How to Form a Tennessee LLC

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Tennessee LLC Quick Facts

Tennessee LLC Costs

Initial LLC Filing Fee – $300 minimum (varies by the number of members)

 

Recurring State Fee: Annual Report – $300 minimum (varies by the number of members)

LLC Processing Time

Online: Immediate

 

By Mail: 5-7 business days

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Quick Reference

The Limited Liability Company (LLC) is a popular entity structure for businesses starting in the state of Tennessee.  The LLC provides personal liability protection and has the potential to save money on taxes. With our step-by-step guide, you can learn how to form an LLC in Tennessee without an attorney.

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.

Related: How Does an LLC Protect You?

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.

Costs to form a Tennessee LLC

To form a Limited Liability Company in Tennessee, file the Tennessee LLC Articles of Organization with the Tennessee Secretary of State.  The minimum state fee for forming an LLC in Tennessee is $300 for 1-6 members and $50 per member after the first six, with a maximum fee of $3,000.

Approval for the LLC is made instantly when filing online and typically take 5-7 business days when filing by mail. Expedited service is not available to speed up the mailed-in forms.

If you have questions, contact the Tennessee Secretary of State.
615-741-2286
Email – tnsos.corpinfo@tn.gov
Website – sos.tn.gov/contacts

Guide to Forming an LLC in Tennessee

Step 1: Create an Account

The steps for filing online or by mail are largely the same.  The screenshots show how to file online.

Forming an LLC can be both affordable and is something most people can do themselves. Entity formation companies like IncFile or IncAuthority help guide you through the process and make sure there are no mistakes.

Related: Should you use a Formation Service, Hire an Attorney or Do it Yourself?

How to Form an LLC in Tennessee

  • Next, select in the “Business Entity Type” field, select “Limited Liability Company.”
  • You will also have to check the box and agree to the statement, “I attest that

Form an LLC in Tennessee

Step 2: Name the LLC

Business Entity Name – Enter the name you want for the LLC.  The LLC’s name has to be different from other entity names registered with the Secretary of State.  You can check on available LLC names in Tennessee before going through the filing process to be sure the one you want is available.

The name of the LLC must also include a designator at the end of the business name and describes what type of business entity it is. The available words and abbreviations include:

  • 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.

You won’t know if the name you want is available through this screen until clicking on “Continue”  If the name you want is taken, a message pops up saying it isn’t available.  If you are able to move to the next section, it is available.

Before settling on a name, you may want to do a domain name (also called a URL) search to match your business name and website address.

Step 3: Formation Locale

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

Step 4: 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.

Tennessee LLC Name Registration

Enter the name along with the designator you would like to use and click on “Check Name Availability”  A new page will open, indicating whether the name is available or not.  Even if the search comes back with the name is available, the Secretary of State’s office will also review it to ensure it isn’t being used by someone else or that it is too similar to another name.

Step 5: 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.

Step 6: 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.

Step 7: Delayed Effective Date

If you want the LLC to start immediately, leave this field blank.  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 being done close to the end of a calendar year, and the business isn’t going to have any activity until the start of the year.  By delaying until the following year, they will reduce the number of end-of-year filings.

Step 8: 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?

Enter the number of managers and confirm the number.

Step 9: Obligated Member Entity

This is an optional section.  An OME is exempt from 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.

Step 10: Other Provisions

This is an optional section and not used by most LLCs.  Here you would include additional rules for the operation of the LLC.

Tennessee LLC Business Entity Properties

Step 11: Registered Agent

To have an LLC in Tennessee, a Registered Agent must be identified.  The Registered Agent can either be the LLC representing itself (select the checkbox for “This business entity will represent itself”), a resident of Tennessee (Select “Individual”), or a Registered Agent service (Select “Organization”) who is registered with the Secretary of State (you must have their SOS Control Number before filing).  The agent must have a physical street address in the state (Post Office Boxes are not allowed), be available during normal business hours, and act as a central point of contact for service of process to receive legal documents, tax notices, summons, subpoenas, etc. on behalf of the LLC.

You are not required to pay for a registered agent. 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 when doing business from their personal residence or are still employed and don’t want their employer to find out.  Hiring a company like Northwest Registered Agent to be the Registered Agent will reduce unwanted phone calls and mailings.

You can also select to use the address for the Registered Agent as the Principal Office.  If you are using a Registered Agent service, first check that they allow receiving mail as many don’t or will charge extra.

Tennessee LLC Registered Agent

Step 12: LLC Address

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.  If the address is the same as the Principal Office, click on the “Use this address as the Mailing Address also” box to copy the Principal Office address.

Tennessee LLC Principal Office

Step 13: Confirmation

Review that all the information is correct.  If there are no corrections, continue.

Step 14: Signature

Have an individual forming the LLC to sign and check the “I certify” check box.  Click the “Continue” button to save the information and proceed.

Step 15: Pay and File

Pay and file the Articles of Organization.

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Tasks After Forming Your LLC

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, 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 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 allows the members 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 and possibly with 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 is 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?

Get Business Insurance

Even with the liability protection of the LLC, business insurance is important to protect the business. The most common types of insurance include:

General Liability Insurance – covers damages owed and medical expenses for accidents that happen at your place of business.
Business Property Insurance – replaces damaged, stolen, or lost business property. This includes your physical business location, equipment, supplies, and anything else you used to run your business.
Business Vehicle Insurance – covers company vehicles and may also include coverage for personal vehicles used for business-related activities. Many personal policies won’t cover your vehicle if there is an accident while being used for business purposes.
Workers Compensation Insurance – mandatory in most states if you have employees, this insurance covers medical expenses that occur because of an accident or injury that happens to one of your employees while they’re at work.

Related: 7 Types of Insurance Your Business May Need

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 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 McDonalds, 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.