How to Start an LLC in Tennessee? (Step by Step Guide)

Published by Jon Morgan | Co-Founder & Chief Editor

Last updated: August 18, 2024

FACT CHECKED by Lou Viveros, Growth & Transition Advisor

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Starting an LLC in Tennessee is a very straightforward process. From our experience, setting up a business in this state was simple, relatively fast, and well-guided by our legal experts.

With decades of experience and a team of legal experts and attorneys, I'm here to guide you through the process of starting an LLC in Tennessee.

From selecting a unique business name to filing the necessary paperwork, we'll cover all the essential steps to ensure a seamless and successful LLC formation in Tennessee.

Additionally, you can use these Tennessee LLC services to open an LLC on your behalf.

Quick Summary

• To start an LLC in Tennessee, key steps include selecting a compliant business name, obtaining an EIN, and submitting the Articles of Organization with the associated fee​​.
• Additionally, ensure compliance with state requirements by obtaining mandatory business licenses and permits and establishing an operating agreement for your Tennessee LLC.
• In Tennessee, small businesses make up 99.5% of all businesses, totaling 664,681, highlighting the significant presence and impact of small enterprises in the state's economy.
• The structured approach and expert support, in my view, make setting up an LLC in Tennessee a straightforward and efficient process for entrepreneurs.

How to Form an LLC in Tennessee

To form an LLC in Tennessee, choose a unique business name, apply for an EIN from the IRS, and submit Articles of Organization online to the Secretary of State, along with the filing fee.

Here are some more guidelines:

See how long it takes to start an LLC in Tennessee.

1. Choose the Type of Your LLC (Mandatory)

Throughout my consulting years, I have found out that choosing the type of LLC for your business in Tennessee is essential. You have several options, each with its own advantages and disadvantages:

1. Single-Member LLC: Ideal for sole proprietors. Advantages include simplicity in management and fewer compliance requirements. However, the disadvantage is the potential for personal liability if the LLC structure is not maintained properly.
2. Multi-Member LLC: Suitable for businesses with multiple owners. It offers a flexible management structure and profit-sharing among members. The downside is the potential for internal conflicts and more complex decision-making processes.
3. Manager-Managed LLC: Best for members who prefer not to be involved in daily operations. It allows for professional management, but this could lead to less control for members and potential conflicts between managers and members.
4. Series LLC: Useful for businesses that want to segregate assets or operations. Each series operates like a separate entity, providing asset protection. However, it's more complex in terms of setup and management, and the legal status of series LLCs can vary in different states.

2. Choose a Name for Your LLC (Mandatory)

Register a name for your Tennessee LLC to make your business official. You can't have a business without a name.

Before you file anything, make sure the business name is available for use in Tennessee.

Go to the State of Tennessee business name database and search for your name of choice [1].

If you find that the name is available, then go ahead with filing the articles with the Secretary of State.

You can reserve a business name for four months with the Secretary of State for a $20 fee.

A reservation means that no other business can use your business name during those four months.

However, keep in mind that this does not give you full legal rights to a business name. Only the exclusive right to use it within Tennessee until the 4-month period passes or someone challenges your claim.

Read our article and learn how to change an LLC name in Tennessee if you need to.

3. Select a Registered Agent (Mandatory)

Tennessee registered agent is a third party who agrees to receive important legal and tax documents on behalf of your LLC.

Registered agents also accept service of process for lawsuits, summonses, or other notices that the state may send you.

They can either be an individual or a business entity registered in Tennessee to provide registered agent services.

In most cases, a registered agent charges a monthly or annual fee. It's doubtful you'll be able to get registered agent services free of charge.

4. File Tennessee Articles of Organization (Mandatory)

Leveraging my knowledge of the state's legal framework and business dynamics, I guide my clients on the importance of filling out the articles of organization online or by mail.

You'll need to include your business name, its physical street address, the article's effective date, and a registered agent's name and address on each form you submit electronically.

You have to file Tennessee articles of organization with the Tennessee Secretary of State before your LLC can get a federal tax ID number.

The Articles of Organization will have an LLC file number assigned after being accepted for filing by the Tennessee Secretary of State.

You can't have a Tennessee LLC without this document, and it's one of the essential steps in forming your new business.

Steps to Take After Forming an LLC in Tennessee

5. Create an LLC Operating Agreement (Optional, but Recommended)

A Tennessee LLC operating agreement can be internal or external.

However, you must have an internal operating agreement. Formulate one that the LLC members create internally to establish how they will conduct business together and each member's rights.

