How to Start a Business in Tennessee (The Complete Guide)

Tennessee is a fantastic place to start a business. The state offers a low cost of living, friendly regulations, and a strong economy, all of which make it an ideal spot for entrepreneurs.

With over ten years of experience in business formation, I can confidently say that Tennessee’s growing industries and supportive environment can give your business a solid foundation.

If you opt for an LLC over other business structures, check our guide on starting an LLC in Tennessee.

In this article, I will guide you step-by-step on how to start a business in Tennessee, from choosing a business structure to understanding local taxes and regulations.

Quick Summary

Step-by-Step Tennessee Business Formation Process

Step 1: Choose Your Business Structure

The first decision you need to make is selecting your business structure. The most common options are LLCs, corporations, and partnerships. Each has its pros and cons, and Tennessee has specific guidelines for each. Here's a comparison of the three most common structures:

Business Structure	LLC	Corporation	Partnership
Liability Protection	Yes	Yes	No
Tax Filing	Pass-through	Double taxation	Pass-through
Ease of Formation	Easy	Moderate	Easy
Required Paperwork	Articles of Organization	Articles of Incorporation	Partnership Agreement
Filing Fees	Min $300, max $3,000	$100	$0

Step 2: Name Your Business

Naming your business is one of the first and most exciting steps in the process. Tennessee has specific rules about business names to ensure there is no confusion with existing businesses.

These rules include:

• Certain words (e.g., "bank," "insurance") may require additional approval or licensing.
• LLCs must include "LLC" or "Limited Liability Company" in the business entity name.
• Sole proprietorships do not require a specific name, but if using a business name other than the owner’s personal name, you must file a DBA (Doing Business As).
• Corporation names must include "Inc." or "Incorporated" at the end.
• LLP and LP names must include "LLP" or "Limited Liability Partnership"  and  "LP" or "Limited Partnership" at the end.
• Nonprofit names must include "Incorporated" or "Inc." if registered as a corporation, or "Foundation" if it's a charitable organization.

The name you choose must also be unique, so start by searching the Tennessee Secretary of State's business entity search to see if your desired name is available.

As a business owner, you can reserve your name for 120 days by submitting the Name Reservation form for $20.

If you're planning to conduct business online, it's a good idea to also get a domain name. Additionally, it's a good idea to consider trademarking your business name. This will give you legal protection and prevent others from using your name or something too similar.

Step 3: Register Your Business

Once you’ve chosen a name for your business idea, you need to register your business with the state.

For LLCs, this means filing Articles of Organization with the Tennessee Secretary of State.

Corporations need to file a Charter for Profit Corporation. This process can be done online and typically takes 5-7 business days.

LLPs must file a Registration of Limited Liability Partnership, while LPs must file a Certificate of Limited Partnership with the Tennessee Secretary of State.

If your entity is a Nonprofit, you must file a Charter of Incorporation with the Tennessee SOS, then apply for 501(c)(3) tax-exempt status with the IRS if applicable.

Sole proprietorships, on the other hand, do not need to file with the SOS unless they use a business name other than the owner's personal name; in that case, a DBA must be filed with the county clerk.

LLC filing fees are $50 per member, with a minimum of $300 and a maximum of $3,000.

Along with registering your business, you'll also need a registered agent. This person or company will be responsible for receiving official documents on behalf of your business.

In Tennessee, the registered agent must have a physical address within the state and be available during regular business hours to accept legal documents and official correspondence.

You can serve as your own registered agent if you meet these requirements, or hire a professional registered agent service.

Step 4: Write an Operating Agreement

An operating agreement is a legal document that outlines the ownership structure, management responsibilities, and operational procedures of your business.

While Tennessee doesn't legally require businesses to have a written operating agreement, creating one is highly recommended as it helps establish your business as a separate legal entity, prevents disputes between members, and is often required by banks when opening business accounts.

Step 5: Get Federal and Arizona State Tax IDs

After registering your business, you’ll need a Federal Employer Identification Number (EIN) from the IRS. You will also need to register for a state tax ID number with the Tennessee Department of Revenue.

Tennessee Tax Information:

• No Personal Income Tax: Tennessee no longer taxes any personal income (the Hall Income Tax was phased out in 2021).
• Sales Tax: The state sales tax rate is 7%, but combined with local taxes, the average total rate is approximately 9.55% (can reach up to 9.75% in some areas like Nashville).
• Franchise Tax: LLCs and corporations pay 0.25% of net worth with a minimum of $100 annually.
• Excise Tax: Corporations pay 6.5% on Tennessee taxable income.
• Business Tax: Varies by classification, with a minimum of $22 annually.

Step 6: Open a Business Bank Account

Opening a separate business bank account is essential for keeping your personal and business finances separate. You'll need your EIN, business registration, and possibly a copy of your business license to open an account.

Tennessee has many banks, including Regions, Wells Fargo, and Bank of America, that offer business banking services with low fees and helpful features.

A business bank account helps you track business income, business expenses, manage cash flow, and build a professional relationship with your bank.

