with authority to operate in the state
- An agent must be continuously maintained
You can find a full rundown of the state laws here.
Without a registered agent, you could lose your good standing with the state of Tennessee, and the state also has the right to dissolve your LLC if they decide to. In a worst-case scenario, you could miss the alert regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
Guru Tip: We recommend designating an online service to handle these requirements. This eliminates junk mail and keeps your personal and/or business address off public record.
Step Three: File Formation Documents
Once you are ready to form your Tennessee limited liability company, you will fill out the Articles of Organization. You can either do this on your own or hire a Tennessee LLC service. Some services, like ZenBusiness, even offer discounts on their service.
This is THE document that will register your LLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Your chosen business name
- Name use consent and additional designations (if needed)
- Name and address of your initial registered agent
- Month when your fiscal year will close (traditionally December)
- Effective date for the filing (if not immediate)
- Management structure for the LLC
- Number of members when filing
- Duration of the business (usually perpetually)
- Address for your principal office
- Complete mailing address (if different from principal office)
- Designations as a series, professional, or non-profit LLC (if applicable)
- Whether the entity or an individual member will be liable
- Other provisions you wish to include
- Name and signature of individual filing the form
Tennessee’s form is pretty lengthy, but don’t let that overwhelm you! Most of the information requested is pretty basic. There are a couple steps that you might even skip; for example, a lot of LLCs will pass over the sections for series, professional, or non-profit LLC designations.
One important section to look out for is the “Obligated Member” section. This spot allows you to appoint a member to be liable for all the debts of the business, or you can have the entity itself be liable. The latter is what most businesses pick. After all, most people form an LLC for its personal asset protection.
Other than that, simply fill out your requested information, and you’re set to go.
Total cost: $50 per member, with a minimum fee of $300 and a maximum of $3,000
Step Four: Draft an Operating Agreement
After you register an LLC in Tennessee, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for this document in order to open an account. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your Operating Agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your Operating Agreement or create one from a free template online. You can read more about Operating Agreements, but some of the basic information you’ll want to have includes:
- Individual members’ ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the LLC
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death
Step Five: Get Licenses & Permits
Tennessee law requires an LLC to obtain all necessary licenses and permits before starting operations. State law also decrees that an LLC can only provide one specific type of service. All owners of the LLC must be licensed or registered to provide the specific service under which the LLC was assembled.
The type and cost of the permits that your business may require varies depending on the nature of the services your LLC offers. In Tennessee, every business needs to obtain a general business license. Tennessee has two types: the minimal activity license and the standard business license. Businesses with $3,000-$10,000 in gross receipts will need to get the minimal activity license, and others get the standard business license. Fortunately, both license types cost just $15. You’ll register with your local municipality; find out how here.
There’s also a good chance that you will need to obtain an industry-specific license, too. For example, Tennessee requires licenses for cosmetologists, massage therapists, psychologists, and more. You’ll need to research which licenses apply to your business, though; Tennessee’s Regulations Search Tool is a great place to start that search.
Last but not least, you should check with your city or county to see if they maintain any licensure requirements.
Obtain a Business Bank Account
One of the most important aspects of running an LLC is ensuring that your business funds remain separate from your personal finances. And to do that, you’ll need a separate bank account for your business.
Obtaining a business bank account is pretty simple, and you can choose the financial institution you like best. Some banks will ask to review your LLC’s operating agreement, and some also ask to see your EIN (see the Employers section below). Once you have your account, you’ll be able to get checks, make payments using your business card, and so on.
If you failed to get a business bank account, you would technically be blurring the line between your personal accounts and your business accounts. That compromises your personal asset protection.
Next Steps for Newly-Formed LLCs
1. Prepare for tax time
Regardless of how far away April 15th is, it’s never too soon to prepare for tax time and setting up accounting software. As an LLC owner, the exact tax rates you’ll pay depend on the taxation structure you choose for your business. If you choose to be taxed as a corporation, the LLC itself will pay taxes from its own funds. Meanwhile, LLCs taxed as pass-through entities don’t technically pay taxes; its members do. The profits are distributed to the LLCs members, and each member reports that income on Schedule C of their personal taxes.