In Tennessee, according to statistics from the U.S. Small Business Administration, a total of 664,681 small businesses constitute 99.5% of the state's businesses [2]. This highlights the pivotal role of small businesses in the state's economy and the importance of having a tailored operating agreement to navigate the competitive landscape effectively.

The only requirement for a Tennessee LLC is that it have at least one member.

An operating agreement should include information such as:

• Names of all LLC members
• Equity each member has in the company
• The name of the LLC
• How profits, losses, and distributions are shared among members.
• Roles and responsibilities of each member
• How the LLC will be managed if managers are appointed
• A way to terminate membership.

As an experienced business consultant, I advise my clients to have an operating agreement even if Tennessee law doesn't require this document for a single-member LLC; it helps to govern the business easily.

6. Apply for an Employer Identification Number (EIN) (Optional, but Recommended)

An employer identification number (EIN) is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to businesses in the United States.

As a business consultant, I often guide my clients through the process of obtaining an EIN when they decide to establish their businesses. It's a crucial step, especially if they plan to hire employees or engage independent contractors.

However, I also inform them that for sole proprietorships and single-person LLCs, obtaining an EIN is not necessary, as noted on the IRS website [3]. Having the right information and understanding the legal requirements can significantly benefit businesses in the early stages of development.

7. Open an LLC Bank Account (Optional, but Recommended)

Open a business bank account for your Tennessee LLC. Every LLC in Tennessee needs a business bank account. It's not legally possible to have business assets in your name.

So you are required to have at least one business account for credit cards, loans, and income.

Your business can open a business checking or savings account with just the LLC's formation documents.

8. File your Tennessee LLC Annual Report (Mandatory)

In Tennessee, LLCs are required to file an Annual Report with the Secretary of State. This report is crucial to maintaining your LLC's good standing and must be submitted each year.

Additionally, according to the Statistics of U.S. Business report, these small businesses employ 1.2 million individuals, accounting for 41.9% of the state's workforce [4]. The significant employment contribution of small businesses underscores the importance of maintaining good standing through timely annual report filings to support continued growth and economic impact.

The report typically includes basic information about your LLC, such as the names and addresses of members and managers, the principal business address, and any changes to the LLC's structure or contact information since the last report.

The filing deadline is on the first day of the fourth month following the end of your LLC’s fiscal year. For most LLCs, this means an April 1st deadline. There is a filing fee associated with the report, and failure to file can result in penalties or even administrative dissolution of your LLC.

It's advisable to consult the Tennessee Secretary of State’s website or contact them directly for the most current information and specific instructions related to your Tennessee LLC Annual Report. Remember, compliance with state regulations is key to the smooth operation of your LLC.

9. Obtain Business Licenses and Permits

In Tennessee, obtaining the right business licenses and permits is essential for a legal and compliant operation. The specific requirements vary based on the nature of your business, its location, and the industry it operates in. Here are some examples:

1. General Business License: Required for almost all businesses operating in Tennessee. It's obtained through your local county clerk's office or the city business tax office if your business is within city limits.
2. Professional Licenses: Certain professions, such as healthcare providers, real estate agents, and accountants, require professional state licenses. These are typically obtained from the respective state regulatory boards.
3. Environmental Permits: Businesses that could impact the environment, like manufacturing plants or waste management services, may need specific environmental permits from the Tennessee Department of Environment & Conservation.
4. Health Department Permits: If your business involves food preparation and sales, like restaurants or food trucks, you need to obtain permits from the local health department.
5. Building and Zoning Permits: These are required if you plan to construct a new building or alter an existing one for your business. They are obtained from the local city or county’s building and zoning departments.
6. Special State-Issued Business Licenses: For specific business activities like liquor sales, childcare services, or pest control, you may need to obtain special state-issued licenses.
7. Sales Tax Permit: If your business involves the sale of goods or certain services, you must register for a sales tax permit with the Tennessee Department of Revenue.

10. Business Tax Registration (Mandatory)

After forming an LLC in Tennessee, one crucial step is registering for business taxes with the Tennessee Department of Revenue. This process is distinct from obtaining a general business license and is specifically related to the state’s tax requirements.

1. Register for Taxes: Depending on your LLC's activities, you may need to register for various state taxes. Most commonly, this includes sales and use tax if your LLC sells goods or provides taxable services.
2. Franchise and Excise Taxes: Tennessee requires most LLCs to pay Franchise and Excise taxes. You must register for these taxes, typically done simultaneously with your business tax registration.
3. Employer Taxes: If your LLC will have employees, you need to register for Unemployment Insurance through the Tennessee Department of Labor and Workforce Development and for Employee Withholding Tax through the Department of Revenue.

