Why Form an LLC in Tennesse?
Forming your business as a Limited Liability Company (LLC) in the United States wreaths it with many benefits that the status of a conventional corporation, sole proprietorship and partnership cannot individually offer as an LLC possesses a unique hybrid make-up that merges the defining features of these traditional business structures with one another.
To illustrate, an LLC offers the flexibility of sole proprietorships and partnerships as it is free from most of the formalities and paperwork necessitated with corporations, and yet it also provides the limited liability inherent to a corporation, offering liability protection to you and your personal assets if you are faced with a lawsuit. Its hybrid structure also crucially bestows upon you your taxation of choice.
Anyone can form an LLC in the United States – even foreign citizens and companies. However, the requirements to start an LLC varies slightly from state to state.
In this article, we will be looking at how to start an LLC in the state of Tennessee. The Volunteer State has been rewarded for its sacrifices, it now owns one of the strongest economic climates in the country. Over 54,000 LLCs are present within the state and 12,000 more are birthed each year.
Its rapid growth could be traced back to how easy it is to start a business there. Not only does it impose low tax burdens, Tennessee ranks 2nd in terms of cost of living.
How to Form an LLC in Tennessee?
STEP 1: Name of the LLC
How to start an LLC in Tennessee? First and foremost, you must name your LLC in your formation documents. You would have to pick a unique name for your LLC that complies with Tennesee’s naming requirements:
- The name must contain either the words “Limited Liability Company” or one of its abbreviations, “LLC.” or “L.L.C.”
- The name cannot insinuate that it is a business entity other than an LLC.
- The name cannot contain words that may associate the LLC with a government agency.
- The name cannot contain prohibited words, if it contains restricted words it would need to go through additional paperwork and it may necessitate a licensed person whose profession respectively correlates to those restricted words being a part of the LLC.
- The name must be unique, distinguishable from the names of pre-existing business entities in Tennessee. In order to determine if the exact name you have envisioned is available, you may browse through the business name database on the Tennessee Secretary of State website.
You may reserve the name you have envisioned for 4 months by filing an Application for Reservation of Limited Liability Company Name with the Tennessee Secretary of State. The reservation may be filed through this page on the Secretary of State website or through mailing the printed out form to the Tennessee Secretary of State office. The filing fee would be $20 for either routes.
You should also check if your LLC’s name is available as a web domain name. You may preemptively buy the URL in order to ensure that the web domain name matches your LLC’s name.
Though you are not required to register a “doing business as”, a “DBA” for your LLC in Tennessee, you may want to do so if you intend on operating under a name other than your LLC’s filed legal name in the Articles of Organization. This is achieved by filing the necessary forms online or by mailing the filled out Application for Registration of Assumed Name form to the Tennessee Secretary of State office.
STEP 2: Appointment of Registered Agent
You are required by Tennessee’s state laws to appoint a Registered Agent for your LLC in Tennessee while filling out your formation documents.
A Registered Agent is a company or person that serves as the LLC’s point of contact with the state, collecting tax forms, notices from the Tennessee Secretary of State, and even legal papers from litigation on the LLC’s behalf. The agent also keeps the Tennessee LLC afloat by making sure all of the required documentation is up to date and accurate.
One of the requirements of being a Registered Agent in Tennessee is that the agent must either be a resident of Tennessee or a corporation present within the state with authorised Commercial Registered Agent services.
The agent must have a physical street address within Tennessee, the state where the business of the LLC is to be conducted and where the documents are to be sent. Additionally, the agent must always be available during business hours to receive a Service of Process when necessary.
Anyone within the Tennessee LLC who is over the age of 18 and has a physical address could suffice, even friends and family who satisfies all the above could also suffice. You could also appoint yourself as the agent if need be, as the business owner you are not barred from having a dual position.
Nevertheless, though it will cost you some additional expenses, it is suggested that you hire a professional Registered Agent service as it greatly cuts down the risks of mistakes that a mere amateurish individual would make, therefore avoiding the accumulation of even more expenses over time. This suggestion is especially relevant if you yourself or your acquaintances do not have a physical address within the state.