Step 7: Obtain Required Licenses and Permits

Depending on the type of legal business entity you plan to operate, you might need special licenses or permits.

For most businesses in Tennessee, you will need a general or standard business license, which you can get from your local county clerk’s office.

It’s important to check with your local government to ensure you're in compliance with all local laws.

Step 8: Get Business Insurance

Tennessee requires workers' compensation insurance if you have five or more employees.

In addition, consider getting general liability insurance, which covers you in case someone is injured on your property or if you’re responsible for property damage.

Professional liability insurance is another type of coverage to consider, especially if you offer professional services like consulting.

Why Start a Business in Tennessee?

Here's an overview of Tennessee's advantages for starting a successful business:

1. Economic Advantages

Tennessee offers a favorable environment for businesses due to its low tax burden/tax benefits. The state does not impose a personal tax return on income, allowing entrepreneurs to retain more of their business operations earnings and grow company assets.

Additionally, Tennessee provides various incentives to support business growth, including job creation tax credits and infrastructure grants.

The Business Enterprise Resource Office (BERO) in Tennessee also helps small and minority-owned businesses access financial resources and grow.

2. Market Opportunities

Tennessee's population is projected to approach 8 million by 2040, with significant growth among older adults and increased racial diversity [1]. This demographic shift presents opportunities in healthcare, senior services, and diverse consumer markets.

3. Infrastructure Benefits

Tennessee is home to one of the busiest cargo airports in the world, Memphis International Airport, and extensive rail and inland waterway systems.

Additionally, recent investments, including a $4.5 billion airport expansion in Nashville, enhance connectivity and logistics capabilities. These infrastructure assets facilitate efficient movement of goods and services, benefiting businesses across the state.

Employment and Labor Laws in Tennessee

Tennessee follows federal employment laws and also has its own regulations to protect workers.

Here are some of the key rules:

• Minimum Wage: The state follows the federal minimum wage of $7.25 per hour.
• Workers' Rights Protection: Tennessee has laws protecting employees from discrimination, wage theft, and other unfair practices.
• Workplace Safety: Employers must adhere to OSHA (Occupational Safety and Health Administration) guidelines to ensure a safe work environment.
• Wage Theft: Employers must ensure that employees are paid fairly and on time, preventing any unlawful withholding of wages.

Financing Your Tennessee Business

Tennessee provides various options for small business owners to secure funding to develop a business plan and grow their venture.

• SBA Loans: The Small Business Administration offers loan programs to help small businesses access capital.
• Tax Incentives & Grants: Tennessee provides tax credits and grants, particularly for businesses in growing industries like technology and healthcare.
• Traditional Bank Loans: You can apply for loans at local banks or credit unions to fund your business.
• Angel Investors & Venture Capital: Tennessee has a growing network of angel investors and venture capitalists who provide funding to innovative businesses.

Common Mistakes to Avoid

Starting a business in Tennessee can be exciting, but it's important to avoid these common mistakes:

• Improper Registration: Ensure you properly file your business formation documents and obtain any required licenses.
• Ignoring Tax Deadlines: Stay on top of your state and federal tax obligations to avoid penalties.
• Neglecting Insurance: Make sure you have the proper insurance to protect your business from financial risks.

Ongoing Compliance Requirements

Once your business is up and running in the Volunteer State, here’s what you’ll need to do to ensure your business remains compliant with state laws:

1. File Annual Reports: LLCs and corporations must file an annual report with the Tennessee Secretary of State. The filing fee is $50 per member (min $300).
2. Renew Business Licenses: Depending on your type of business, you may need to renew your business licenses regularly. Some local and state licenses expire annually, while others may have longer renewal periods.
3. Track Tax Deadlines: Tennessee businesses must be mindful of both state and federal tax deadlines. Missing these deadlines could result in hefty fines and interest on unpaid taxes.
4. Maintain Accurate Records: Keeping detailed and accurate business records is crucial for both tax purposes and compliance with state regulations.

Case Studies/Success Stories

1. Jack Daniel’s Distillery

Jack Daniel’s Distillery, located in Lynchburg, Tennessee, is one of the most famous whiskey brands in the world. Founded in 1866, it’s known for its distinctive black label and smooth Tennessee whiskey.

Jack Daniel’s has grown from a small distillery into a global brand, with its products sold in over 170 countries. Its success is attributed to its unique charcoal-mellowing process, which gives the whiskey its signature smooth taste.

2. HCA Healthcare

HCA Healthcare, based in Nashville, Tennessee, is a major player in the healthcare industry. With more than 250,000 employees, HCA is one of the largest healthcare providers in the United States.

It operates a network of hospitals, outpatient facilities, and other healthcare services, offering a wide range of medical care across various specialties. HCA’s success stems from its focus on improving patient care, its expansive reach, and its investment in healthcare technology.

FAQs

Starting a business in Tennessee can be a rewarding experience, thanks to the state's supportive business climate and low taxes. With this guide, you have the steps and information you need to get your business off the ground.

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Reference:

1. https://news.utk.edu/2024/08/27/tennessee-population-projected-to-hit-nearly-8-million-by-2040/