Starting a Limited Liability Company (LLC) in Tennessee can be an exciting venture for any new business owner. This article is designed to walk you through the steps of forming an LLC, from how to name a business to understanding the costs and benefits involved in starting a business as an LLC.
How to start an LLC in Tennessee in 7 steps
01. Pick your business name
When starting a business in Tennessee begin by picking an LLC name that's both creative and legally distinct. Your business name should be unique and must not be the same as or too similar to other names on record with the Tennessee Secretary of State. You'll want to make sure your chosen name ends with "LLC," "L.L.C.," or "Limited Liability Company" to comply with state requirements. Check for domain availability if you plan to also focus on creating a website.
Tip: If you're having trouble coming up with a unique name for your business, you can use a business name generator to help you.
02. Choose your registered agent
Every LLC in Tennessee must have a registered agent, an individual or company that agrees to accept legal papers on behalf of your LLC. Your registered agent must be available during regular business hours and have a physical address in Tennessee.
Need help setting up your LLC? Wix has partnered with LegalZoom, the No. 1 choice for online business formation to help you start, run and grow your business.
03. Obtain state business permits
Depending on the nature of your business, you may need specific permits or licenses to operate legally in Tennessee. These could range from general business licenses to industry-specific permits.
To obtain the necessary permits in order to register your business, follow these steps:
Identify requirements: Check with local and state agencies to determine what precise permits you need.
Complete the applications: Fill out all required paperwork accurately and submit them to the appropriate authorities. This can often be done online or through the mail.
Pay any fees: Be prepared to pay any associated fees for obtaining your permits.
Let’s say you want to start a contractor business in the state. First, you’ll need a contractor license. The requirements for obtaining a contractor license vary depending on the type of construction work you'll be doing. For example, general contractors must pass an exam and meet certain experience requirements, while subcontractors only need to register with the state.
You may also need additional permits or licenses depending on the specific services you will be providing. For example, a plumbing contractor would also need a plumbing license.
Learn more: How to get a business license
04. File Articles of Organization
Articles of Organization is a critical document that officially creates your LLC in Tennessee. You'll file this with the Tennessee Secretary of State, either online or by mail, along with the required filing fee. The process for filing is quite simple. You'll need details like your LLC's name, registered agent information and management structure. Then you need to fill out
Form SS-4270 as this is the specific form used for filing an LLC's Articles of Organization in Tennessee. The final step is paying the $300 filing fee.
05. Draft your LLC operating agreement
While not mandated by law in Tennessee, creating an LLC Operating Agreement is highly recommended. This internal document sets clear expectations for members regarding operations and conflict resolution for your LLC. This is very important for the long term growth and stability of your business.
06. Apply for an EIN and pay relevant taxes
An Employer Identification Number (EIN) is like a social security number for your LLC. It’s necessary for hiring employees, opening bank accounts and filing taxes, amongst other operational and business related needs. The IRS provides free EIN registration through their website or via mail submission.
Once you have your EIN you'll need to learn about state-specific taxes that apply to your LLC, such as franchise tax or sales tax. In Tennessee for an LLC owner this includes a 15.3% self-employment tax (12.4% social security, 2.9% Medicare). For more information, visit the Tennessee Department of Revenue.
07. Organize annual reports
Tennessee requires LLCs to file annual reports to keep their information up-to-date with the state. These reports include current contact information and details about your business operations over the past year. Filing an annual report ensures that your LLC remains in good standing with the state government.
Your Tennessee Annual Report is required each year on or before the first day of the fourth month following the close of the LLC's fiscal year. Make sure to keep track of this each year in order not to miss the deadline. Always maintain accurate records for your LLC throughout the year to simplify report preparation when due dates approach.
Every year you'll need to pay the filing fee. The filing fee is $50 per member, with a minimum fee of $300 and a maximum fee of $3000.
How much does it cost to start an LLC in Tennessee
Starting an LLC in Tennessee involves various costs, which are essential to budget for when planning your business. Here's a breakdown of the expenses you can expect:
Filing fee for Articles of Organization: The state of Tennessee requires a filing fee when you submit your Articles of Organization. This is a one-time cost that is mandatory for all new LLCs. For an LLC it costs $300.
Registered agent fee: If you choose to hire a professional registered agent, they will charge a fee for their services. This fee varies depending on the provider and the level of service offered.
State business permits and licenses: The cost for permits and licenses varies widely depending on the type of business you're starting and the specific regulations that apply to it. It's important to research and factor in these costs early on. You should also factor in the cost of any necessary or mandatory business insurance depending on your industry and the services you offer.
Annual report fee: Tennessee LLCs are required to file an annual report with the Secretary of State, which comes with a filing fee. This is an ongoing cost that must be paid each year.
Tax obligations: Depending on your LLC's structure and business activities, there may be state taxes that apply, such as sales tax or franchise tax. These are not upfront costs but are important to consider for your financial planning.
