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If you are looking to start a business in Tennessee, forming an LLC or limited liability company could be a great option. It is a very popular business entity form for smaller business owners, in particular, as LLCs provide you with liability protection while still giving you the flexibility of being a small business owner. However, you may be overwhelmed with how to start forming an LLC in Tennessee.
In this article, you will find everything you need to know about forming an LLC in Tennessee, including information on choosing a name, registering the LLC, and what to do after forming an LLC.
Step 1: Choose a Name For the LLC
Before starting to file the LLC paperwork, you’ll need to choose a name for your business. The best company names are unique but still easy to pronounce and remember.
In Tennessee, several guidelines need to be met when choosing a name:
- The chosen name must contain the following: Limited Liability Company, or the abbreviation LLC or L.L.C.
- The chosen name must not already be used or registered on the Tennessee Secretary of State’s website. You can use a search tool to check if the name is available.
- The name must not contain any words used to describe or name any government and military institutions. These could include words like FBI, CIA, or Treasury.
If you have chosen a name and want to make sure that it does not get taken by someone else before you file your Articles of Organization, you can reserve that name for up to four months. This is done by filing an Application for Reservation of Limited Liability Company Name (Form SS-9425) for a small fee of $20.
In Tennessee, you can file a second name, known as a DBA (doing business as) or a fictitious name. To do this, you must file an Application for Registration of Assumed Name (Form ss-4230). This can be done online or by mail and costs $20.
Step 2: Choose a Registered Agent
According to state law, every LLC in Tennessee must appoint a registered agent. A registered agent is someone who will be your direct point of contact with the state. They will be legally responsible for accepting official documents, legal mail, and summons on behalf of your business. There are many requirements that need to be met when appointing a registered agent for your business.
Registered agent rules:
- The registered agent must be a resident of Tennessee or belong to an official company authorized to conduct business in the state.
- The registered agent must be on-site and available during regular business hours to receive any mail on the business’s behalf.
- The registered agent must have a physical street address in Tennessee (no PO box).
You can even appoint yourself or another member of the LLC to be the registered agent if you meet the above criteria. However, becoming the appointed registered agent means your name and street address will be put in public records.
Step 3: File the Articles of Organization
Once you have chosen a name and appointed a registered agent, it is time to file the Articles of Organization.
To officially create your LLC, you will need to file Form ss-4270. Unlike most other states that have a set fee for filing the Articles, Tennessee requires each member of the LLC to pay $50 to file the Articles, with the minimum amount being $300 and the maximum $3,000. That means, even if you are a single-member LLC, you will need to pay $300. Conversely, even if you have as many as 100 members, you will simply pay the maximum of $3,000 to file the Articles.
This form can be submitted online or by mail.
The amount must be paid via check made out to the state or money order payable to the state. You can also pay by credit card, but there will be a convenience fee.
Step 4: Receive the Certificate From the State
When the state approves your submission, you will be issued a certificate of approval. This certificate authorizes your LLC to operate in the State of Tennessee and means that your LLC has been officially formed!
Cost to Start an LLC in Tennessee
Before starting an LLC, it is a good idea to research the costs involved, especially since Tennessee lies on the more expensive end of the spectrum for LLC formation.
Filing the Articles of Organization will cost between $300 and $3,000, depending on the number of members you have. On top of that, you should consider the name reservation fee if that applies to your entity. Name reservation costs $20.
If you hire a third-party registered agent service, this is another cost to consider as well.
What To Do After Forming Your LLC in Tennessee
Once you have officially formed your LLC in Tennessee, many things still need to be completed to ensure your business runs smoothly.
Create an Operating Agreement
Drawing up an operating agreement for a Tennessee LLC is not a legal requirement, but having one is highly recommended. An operating agreement can be drawn up by the owner, members of the LLC, or even a lawyer.
There are no rules on what must be included in an operating agreement, but the list below is a good place to start.
Here are some of the best things to include in an operating agreement:
- The name and address of the LLC
- The names and addresses of all members of the LLC
- The details about the registered agent
- A brief summary of information that was provided in the Articles of Organization
- The purpose of the business, what services are being offered, products being sold
- A list of the members and their contributions to the LLC
- How all profits and losses of the LLC are divided
- The procedure for hiring new people as well as letting people go
- A brief description of the management structure
- The signatures of all members of the LLC
Think of the operating agreement as a map to guide you through the business. An operating agreement can also be used during disputes and even in a court of law.