The service provides you with the luxury of privacy whereby the service’s address will be listed in public records instead of yours, moreover, if you do get into a lawsuit, the service will immediately and discretely inform you, allowing you to avoid being served those documents in public. It will also shoulder the burden of being up to date with the necessary legal documents and free up your schedule as it is no longer a necessity to be on-site at all business hours.
You may nominate your agent via the Tennessee Secretary of State website while you are filing your formation documents or by mailing a physical copy of the Articles Organization with your agent’s information filled up in section 4 to the Tennessee Secretary of State office.
It is also possible to change your nominated Registered Agent, you could not do this online, as such, you would need to personally submit the printed out Change of Registered Agent/Office form to their office or mail it there instead. A signed consent form from your agent may be required, depending on whom it is.
Registered Agent services in Tennessee includes:
- Northwest Registered Agent
- Tennessee Registered Agent, LLC
STEP 3: Filing the formation documents
An LLC in Tennessee may be formed once the Articles of Organization is filed and mailed to the Tennessee Secretary of State office.
Alternatively, you could also form your LLC in Tennessee by opting for the more convenient route of filing the form online through the Tennessee Secretary of State website. It is as easy as clicking on the “Limited Liability Company” dropdown and proceeding from there.
Regardless of the available routes chosen, the Articles of Organization must include these necessary details of the Tennessee LLC:
- Name Consent if the name chosen is similar to a preexisting business;
- Office Address;
- Formation Date;
- Organizer’s Details;
- Registered Agent’s Name;
- Registered Agent’s Address;
- Management Structure;
- End of Fiscal Year;
- Checkboxes concerning specific details of the LLC; and
- The signature of a member, organizer or authorised person.
How the filing fee is determined is relatively unique when compared to other states. It would cost $50 a member to form your LLC in Tennessee. That being said, a minimum payment of $300 would be required even if you have less than 6 members in your Tennessee LLC. If you have more than 6 members then your fees would increase to $350 and so on. The maximum payment that could be demanded is capped at $3000.
Before you file the Articles of Organization, do ensure that you have reviewed it thoroughly to affirm that there are no mistakes made, these mistakes could carry on and even affect the business if they are as glaring as a misspelling of the name of the LLC.
Once the Articles of Organization is submitted and approved, usually within 5 to 7 days if transacted by mail or instantaneously if transacted through the virtual route, you would receive an Acknowledgement Letter and a stamped and approved copy of the Articles of Organization which could all be either physical or digital depending on the method chosen when filing the forms.
STEP 4: Register the Business for Tax Requirements
Depending on the trade and location your Tennessee LLC is in, you may need to apply for business licences or permits after forming it. The licences in question could be sourced from the Alcoholic Beverage Commission to the Department of Health depending on your business.
Other than specific state-issued licenses, most licenses are provided at a local level, through specific county offices. This is especially the case for small businesses. In order to ascertain the exact licenses you may be mandated to possess you could contact your county office and make an inquiry whereby they would direct you accordingly.
With an idea of what local business licenses your LLC in Tennessee should possess, you may now search them up on the Tennessee Department of Economic & Community Development website for information on the laws pertaining to them and more detailed instructions on how to procure them, it could even take you to the specific agency in charge of the exact license you want.
For professional licenses, do contact the Department of Commerce & Insurance instead as they oversee most licensing boards for professional trades and occupations.
Depending on the trade your Tennessee LLC is in and how the company is run, you might be required to file for one or more forms of state tax. The Tennessee Department of Revenue website will assist you in locating and applying for the correct tax forms.
STEP 5: Prepare an Operating Agreement
Albeit of the fact that having an Operating Agreement is not compulsory within the state of Tennessee in order for an LLC to function, it still highly suggested that you prepare an Operating Agreement for your business anyway as it plays a vital part in determining the dynamics within the LLC and how it is run.
An Operating Agreement is a foundational legal document that establishes who owns the LLC and how much of it they own. It is a comprehensive internal document that also serves as the core of the business by listing out a multitude of crucial information in order to reduce future conflicts. Tennesse’s LLC Law would only affect the internal affairs of the Tennessee LLC in the absence of an Operating Agreement.
The Tennessee LLC Act allows LLC members to configure their capital investments as well as their profit and loss shares through an Operating Agreement as per Section 304. LLC Members are hence allowed to expand or tighten their income from the company according to their will if it is contained in the Operating Agreement.