Who can start an LLC in Tennessee
To form an LLC in Tennessee, there are specific criteria that need to be met. It's crucial to understand who can legally start an LLC in the state before you begin the process for yourself.
Age requirement
You must be at least 18 years old to form an LLC in Tennessee. This age requirement ensures that all members or organizers can legally enter into contracts.
Residency
There's no residency requirement in Tennessee for LLC members. This means that you don't have to live in Tennessee to start an LLC there, which is great news for out-of-state entrepreneurs.
Legal status
Individuals, including non-U.S. citizens and people living outside the country, can form an LLC in Tennessee. However, your legal status may affect your ability to personally work in the business or receive income from it.
Number of members
An LLC in Tennessee can be formed by one person (a single-member LLC) or multiple people (a multi-member LLC). There are no limits on the number of members.
Business purpose
While most types of businesses can be structured as an LLC, certain professional services may require a different business entity type or additional certifications. It's important to verify that your business purpose aligns with the regulations for LLCs.
No criminal restrictions
Generally, having a criminal record does not prevent someone from starting an LLC. However, specific licenses or permits required for your business may have restrictions based on criminal history.
Benefits of starting an LLC in Tennessee
Forming an LLC in Tennessee has a number of benefits that are appealing to business owners. These perks include legal safeguards and tax incentives, making it a popular choice among many entrepreneurs.
Learn more: Benefits of LLC
Limited liability protection
As the name suggests, an LLC provides its members with limited liability. This means your personal assets are typically protected if your business faces lawsuits or debts.
Pass-through taxation
LLCs often benefit from pass-through taxation, where the business income is only taxed once on the members' personal tax returns, avoiding the double taxation that corporations can face.
Fewer operational formalities
LLCs have fewer formalities than other businesses, such as corporations and can be managed by the members or appointed managers, providing flexibility in how the business is run.
Ease of formation and compliance
Compared to other business entities, forming an LLC in Tennessee is relatively simple, with fewer initial paperwork requirements and ongoing compliance obligations.
Credibility with customers and partners
Having 'LLC' after your business name can enhance your credibility with potential customers, suppliers and financial institutions. You can then choose an .llc domain for your website to reinforce this.
Disadvantages of starting an LLC in Tennessee
When you think about setting up an LLC in Tennessee, take the time to carefully assess all the pros and cons. Recognizing these drawbacks will allow you to decide if forming an LLC aligns with your business needs. Here are a few hurdles you might face with starting an LLC in Tennessee:
Self-employment taxes
Members of an LLC may be subject to self-employment taxes on their share of the profits since earnings are considered personal income.
Limited growth potential
If you plan to raise capital by selling stock, an LLC might not be the best choice as it doesn't allow for issuing shares in the same way a corporation does.
Unlike corporations, LLCs are unable to offer stock options, which may make them less attractive to investors. Shylene D’Addario, VP and associate general counsel at LegalZoom
Varied state laws
If you do business in multiple states, you'll need to understand and comply with each state's laws regarding LLCs, which can vary significantly.
Annual fees and reports
Tennessee requires annual reports and fees from LLCs. Failing to meet these requirements can result in penalties or even dissolution of your business.
Why start an LLC over another business entity in Tennessee?
Choosing the right business structure is crucial for all entrepreneurs. In Tennessee, creating an LLC is often the business entity of choice due to its unique advantages. But it's important to compare it with other types of business structures to understand why an LLC might be the best choice for you.
Here's how an LLC stacks up against other business entities:
Sole proprietorship: Unlike a sole proprietorship, an LLC provides personal asset protection, separating your personal liabilities from those of your business. This provides some protection for your own assets, such as your home.
Partnership: An LLC offers more protection for each member compared to a partnership, where each partner can be personally liable for the debts of the business.
Corporation: While corporations also provide limited liability protection, they’re also subject to double taxation (taxes on both corporate profits and shareholder dividends). An LLC avoids this with pass-through taxation.
You've formed your LLC in Tennessee, now what?
Your company's journey to expansion and growth officially begins with the successful formation of your LLC in Tennessee. Then you'll need to think about how to make sure your LLC runs effectively and is in compliance with state rules. Here are some of the next steps you'll need to take in order to do that.
Open a business bank account
Keep your personal and business finances separate by opening a bank account specifically for your LLC. This will simplify accounting and tax filing and help maintain your limited liability protection. Consistent financial management is essential for any business. Set up an accounting system that allows you to track expenses, profits and financial growth accurately.
Obtain necessary insurance
Depending on your type of business, you may need various insurance policies, such as general liability insurance, professional liability insurance, or property insurance to protect your business assets.
Stay informed about industry trends and connect with other business owners in Tennessee. Joining local business groups or chambers of commerce can provide valuable support and opportunities for collaboration.
How to start an LLC in Tennessee FAQ
How long does it take to create an LLC in Tennessee?
The time it takes to form an LLC in Tennessee can vary. If you file online, the process can be completed in a matter of days. Mailed applications may take a few weeks.