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2022 Guide to Starting an LLC in Tennessee

Tennessee LLC Quick Facts

Tennessee LLC Costs

Initial Cost:
– State LLC Filing Fee: $300 (minimum)

 

Recurring Cost:
– Annual Report Filing Fee: $300 (minimum)

Tennessee LLC Processing Time

– Filing Online: Immediate
– Filing by Mail: 5-7 business days

Not sure about filing an LLC yourself?

Want an LLC, but not sure about filing the paperwork yourself? Let Zenbusiness, IncFile, or IncAuthority help guide you through the LLC formation process, so you know everything was done right.

IncFile and IncAuthority are both currently running a special where you only pay state fees for your LLC formation!

Overview

Guide to Starting an LLC in Tennessee

This guide will provide you with all of the information you need to start a Limited Liability Company (LLC) in Tennessee. The process is relatively simple, and with a little guidance, you can have your LLC up and running in no time. We will walk you through the steps involved in setting up your LLC, from initial filing to ongoing maintenance. So, let’s get started!

What is an LLC?

An LLC is a popular business structure for small businesses and startups. LLCs are easy and inexpensive to set up, and they offer their owner’s limited personal liability for the debts and obligations of the business. In addition, LLCs can choose to be taxed as either a corporation or a partnership, providing even more flexibility.

Unlike a sole proprietorship or partnership where the small business owner can be personally liable for lawsuits against the business, the LLC is a separate legal structure, protecting the business owner’s personal assets.

Besides the liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.

Related: Guide to starting a business in Tennessee

Steps to Form a Tennessee LLC

If you’re thinking of starting a small business, an LLC may be the perfect choice for you. Below we break down the steps to complete the Tennessee LLC formation process.

Total Time: 10 minutes

Step 1: Choose a Name for the LLC

The first step in forming a Tennessee Limited Liability Company is to make sure the name you want is available.  

It’s critical to do a name search before registering an LLC name, as the name of each LLC must be distinguishable from other entity names registered in the state of Tennessee. The Tennessee Secretary of State makes it easy to search and verify if your LLC name is available.  Here is more information on how to do a Tennessee LLC name search. If the name of your LLC is being used and the current name registrant provides written consent for you to use that name, you would still be able to use it.

In addition to the name being unique, the entity designator (identifier used at the end of the business name) must be either:
– Limited Liability Company
– L.L.C.
– LLC

A comma may be used after the business name and before the designator.  “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are both acceptable.

If there is a name you want to use but aren’t ready to form the LLC, the Application for Reservation of Name (Form ss-4228) can be filed to hold the name for up to 4 months. The state filing fee for a name reservation is $20, paid to the Secretary of State.

Before settling on an LLC name, you may want to do a domain name (also called a URL) search to try to find one that matches your business name.

Step 2: Appoint a Tennessee Registered Agent

Tennessee Code § 48-208-101 requires that every LLC in Tennessee have a Registered Agent. A Registered Agent will act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.

The basic requirements to be a Registered Agent in Tennessee include:
– The agent must be a Tennessee resident at least 18 years of age or a commercial Registered Agent service with a registered office in the state.
– The agent must have a physical address in the state (PO Boxes aren’t allowed).
– The agent must generally be available during normal business hours at the address provided to receive service of process.

Learn more about the requirements for a Registered Agent in Tennessee.

If you are going to use a commercial Registered Agent service, be sure to have their SOS Control Number before filing the Articles of Organization (Step 3).

Any individual meeting the requirements can be the agent; however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially those working from home or still employed.  Hiring a commercial Registered Agent service like Northwest Registered Agent will help keep the owner’s names from being listed on the state’s website.

Step 3: File the Tennessee Articles of Organization

The paperwork to officially create an LLC in Tennessee is called the Articles of Organization. To submit the paperwork, either file online through the Tennessee Secretary of State’s website or fill out and mail the Articles of Organization (Form SS-4270).

Related: How to fill out the Tennessee Articles of Organization

There can be some confusion when filling out the Articles of Organization for the first time. Let’s go over a few of these sections to help get your LLC started right.

Formation Locale
– Domestic Tennessee Business – A “Domestic LLC” is one that originates and is based in Tennessee. Most filers select Domestic LLC.
– Foreign Business – If the LLC was originally formed in another state and wants to do business in Tennessee, select “Foreign Business.”