If you choose to be taxed as a corporation, you’ll pay the following rates:
- Federal: 21%
- State: business excise tax & business franchise tax
Meanwhile, LLCs taxed as pass-through entities pay these rates:
- Federal: 10-37%, rising on a fixed-bracket scale
- State: none
In order to compliantly file and pay your taxes, you’ll fill out a complete copy of federal Form 1065 including all federal K-1s, statements, and attachments. Tennessee has a slightly different structure for its LLC taxes; almost all businesses will be subject to the business excise tax and the business franchise tax. The excise tax acts a lot like an income tax, with a rate of 6.5%. Then there’s the franchise tax (essentially a net worth-based tax), which is a tax of $0.25 for each $100 in worth.
Every business needs to register for taxes with the Tennessee department of revenue. After that, you’ll need to collect and pay the state sales tax if your business is involved in retail sales (7%). And last but not least, some businesses will be subject to miscellaneous taxes and fees; for example, Tennessee has taxes for beer, tobacco, motor fuel, and more. To learn more about these miscellaneous and business taxes, check out the Tennessee Business Tax Guide and the Tennessee Department of Revenue.
Because taxes can be incredibly complicated, we highly recommend consulting with a business attorney or accountant to ensure that you cover all requirements on the state and federal levels.
2. Be ready to file your annual report
All business owners operating in Tennessee must complete an annual report every year. Not only does this prove that your business is still open, but it also keeps the state up-to-date regarding any pertinent information about your business that may have changed over the course of the year.
This document is due every year on the first day of the fourth month after your fiscal year closes. For most LLCs, that’s April 1st. The filing fee is pretty hefty; it mimics the Articles of Organization. You’ll pay $50 per member of the LLC, with a minimum fee of $300. It maxes out at $3,000.
3. Consider business insurance
The big advantage to the LLC is that it offers you personal asset protection. But that doesn’t mean that mishaps won’t happen along the way. We highly recommend obtaining a general liability policy with the right coverage for your business.
In the event of a mishap or natural disaster, an insurance policy can help you navigate unexpected expenses. Be sure to compare your different options to get the best coverage for your particular type of business.
Extra Steps for Businesses with Employees
When you’re operating as a one- or two-person show, operating a business is relatively streamlined. Things get more complicated when you bring employees into the picture, but employees also help raise your business to new heights. But to reach those heights, you need to comply with employee-related legal requirements.
Step One: Address employee-related taxes
Any business with employees must obtain an EIN, or an Employer Identification Number. This is a free registration with the IRS, and the number acts a lot like a social security number for a business. Obtaining the number also lays the groundwork for other taxes, such as social security and withholding taxes. For example, you’re required to withhold income taxes from employee paychecks, make social security and medicare tax payments, and pay unemployment fund taxes. For more information on employer taxes at the federal level, look here.
There are similar taxes on the state level. Tennessee does not have a withholding tax (since there’s no income tax), but they do have the unemployment tax. We recommend consulting the Department of Labor & Workforce Development and the Tennessee Department of Revenue to learn what taxes will apply to you and your business.
Step Two: Obtain additional insurance
Every Tennessee business with employees should obtain a workers’ compensation insurance policy. For more information on this policy, check out the Employer Resources for workers’ compensation pages by the Department of Labor and Workforce Development.
If you haven’t already obtained a general liability policy, we highly recommend that you do so when you bring employees into the business. The more people you have involved in a business, the higher your risk of needing general liability insurance.
Of course, proper care and discretion will eliminate most problems, but incidents happen—from faulty products to an employee slipping and falling and theft and many places in between. And in some cases, insurance can be the difference between a minor hiccup and a budget-breaker.
Step Three: Enlist Help
For some entrepreneurs, part of the fun of running a business is the opportunity to wear lots of different hats: accountant, manager, marketer, quality control expert—it’s a near-endless list. And if your business is still pretty small, you might be able to handle many of these tasks yourself, especially if you’re prepared with a business administration degree.
But if you aren’t (and it certainly isn’t a prerequisite), some of these tasks may leave you feeling overburdened or out of your depth. For instance, navigating employer-related taxes might steal valuable time that you’d rather spend promoting your business or developing a new product. An accountant or tax attorney, however, knows those tasks like the back of their hand. You may decide it’s worth the added expense to enlist their help.
Ultimately, it’s your decision whether to bring in professionals or DIY. But in our opinion, it’s often worth it to get help from specialized pros.