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How to Form an LLC in Tennessee in 2024

How to Form an LLC in Tennessee
(Last Updated On: April 20, 2024)

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Starting an LLC (Limited Liability Company) in Tennessee is a straightforward process that offers entrepreneurs a flexible and protective business structure. To embark on this journey, aspiring business owners must adhere to the state’s specific guidelines. 

Tennessee’s business-friendly environment encourages the formation of LLCs, providing owners with liability protection and pass-through taxation. The initial steps involve choosing a unique business name, appointing a registered agent, and filing the Articles of Organization with the Tennessee Secretary of State. 

Navigating the regulatory landscape, understanding taxation requirements, and establishing an operating agreement are crucial components in the process of establishing a successful LLC in the vibrant business landscape of Tennessee.

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Starting an LLC in Tennessee in 10 Simple Steps 

Now that you’ve decided that forming an LLC is the best choice for your new business let’s dive into the practical steps. In the following ten steps, we’ll guide you through the entire process, from beginning to end.

1. Ensure Availability of Your LLC Business Name

Picture this scenario: you go through the process of filing paperwork to establish your Tennessee LLC, only to discover that the name you’ve chosen is unavailable. To avoid such setbacks, it’s wise to verify the availability of your chosen business name before proceeding with the company setup. 

You can accomplish this by using the Name Availability Search Engine on the website of the Secretary of State’s Division of Business Services or by calling 615-741-2286.

Keep in mind that your business name must be unique and distinguishable from other registered business entities in the state. Here are some additional considerations:

  • Your company name must include the words “limited liability company” or an acceptable abbreviation, such as “LLC” or “L.L.C.”
  • Businesses aiming to incorporate specific terms like “bank” or “trust” into their name need permission from the Tennessee Department of Financial Institutions.

Once you’ve confirmed that your desired name is available, you have the option to reserve it for 120 days by submitting Form SS-9425, the Application for Name Reservation. While reservation isn’t mandatory, it can be a prudent step if you don’t plan to establish your business immediately. The reservation fee is $20, payable to the Tennessee Secretary of State via check, cashier’s check, or money order. Submit your completed form in person or mail it to 312 Rosa L. Parks Ave. FL 6, Nashville, TN 37243.

If mailing, ensure that the form and payment are enclosed in the same envelope, and indicate “Tennessee Secretary of State, ATTN: Corporate Filing” above the address.

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2. Designate a Registered Agent for Your Tennessee LLC

One of the lesser-known aspects of initiating an LLC in Tennessee is the requirement to appoint a registered agent. This facet of business operations may catch some by surprise, as it involves selecting an individual or entity to handle official state mail and legal notifications on behalf of the company.

In Tennessee, LLC proprietors have the flexibility to choose any of the following as their registered agent:

  • A resident of the state
  • A business entity with a Tennessee street address
  • An out-of-state resident or company with a business office in Tennessee

Insider Tip: While you have the option to act as your own registered agent, opting for a registered agent service ensures that someone is consistently available to promptly receive and alert you to crucial documents.

Here are our recommendations for top registered agent services:

ZenBusiness

Say goodbye to paperwork headaches with ZenBusiness. This company offers a diverse range of LLC services, focusing on the precise setup of your business by handling and delivering the necessary paperwork to the relevant state government branch. While ZenBusiness does have service fees, customers affirm that they receive excellent value for their investment.

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Northwest Registered Agent

Starting a business involves navigating through numerous state-mandated paperwork, a potentially bewildering task for new business owners. Northwest provides business services designed to help entrepreneurs identify the correct documentation, complete it accurately, and submit it on time to the appropriate government agency. 

Beyond assisting in LLC formation, Northwest also offers various additional services, including registered agent services, which are beneficial for new business owners.

>> Start Using Northwest Registered Agent >>

Incfile

For first-time business owners in need of guidance on the type of business to establish, Incfile offers a comprehensive library of resources. Additionally, Incfile aids with documentation and filing processes, simplifying terms such as registered agent, articles of organization, and EIN. With a solid reputation and positive online reviews, Incfile proves to be a trustworthy choice.

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3. Submit Articles of Organization for Your Tennessee LLC

When delving into the process of filing an LLC in Tennessee, one crucial aspect to grasp is the preparation of your “articles of organization.” This detailed documentation requires you to furnish specific information, including:

  • The LLC’s name and the address of its primary in-state office
  • The number of LLC members (referring to owners)
  • The name and address of the registered agent appointed by the LLC
  • The effective date of the articles of organization if it’s not intended to commence immediately
  • Details about the LLC’s business
  • Indication of whether the LLC will exist perpetually or has a definite end date

Regardless of whether you’re establishing a single-member LLC or a multiple-member LLC, you must file this paperwork. This can be done either through mail or the state’s online filing system. The filing fee amounts to $50 per LLC member, with a minimum fee of $300 and a maximum of $3,000.

For foreign LLCs seeking authorization to conduct business in Tennessee, the process involves filing Form SS-4233, known as the Application for Certificate of Authority. The fees and procedures mirror those for new Tennessee LLCs.

Insider Tip: Tennessee safeguards the privacy of LLC members by not mandating the disclosure of their identity, contact information, or role in the business.

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4. Securing an IRS Employer Identification Number (EIN) for Your LLC

Obtaining an IRS Employer Identification Number (EIN) is essential for your LLC unless it’s a single-member LLC. This unique identifier is necessary for various business activities, such as filing employment tax returns, establishing business credit, and opening a business bank account.

To initiate this process, the individual completing the paperwork must possess a valid taxpayer identification number, which can be a Social Security number (SSN), an individual taxpayer identification number (ITIN), or an EIN. The applicant must be a natural person and must own or control the LLC.