Business Type – This is an optional section for the Series LLC designation.  A Series LLC provides liability protection across multiple asset groups or businesses, each of which would be protected from liabilities from the other series. The Series LLC is not a common choice and is more commonly used with real estate investment companies.

Period of Duration – In this section, you can indicate how long the LLC intends to remain in existence.  Most LLCs will choose a Perpetual duration; however, some businesses (usually investment-related) will have a specific closure date.

Fiscal Year Close – Select the last month of the fiscal year for the LLC.  Most LLCs will choose December.  Single-Member LLCs and LLCs taxed as a partnership will automatically choose December.

Delayed Effective Date – Leave this field blank if you want the LLC to start immediately.  If you want the LLC to start on a later date, enter a date less than 90 days in the future.  The main reason for delaying the LLC start date is when the filing is made close to the end of a calendar year, and the business isn’t going to have any activity until the start of the year.  You can eliminate the need to file a partial-year business tax return by delaying the start date until the following year.

Management Structure – This section asks if the LLC is Director-Managed, Member-Managed, or Manager-Managed.
– Director-Managed LLCs have a board of directors that have the power to make decisions for the business.
– Member-Managed LLCs have an active involvement in the management and have the authority to act on behalf of the LLC.
– Manager-Managed LLCs are hired by the members to run the LLC, similar to a CEO of a corporation.  This is generally used when there are passive members in the LLC, and the members do not actively manage or operate in the affairs of the business.

Most LLCs are member-managed.

Related: What is the Difference Between a Member-Managed LLC and Manager Managed LLC?

Obligated Member Entity – This is an optional section.  An OME is exempt from the Tennessee franchise and excise tax but is offered no liability protection, which is one of the major benefits of having an LLC.  If you are considering this selection, be sure to consider the legal aspects.

Principal Office Address -In this section, enter the street address, city, state, and zip code of the initial principal office.  This address can be the LLC’s physical address, or it can be the address where the business records are stored.  You may not use a PO Box for the designated office.

Mailing Address – If correspondence from the Secretary of State should go to a different address from the Principal Office, enter that information in this section. 

Estimated Cost: 300 USD

Consider using an LLC formation service like Zenbusiness, IncAuthority, Northwest, or IncFile to guide you through the LLC formation process, so you know everything was done right.

IncAuthority and IncFile are currently running a special where you only pay state fees for your LLC formation and they do the rest!

You have a Tennessee LLC! Now what??

Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.

Prepare a Tennessee LLC Operating Agreement

The operating agreement is a document that governs the framework of an LLC.  This document covers items like ownership rights, LLC member responsibilities, how profits and losses are distributed, and more.

Limited Liability Companies are not required to have an operating agreement in Tennessee, but it is still worth considering. Without an operating agreement:

  • The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
  • Member’s personal liability protection may be diminished.
  • Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.

Related: Tennessee operating agreement template

Obtain an EIN

The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, or Federal Tax Identification Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, build business credit, register for business licenses and permits, file federal and state taxes, and more.

There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.

Related: How to Apply for an EIN

Elect the LLC’s Form of Federal Income Taxation

One of the significant benefits of the Limited Liability Company is the tax flexibility it provides.  When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:

  • Sole proprietorship
  • Partnership
  • C-corporation
  • S-corporation

While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.

Related: How can an LLC be taxed?

By default, the taxation of an LLC is called pass-through taxation, which means the profits or losses of the LLC flow through to the members.

Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can also elect to change the taxation to a C-corporation or an S-corporation.

Multi-member LLCs will, by default, be taxed as a partnership. The members can also elect to change the taxation to a C-corporation or an S-corporation.

In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership is that the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership.  As a result, the owner will pay self-employment taxes on all business profits.  As an alternative, electing to be taxed as a corporation requires that the members will need to take a reasonable salary and then pay payroll taxes.  Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.

Before electing how your LLC will be taxed, consider talking with an accountant to assess which one will be best for you. Some tax elections, such as the C corporation, may be detrimental for some people due to double taxation.

Open an LLC Bank Account

Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.

Several documents will be needed to open a business bank account, such as:

  • A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
  • Copies of the original LLC formation paperwork from the state showing the creation of the LLC.
  • Driver’s licenses of the members.
  • Occasionally, the bank will request a Tennessee Certificate of Good Standing to prove the LLC is active and in good standing with the state.