Amongst the most important structural support an Operating Agreement provides to an LLC that you should have within your own version are:
- Its organization of how the ownership of the LLC is divided as mentioned above.
- The verdict on whether the LLC would be managed by managers or by multiple members and if the latter case occurs, how the voting powers are divided amongst the members.
- Records of the capital contributions that each member had invested in the LLC.
- The calculation of how the profits and losses of the LLC are to be divided amongst the members. The most regular route entails that the profits and losses are to be divided equally.
- The regulation of how members are introduced into the LLC and how members could leave the LLC.
- The outlines for a potential dissolution in the scenario where the members of the LLC have decided that the business should cease to exist.
Moreover, the Operating Agreement serves the fundamental role of preserving your shield of limited liability by aiding you in proving that your LLC truly does stand as itself, a separate legal entity from you.
STEP 6: Obtain an EIN
An EIN, or “Employer Identification Number” could be seen as a 9-digit “social security number” that is assigned by the Internal Revenue Service (IRS) to a business in order for the IRS to clearly identify it for tax and filing purposes. The EIN may also be referred to as the Federal Employer Identification Number (FEIN) or a Federal Tax ID Number, nevertheless, they are just different names as they are essentially the exact same thing as an EIN.
It is required for you to obtain an EIN from the IRS for your LLC if you:
- Own an LLC that has more than one member, even if there are no employees hired.
- Intend on hiring employees for your LLC.
- Intend on filing and managing Federal and State taxes.
- Intend on opening a bank account for your LLC.
- Intend on having the LLC taxed as a corporation.
- Intend on applying for specific business licenses that would require it.
Additionally, an EIN also serves the functions of maintaining the shield of limited liability as it once again enforces that your LLC exists as a separate legal entity and strengthening your position against identity theft as it is less probable that someone could intrude into your accounts when you separate your personal and business finances.
Evidently, due to the wide ambit it covers, an EIN is functionally compulsory for your business to run. The only way for you to justifiably refuse to obtain an EIN is if your LLC has only one member, no employees and its business structure is akin and taxed like a sole proprietorship.
Getting an EIN is also the stage where you are offered to pick one of the variations of taxation options available to an LLC. As mentioned above, most would pick a “pass-through” taxation option, the default, however, if you wish for the LLC to be taxed as an S Corporation or even a C Corporation you could file certain forms to do so once you have obtained your LLC’s EIN.
You could obtain an EIN by applying for it through the IRS website or by physically mailing it to the IRS with a “Form SS-4”, Application for EIN. No filing fee will be charged.
There are no filing fees necessitated for obtaining an EIN.
STEP 7: Annual Report for Annual Renewal
Finally, once you have done all the groundworks to start an LLC in Tennessee, you will have to ensure that its upkeep goes swellingly as well. It would be distressing to watch all the work poured into the Tennessee LLC go to waste just after a year and just because of inadequate maintenance of paperwork.
Like many other states, the Tennessee Secretary of State dictates that all LLCs within it must file an Annual Report as a means to renew their applications and remain in compliance and good standing with the state laws. As indicated by the name, this report must be filed once every year – without fail.
You must file an Annual Report to the Secretary of State by the very 1st day of the 4th month after your LLC’s fiscal year closing, no later. To illustrate, if your LLC’s fiscal year closes at the end of the calendar year, December 31st, your Annual Report must be filed by April 1st every year.
It is recommended that your fiscal year should correlate to that of the whole calendar year for simplicity’s sake.
If you want to file an Annual Report virtually, it could be done through the Tennessee Secretary of State website. Mailing in the Annual Report is an alternative, fill out the form as if you intend on filing it online, then print out the form and mail it to the Tennessee Secretary of State office instead.
The Secretary of State also imposes the payment rules set on the filing of its formation documents onto the Annual Reports as well. It bears repeating that it would cost $50 a member to renew your LLC in Tennessee.
Reminiscently, minimum payment of $300 would be required even if you have less than 6 members in your Tennessee LLC. If you have more than 6 members then your fees would increase to $350 and so on. The maximum payment that could be demanded by the Secretary of State is capped at $3000.
The content of an Annual Report must include just a few details, namely:
- The name and address of the LLC;
- The name and address of the registered agent;
- The name and address of the chief manager; and
- The file number of the LLC.
