Forming an LLC in Tennessee
Forming a limited liability company (LLC) can be an excellent choice when starting your new business. LLCs provide liability protection for personal assets from your company's debts and obligations and are a great option for a small business. You may be interested in structuring your business entity as a Tennessee LLC. Following a step-by-step guide can help simplify the process to start an LLC in Tennessee.
Steps to Form an LLC in Tennessee
Name the LLC
The state of Tennessee requires every business name to be unique. During business formation, the first thing you should do is a business name search on the Tennessee Secretary of State website. You cannot use a name currently in use by another LLC.
It is important to note that every LLC name must include LLC or L.L.C. or "limited liability company." If the LLC is professional, the name must consist of the abbreviation PLLC or the words "professional limited liability company." You can reserve a business name by submitting an application for name reservation and paying a $20 fee.
Get a Registered Agent
Every LLC must have a registered agent. A Tennessee registered agent is a person or company that receives service of process and other legal documents on behalf of the LLC. A registered agent must have a street address in Tennessee.
File Your Articles of Organization
Your LLC is officially created when you file articles of organization with the Tennessee Secretary of State. You can file the articles of organization online through the Secretary of State's website or by paper through the mail. The filing fee for the Tennessee articles of organization is $50 for each member, with a minimum fee of $300 and a maximum fee of $3,000. Your articles of organization will include:
- LLC's name and address
- Registered agent's name and address
- Whether LLC is member-managed or manager-managed
Draft an Operating Agreement
Tennessee only requires an operating agreement if an LLC is "board-managed" meaning it's governed by a board of governors. Regardless of how you decide to manage, you may want to have an LLC operating agreement in place.
An LLC operating agreement is a breakdown of how the business will run. Typically, when an LLC is drafting an operating agreement, the following is considered:
- Voting rights of each member
- Rules for meetings and voting
- Whether the LLC is member-managed or manager-managed
- Ownership percentage of each member
- Responsibilities of each member
- Distribution of profits and losses
Get an EIN
The Internal Revenue Service (IRS) issues an employer identification number (EIN) to businesses for federal tax purposes. This is similar to an individual's Social Security number but assigned to businesses. You typically need an EIN to file taxes, apply for federal and state tax exemptions and credits, and open a business bank account. Applying for an EIN is easy and can be done for free through the IRS website or by phone, fax, and mail.
Set Up Business and Tax Accounts
If you conduct business within Tennessee, you're generally required to register with the Tennessee Department of Revenue to report and pay state business taxes. Tennessee requires business tax returns and payments to be submitted online. You should create an account with the Department of Revenue's Tennessee Taxpayer Access Point (TNTAP) to file and pay state LLC taxes. If you plan on having employees, you should find out if you're required to create an account with the Tennessee Department of Labor & Workforce Development. If it's determined that unemployment insurance taxes apply, an eight-digit employee account number will be assigned to your LLC.
Your LLC will likely be subject to specific Tennessee business taxes depending on where it is located and the type of business it conducts.
State Business Tax
In Tennessee, the business tax is made up of the state business tax and the city business tax. All businesses that sell goods or services must pay Tennessee's business tax. LLCs located outside of the state with a substantial nexus to Tennessee are still required to pay the state business tax if the business:
- Sells a service that's delivered within Tennessee
- Leases items within Tennessee
- Sells items that are shipped or delivered to a location in Tennessee
- Makes natural gas sales to customers within Tennessee
Tennessee imposes a franchise and excise tax on LLCs for the privilege of operating within the state. The amount of the franchise tax depends on the total net worth of the real and personal property owned by the LLC within Tennessee. However, Tennessee requires a minimum $100 franchise tax to be paid annually by every business in Tennessee, whether the company is operating or not.
State Employer Tax
Tennessee has no state income tax on earned income so there are no state withholding requirements for LLCs with employees. If your LLC has employees, you must complete and submit a report to the Tennessee Department of Labor & Workforce Development to determine your liability for unemployment insurance. Additionally, certain types of employers must provide workers' compensation insurance benefits unless otherwise exempt. If your LLC engages in construction or coal mining activities and has one or more employees, you must obtain workers' compensation coverage. More information for employers can be found on the Department of Labor & Workforce Development website.
Sales and Use Taxes
The state sales tax is imposed on businesses that sell tangible personal property. The state use tax applies when a taxable product is used, consumed, distributed, or stored in Tennessee but sales tax was not collected at the time of sale. The sales and use taxes include state and local tax portions. If your business involves the sale of alcohol or tobacco, it's also subject to state alcoholic beverage and tobacco taxes.
Business Licenses and Permits
Additional business licenses and permits may be required depending on where your LLC is located or does business. Certain cities in Tennessee collect a local business tax for the privilege of operating there. It's your responsibility to confirm whether your LLC needs to apply for a separate city business license. Your LLC may need other local permits so you should contact the city or county government for more information.
Registration in Other States
If you want to expand your business and operate in another state, you will likely need to apply as a foreign LLC there. To register as a foreign LLC, you will probably be asked to provide a certificate of good standing or otherwise provide proof of your LLC's compliance with Tennessee law and requirements.
An annual report is filed with the Secretary of State each year following the year of your LLC's initial formation. In the annual report, you will update the state on information about your LLC to keep business records current with the state. The details that you update are the company name, the LLC business address, the name and the street address of the registered agent, and the name and addresses of your board members. There is a $20 fee to file annual reports.