Related: How to Open a Business Bank Account for your LLC

Apply for Business Licenses and Permits

In addition to forming the LLC, there will likely be various business licenses and permits needed before starting the business. Some common registrations include:

  • Business License – Most businesses in Tennessee (even home-based businesses occasionally) need to purchase an annual business license with the County Clerk in the county where the business is located. A license may also need to be possibly purchased through the Municipal Clerk if the business is located within city limits.
  • Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed. Licensed professionals going into business and offering a professional service have the option of forming a Professional Limited Liability Company (sometimes referred to as a PLLC or Professional LLC), which allows them more options in naming their LLC. The steps for forming a PLLC are similar to the LLC.
  • Sales Tax Permit – In order to sell products and certain services, registration for a sales tax permit with the Tennessee Department of Revenue will be necessary.

Related: What Business Licenses are Needed in Tennessee?

File the Annual Report

A Tennessee Limited Liability Company is required to file an annual report with the Tennessee Secretary of State.  The annual report updates ownership information and other details.

The annual report is due by the first day of the fourth month of the LLC’s fiscal year.  Most LLCs will use a calendar fiscal year which means the report is due on April 1st.

Related: How to File a Tennessee LLC Annual Report

Pay the Franchise Tax

All LLCs will be assessed an annual franchise tax. The franchise tax isn’t a tax on franchised businesses like McDonald’s, however, it is a tax on the privilege of doing business in the state. The tax is based on the entity’s net worth or the value of real and tangible property in the state (whichever is greater), with a minimum tax of $100.

Common Questions To Starting An LLC In Tennessee

How much does it cost to start an LLC in Tennessee?

The state filing fee to start an LLC in Tennessee is a minimum of $300 for 1-6 members. Each additional member will increase the filing fee by $50.

How long does it take to start an LLC in Tennessee?

LLCs formed online are processed immediately, while mailed in forms can take 5-7 business days.

How much does it cost to maintain an LLC in Tennessee?

Each year, Tennessee LLCs will file an annual report and pay the minimum $300 annual filing fee to the Tennessee Secretary of State.

Where do you check if your Tennessee LLC name is available?

Checking whether your desired Limited Liability Company name is available in Tennessee is an important part of the process of forming a limited liability company in the state. You can search for LLCs by name on the website of the Tennessee Secretary of State.

The search function allows you to see if there are any businesses with a similar or identical name to the one you have chosen. If there are, you may need to choose a different name for your LLC.

Can you be your own Registered Agent in Tennessee?

Yes! Anyone can act as a registered agent, provided they are at least 18 years old, reside in the state of Tennessee, and are generally available to receive documents during normal business hours.

If I have an LLC, is a business license required?

It’s sometimes thought that the LLC and business license are the same, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business. A business license is an approval from a government entity to legally operate.

Can you use a PO Box for your LLC in Tennessee?

A PO Box can only be used as a mailing address for the LLC. A physical street address in Tennessee must be used for the Registered Office and Registered Agent.

Related: Why can’t you use a PO Box for an LLC?

What is a Foreign Limited Liability Company?

A foreign LLC isn’t a special type of LLC. Instead, it’s an LLC that was formed in another state that wants to physically operate in Tennessee. Physically operating means having a presence, such as having an office or hiring an employee.

Related: What is a foreign LLC?

What is a Professional Limited Liability Company?

Businesses that require occupational licensing in Tennessee, such as accountants, architects, veterinarians, etc., will have the option of filing for a Professional Limited Liability Company (PLLC) instead of an LLC. Filing for a PLLC is very similar to that of an LLC.

Related: What is a Professional Limited Liability Company?

Is an LLC the same as a corporation?

The LLC is one of four main types of business entities. You can learn more about each here:
What is a sole proprietorship?
What is a general partnership?
How to form a Tennessee corporation

Should you use a formation service, hire an attorney or do it yourself?

Following our guide, most people will be able to form an LLC on their own, however, LLC formation services like IncFile and IncAuthority will guide you through the process and guarantee it’s done right – and it doesn’t cost any extra to do so!

If you have the budget, hiring an attorney will typically be the best choice as they will take many factors into account, such as your personal situation and industry, and make sure the business is protected.

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