Apply For An Employer Identification Number
The Employer Identification Number is issued by the Internal Revenue Service and is used for tax purposes. It is basically a social security number for the business. There is no charge to apply for this nine-digit number, and can either be applied for online or by mail.
Having an EIN can allow you to do some things:
- Hiring employees
- Opening bank accounts for the business
- Choosing to be taxed as a corporation instead of a disregarded entity
- Managing and paying state and federal taxes
Obtain Any Relevant Permits and Licenses
While the state of Tennessee does not require LLCs to have a general business license, some cities and counties in Tennessee might have their own rules. To make life easier for business owners, the Tennessee government has developed a One-Stop Licensing App so owners can search for what licenses they might need for their particular business.
File Annual Reports
All Tennessee LLCs are required to file an annual report each year. The filing fee is $50 per member, with a minimum fee is $300 and a maximum fee of $3,000. These reports are due by the first day of the fourth month following the LLC’s fiscal year closing.
Tennessee does not have a late filing fee, but the State may dissolve your LLC if you fail to file more than 60 days after the annual report due date.
Open a Business Bank Account
Using your EIN, you can now open a bank account specifically for your business. By doing this, you can effectively separate your personal assets from your business and manage your business expenses. This is especially helpful during the tax filing season.
Get Business Insurance
Purchasing business insurance is a definite must when starting a new business. There are several different types of insurance plans you can choose from. At the very least, you should consider getting general liability insurance to cover your most basic needs in case you are sued. If you have employees, workers’ compensation insurance can also come in handy.
To better understand what kind of business insurance you should get for your business, consider consulting a business attorney or broker to help you find something that meets your needs.
Get Professional Advice
Hiring lawyers and accountants are highly recommended. A good lawyer can ensure that your business remains legally compliant with the state’s regulations and can help you avoid any potentially costly legal mistakes.
Accountants are a great way to manage your taxes and ensure that everything money and tax-related is up to date and paid on time. They can even help you decide on the best tax structure for your business.
How to Keep Your LLC Compliant in Tennessee
Keeping your company compliant with the state of Tennessee is very important if you want your business to be able to legally operate.
To stay compliant, you should:
- File the annual reports on time
- Pay and submit all taxes
- Ensure all relevant permits and licenses are up to date
- Ensure all regulations are adhered to
- Maintain your registered agent
- Carry out your day-to-day business as described in the Articles of Organization
Keeping this list with your operating agreement is a good way to keep track of what you need to do.
Tax Filing Requirements for LLCs in Tennessee
The first tax filing requirement for Tennessee LLCs is the franchise tax. This tax calculates 0.25% of the net worth of the LLC or its property (whichever is greater). It must be paid on the fifteenth of the fourth month after the fiscal year ends. The minimum payment on this is $100.
The second tax requirement is the excise tax, which is 6.5% of the LLCs net income.
If applicable, Tennessee LLCs also need to pay the usual sales and employer taxes.
If you are still unsure about taxes, it is a good idea to hire an accountant to help you.
Frequently Asked Questions
How long does it take to register an LLC in Tennessee?
If you apply online, it should take 24 hours for you to get your decision. Applying by mail takes around 3-5 days to process your Articles of Organization. However, keep in mind that this does not include any mailing time.
Unfortunately, there is no expedited service available in the State of Tennessee.
What tax structure should I choose for an LLC in Tennessee?
Unlike most states, Tennessee imposes a Franchise and Excise tax on all LLCs regardless of their entity. However should you choose to be taxed as a disregarded entity, the LLC won’t need to pay income tax; only the members will through their personal income tax returns.
Choosing a disregarded-entity tax structure offers the most flexibility, is simple, and avoids double taxation, aside from the Franchise and Excise tax.
However, in some cases, being taxed as a corporation could benefit you – especially if your LLC has a larger income than most. If you are unsure about what is the best tax structure for your business, consult an attorney or accountant for advice.
Should you hire an LLC formation service in Tennessee?
Forming an LLC on your own is entirely possible. No rule says you must hire an LLC formation service. However, if you’re someone who does not like paperwork and would prefer to focus on other aspects of starting the LLC, hiring a formation service can certainly come in handy. Check our best LLC services page for specific recommendations.