This step is crucial for ensuring your LLC is compliant with Tennessee's tax laws. Failure to properly register and pay applicable taxes can result in penalties and legal issues for your LLC. It's advisable to consult with a tax professional to understand your specific tax obligations.

11. Choosing Your Tax Structure

In Tennessee, choosing the right tax structure for your LLC involves understanding the pros and cons of each option:

1. Disregarded Entity (Single-Member LLC): Simple tax filing as income is reported on personal tax returns. However, you're subject to self-employment taxes on all profits.
2. Partnership (Multi-Member LLC): Profits and losses are passed through to members' personal tax returns, but each member pays self-employment taxes on their share.
3. S-Corporation: Can reduce self-employment taxes, as members draw salaries and pay tax on them separately from the LLC's income. More complex filing requirements and salaries must be "reasonable" for the industry.
4. C-Corporation: The LLC is taxed independently, potentially benefiting from corporate tax rates. However, there's a risk of double taxation on profits and dividends.

Considering the tax landscape in Tennessee, I tend to favor an S-Corporation for its potential to save on self-employment taxes.

However, it's important to note that transitioning to a different tax structure demands careful planning. For example, if you aim to switch to an S-Corp status for the upcoming year, it's necessary to submit IRS Form 2553 by March 15 of the current year.

Benefits and Drawbacks of an LLC in Tennessee

Benefits:

1. Limited Liability Protection: LLCs in Tennessee provide personal asset protection, safeguarding owners from business debts and liabilities.
2. Flexibility in Taxation: Tennessee LLCs can choose how they are taxed (as a disregarded entity, partnership, or corporation), offering flexibility and potential tax advantages.
3. No State Income Tax on Wages: Tennessee doesn't levy a personal income tax on wages, which can be beneficial for LLC members taking profits as salary.
4. Franchise and Excise Tax Credits: Tennessee offers various tax credits that can reduce the burden of franchise and excise taxes for qualifying LLCs.

Drawbacks:

1. Franchise and Excise Taxes: LLCs in Tennessee are subject to state franchise and excise taxes, which can be a financial burden for some businesses.
2. Annual Report Requirement: Tennessee LLCs must file an annual report along with a fee, adding to administrative tasks and costs.
3. Complexity in Larger LLCs: For multi-member LLCs, management and profit distribution can become complex, potentially leading to internal conflicts.
4. Geographic Variations: Local regulations and business climates vary across Tennessee, impacting LLCs differently depending on their location within the state.

"Income from LLC membership is subject to the federal self-employment tax, which amounts to 15.3%. However, members of LLCs in Tennessee benefit from the absence of state income tax. Nonetheless, LLCs in Tennessee are still subject to a state franchise tax, in addition to sales and certain sector-specific taxes."

-Jon Morgan, Co-Editor & Co-Founder of Venture Smarter

DIY vs. Professional LLC Formation

DIY LLC Formation

Pros:

• Cost-Effective: Generally cheaper as it eliminates service fees charged by professional services.
• Educational: You gain a deeper understanding of your business’s legal structure and state requirements.
• Control: Full control over every step of the formation process.

Cons:

• Time-Consuming: Requires more of your time to research, understand, and complete all steps correctly.
• Risk of Errors: Without legal expertise, there’s a higher risk of making mistakes in paperwork or compliance.
• Limited Legal Knowledge: You might miss out on state-specific nuances or optimal structuring benefits.

Professional LLC Formation

Pros:

• Expertise and Accuracy: Professionals are well-versed in state-specific regulations, reducing the risk of errors.
• Time-Saving: Offloading the process saves time, allowing you to focus on other aspects of your business.
• Compliance Assistance: Many services offer ongoing compliance support, ensuring your LLC stays in good standing.
• Peace of Mind: Knowing experts are handling the process can provide reassurance.

Cons:

• Cost: Professional services come with a fee, which can be substantial depending on the provider.
• Less Personal Involvement: Some entrepreneurs may prefer to be more hands-on in their business formation process.
• Varying Service Quality: The quality of service can vary widely between providers.

Carefully consider your own requirements, capabilities, and business needs before deciding. Both options have merits, and the best choice varies based on your unique situation and priorities.

FAQs

References:

1. https://sos.tn.gov/node/353
2. https://advocacy.sba.gov/wp-content/uploads/2023/11/2023-Small-Business-Economic-Profile-TN.pdf
3. https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
4. https://www.census.gov/programs-surveys/susb.html