Forming an LLC in Tennessee
Forming a limited liability company can be an excellent choice when starting your business. You may be interested in structuring your business entity as a Tennessee LLC. If you want to form an LLC, take a closer look at the following step-by-step guide.
Step One: Name the LLC
Tennessee requires every business name to be unique. During business formation, the first thing you should do is do a business search on the Tennessee Secretary of State website. You cannot use a name currently used 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."
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Step Two: Select a Registered Agent
Every LLC must have a registered agent. A 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. You should include the name of your registered agent in your articles of organization.
Step Three: File Articles of Organization
Your LLC is officially created when you file your Articles of Organization with the Tennessee Secretary of State. You can file the articles online at the secretary of state's website or through the mail. The filing fee for the Articles of Organization is $300. You may file the articles online or by regular mail.
Your Articles of Organization will include:
- The limited liability company's name and address
- The registered agent's name, or registered agent service name, and address
- The business structure. State whether the LLC will be member-managed or manager-managed
Step Four: Create an Operating Agreement
Tennessee requires an operating agreement to be filed with the secretary of state only if a manager manages the LLC. Regardless of how you decide to manage, you may want to have an operating agreement in place.
An operating agreement is a breakdown of how the business will run. Typically, when an LLC is drafting an operating agreement, the following is considered:
- The voting rights of each member
- The rules for meetings and voting
- Whether the LLC is member-managed or manager-managed
- The ownership percentage of each member
- The responsibilities of each member
- Distribution of profits and losses
Step Five: Get an EIN
The Internal Revenue Service (IRS) issues employer identification numbers (EINs) for identification purposes only. Every business must have an EIN to file taxes and apply for federal and state tax exemptions and credits. Applying for an EIN is easy and free. You can apply for an EIN online, by phone, via fax, or through the mail. Stay alert. Any website that advertises that it assists companies in applying for an EIN for a fee is illegitimate.
Step Six: Comply With Tax and Regulatory Requirements and Determine Necessary Business Licenses and Permits
If your LLC has multiple members, your limited liability company must apply for an employer identification number. Depending on the type of business and the location, you may also have to obtain local and state business licenses.
Tennessee imposes a franchise tax and an excise tax on businesses within the state. A franchise tax is essentially a fee that a business pays for the privilege of operating within the state.
In Tennessee, the amount a company pays on a franchise tax depends on the total net worth of the real and personal property owned in Tennessee or used in Tennessee or the book value of the same, whichever is greater. However, Tennessee requires a minimum $100 franchise tax to be paid annually by every business in Tennessee, whether the company is operating or not.
An excise tax is a tax paid on specific items or services. Typically, businesses that sell goods like tobacco, gasoline, or alcohol will have to pay an excise tax. The federal government can impose an excise tax, as well as the state or local governments. A business pays an excise tax depending on its income for the taxable year.
Step Seven: File an Annual Report
An annual report is a report that is filed with the Secretary of State each year. In the annual report, you will update the state on your limited liability company details. 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.
Frequently Asked Questions
1. How Can a Tennessee Single-Member LLC Be Managed?
A single-member LLC is a limited liability company that has only one member. It is typical for small business owners across the United States to form single-member LLCs when they initially open their business. Single-member LLCs have the same formalities as multi-member LLCs. A single-member LLC can have either a member-managed structure or a manager-managed structure.
If your single-member LLC has a manager-managed management structure, you may want to hire a manager to relieve the burden of managing the business's daily operations.
2. What Is a Certificate of Existence?
Tennessee does not require that businesses complete a certificate of existence. In fact, in 2021, the Tennessee Secretary of State released an article that stated the office has no affiliation with the third-party company that created the certificate of existence. Despite claiming that there is no affiliation between the office and the third-party company, the Tennessee Secretary of State Office did conclude that having a certificate of existence may be helpful for an LLC to obtain business loans or open a business checking account.
3. What Management Structure Should My LLC Have?
There are two types of management structures that Tennessee LLCs take. A Tennessee LLC will either be member-managed or manager-managed. A manager-managed LLC puts the responsibility of daily business operations into the hands of a group of managers. Members can act as both managers and members, or the members can choose to hire a different group of people as managers. The LLC members manage a member-managed LLC. With this management structure, members are responsible for the "big picture" details and the smaller day-to-day operations.
4. Can a Foreign LLC Operate in Tennessee?
Yes, a foreign or out-of-state LLC can operate inside of Tennessee. However, before the foreign LLC can only do business in Tennessee after registering with the Tennessee Secretary of State. To register with the secretary of state, you will need to file your LLC's Articles of Organization and pay the $300 filing fee.
Once incorporated, your LLC will have to meet the same standard as all other Tennessee LLCs. You will have to apply for and obtain all appropriate business licenses. Your LLC will be responsible for filing an Annual Report with the Secretary of State's office.
5. Can Professionals Form an LLC in Tennessee?
Yes, professionals are permitted to form an LLC in Tennessee. An LLC developed by professionals within the state is called a PLLC or a professional limited liability company. Tennessee allows a properly licensed group of professionals to use this unique LLC structure. Tennessee does allow people who do not have professional licenses to form a PLLC if the group is an exception permitted by statute. Otherwise, professional limited liability companies must only include:
- Individuals licensed in Tennessee or another state to render professional services (e.g., an attorney or an accountant)
- A general partnership where at least one partner is licensed adequately in Tennessee to render a professional service.
- An in-state or out-of-state corporation licensed in Tennessee to render a professional service
- An in-state or out-of-state PLLC licensed in Tennessee to render a professional service.
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