If you do not file your Annual Report by 2 months after the yearly deadline, your Tennessee LLC would be administratively dissolved. No late fees are charged.
Additional Information on Starting an LLC in Tennesse
With all the above carried out, your Tennessee LLC would be up and running and hopefully flourishing. They are the compulsory components that you would have to perform for your business to even begin and continue on as an LLC in Tennessee.
Nevertheless, there are additional considerations that you may want to weigh your options on in order for your Tennessee LLC to succeed even further:
Opening a Bank Account
If you possess an EIN you could open up a bank account for your LLC in Tennessee which is highly suggested for the smooth sailing of your business. The bank account need not be in the same state as the LLC.
A business bank account will ease transactions with other businesses in the United States and crucially, maintain your personal liability protection. Allowing your own personal bank account to be involved with the business could lead to confusions concerning what assets belong to who. This would lead to personal liability issues and consequently, damage done to your personal assets.
Knowing which Taxation Variant you are opting for
The principal utility of an LLC is that it provides you with your taxation of choice at a federal level. As an Tennessee LLC you could choose to be taxed as either a:
- Sole Proprietorship, if the business is a single-member LLC;
- Partnership, if the business is a multi-member LLC; or
- Corporation (either S Corporation or C Corporation).
Most companies will fall into the default, the former two on the list, which is what they prefer as the LLC will be treated as a “pass-through” entity, allowing you to be taxed directly and as such, avoid double taxation. They are considered the main tax benefit of having an LLC as you are allowed to operate like a company without its burdening taxations.
Opting to be taxed as an S Corporation would also allow you to avoid double taxation, however, the IRS imposes certain restrictions to limit the kind of businesses that could choose an S Corporation status. The LLC would need less than 100 allowable shareholders and have only one class of stock.
Opting to be taxed as a C Corporation would incur double taxation upon you, however, the upside to it is that you are allowed to have an unlimited amount of shareholders.
To change your LLC from the tax default of a Sole Proprietorship or Partnership, you need to file Form 8832 and Form 2553 with the IRS to be taxed as a C Corporation and an S Corporation respectively.
Deciding if the LLC should be Member-managed or Manager-managed
If the LLC is rather small and the members are on board with managing the day to day operations of the business then the LLC could pursue a “member-managed” structure. If the LLC is rather large with copious amounts of members and the majority of them are not keen on running the day to day operations of the business, then the LLC could pursue a “centralized management” system and focus its organizational roles onto one or more managers selected.
List of Necessary Addresses for the purposes of setting up the LLC
Tennessee Secretary of State Office Address:
6th floor – Snodgrass Tower
Attn: Corporate Filing
312 Rosa L. Parks Ave.
Nashville, TN 37243
Internal Revenue Service Mailing Address:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Frequently Asked Questions on Forming an LLC in Tennessee
How much does it cost to start an LLC in Tennessee?
In order to first form your LLC in Tennessee you would have to spend around $300 to $3,000 for the formation fee of your LLC. A renewal fee of $300 to $3000 has to be made every year to keep your LLC in good standing with the state as well. These are the sole compulsory payments demanded by the state, the rest would depend on the personal characteristics of your Tennessee LLC.
Can a foreign LLC conduct its business in Tennessee?
Yes, a foreign LLC may. However, all foreign LLCs are required to register with the Tennessee Secretary of State prior to doing so. This could be done only through mail, submit an Application for Certificate of Authority.
Do keep in mind that you would also need a Registered Agent present within the state of Tennessee itself. The filing fee would range from $300 to $3000 depending on how many members your LLC has.
Can a professional LLC be formed in Tennessee?
Yes, a professional LLC may. However, professional LLCs in Tennessee were required to go through a more thorough and stringent application process before they could ever come into existence. To illustrate, some of the additional requirements include professional state licenses for the LLC itself and a professional licensed status for the owners themselves.
What is the minimum wage for workers in Tennessee and are there any regulations on how often I would have to pay them?
The minimum wage in Tennessee is $7.25 per hour. Tennessee mandates that employees are to be paid their wages at least twice a month.
Starting a business correctly doesn’t have to be difficult. With over 15 years of experience consulting new businesses and start ups, Matthew is probably the best person to help you set a strong foundation for your business.