The application for an EIN can be conveniently submitted online through the IRS website. Once the online EIN application is finished, you will receive a valid EIN for your business.

Insider Tip: Even if obtaining an EIN isn’t mandatory, doing so can provide advantages by maintaining a clear separation between your business and personal finances. This separation offers benefits such as access to business-specific financial services and eligibility for tax deductions.

>> Secure Your EIN With ZenBusiness >>

5. Creating an Operating Agreement

While Tennessee LLC laws don’t mandate the creation of an operating agreement for new businesses, it’s advisable to do so. This document serves to formalize your company’s management structure, define its limited liability status, and establish procedures for financial distribution. 

Crafting an operating agreement helps safeguard each member’s interests in the LLC and provides a framework for dispute resolution or business dissolution.

Insider Tip: If your Tennessee LLC has multiple members, it might be beneficial to enlist the services of an attorney to draft your operating agreement. A well-constructed agreement can prevent costly litigation in case of disagreements among members regarding business matters or if they wish to exit the LLC.

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6. File Your Annual Report

Tennessee LLCs must annually submit a report, and to ensure acceptance, it should:

  • Be properly signed and dated
  • Be typed or written in ink

The accompanying filing fee is $300 for LLCs with up to six members, with an additional $50 for each extra member, up to a maximum of $3,000. If your LLC alters its registered agent, there is an extra $20 fee. It’s crucial to stay proactive in submitting your annual report to maintain good standing for your business entity in Tennessee.

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7. Adhering to Annual and Fiscal Year Reporting Requirements

It’s crucial to acquaint yourself with the annual reporting obligations for Tennessee LLCs. To keep your company operational in Tennessee, filing an annual report and paying the associated fee is necessary. Understanding what information needs to be reported will enable you to track it effectively from the outset.

Additionally, assess whether registration with the Tennessee Department of Revenue is required. This becomes necessary if your LLC is involved in a business that collects sales tax or if you intend to hire employees. Seeking advice from an accountant or tax professional can assist you in comprehending the tax forms that may need to be filed during or at the end of each fiscal year.

Insider Tip: Knowledge of how to initiate an LLC in Tennessee can lead to tax savings. Unlike paying taxes on corporate profits, LLC members enjoy the status of a “pass-through entity.” Each member reports their share of business income on their personal tax return, which can result in significant savings, especially considering Tennessee’s lack of individual income tax.

8. Tennessee LLC Tax Filing Obligations

To maintain the good standing of your business, it’s crucial to keep abreast of your Tennessee LLC tax responsibilities. Depending on your business type, you may need to enroll for one or more tax categories:

Sales Tax

If your business involves selling physical products, you typically need to acquire a seller’s permit via the Tennessee Department of Revenue website.

Tennessee imposes a 7% sales tax rate, with a maximum local sales tax rate of 2.75%. The local sales tax, levied by counties and cities, is added to the state tax.

Employer Taxes

For those with employees in Tennessee, registration for the Unemployment Insurance Tax on the State of Tennessee’s Workforce website is mandatory.

Franchise & Excise Tax

Every Tennessee LLC must register and remit both franchise and excise taxes to the state Department of Revenue online. Payment is due on the 15th day of the fourth month following the commencement of the LLC’s tax year.

The Tennessee franchise tax, set at 0.25%, is calculated based on the LLC’s net worth or the book value of its real and tangible property in the state. The minimum tax is $100.

The excise tax, at 6.5%, is computed on the LLC’s net earnings or income for the tax year. This payment varies and has no minimum.

Income Tax

State:

Tennessee doesn’t levy an individual income tax. However, reporting federal income tax is still required using either Form 1065 (multi-member LLC) or Form 1040 Schedule C (single-member LLC).

Hiring Employees

If hiring employees for your Tennessee LLC is in your plans, ensure compliance by:

  • Verifying new employees’ eligibility to work in the US
  • Reporting employees as “new hires” to the state
  • Providing workers’ compensation insurance for employees
  • Withholding employee taxes
  • Displaying workplace compliance posters prominently in your workspace

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9. Evaluate Business Insurance Choices in Tennessee

While Limited Liability Companies (LLCs) provide a level of protection for personal assets, considering insurance coverage is advisable to safeguard your business from significant setbacks. 

Certain types of insurance, such as workers’ compensation insurance, are obligatory under state law, while others may not be mandated but could be required by entities like landlords or lenders.

In many instances, Tennessee LLC proprietors opt for higher insurance coverage levels than legally required. The Tennessee Department of Commerce & Insurance offers resources for exploring various small business insurance options, including:

  • Workers’ Compensation Insurance: Mandated for businesses with five or more employees to cover on-the-job injuries.
  • Commercial General Liability Insurance (CGL): Shields LLCs from financial claims related to property damage, bodily injury, libel, slander, and misleading advertising.
  • Commercial Automobile Insurance: Required coverage for all vehicles in Tennessee, whether used for commercial or personal purposes.
  • Unemployment Insurance: Tennessee employers contribute to unemployment insurance, which aids employees laid off through no fault of their own.
  • Cyber Liability Insurance: Protects against financial losses resulting from cyberattacks and data breaches, particularly valuable for businesses handling customers’ credit card numbers or personal information.
  • Commercial Umbrella Insurance: Enhances existing insurance coverage, extending maximum payouts. This policy covers the remaining balance if regular insurance limits are insufficient for substantial loss or liability.

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10. Marketing and Establishing Your Tennessee LLC Brand

Learning the ropes of launching an LLC in Tennessee is just the initial step. Once your business is up and running, it’s crucial to grasp the art of promoting it. Here are some strategies to kickstart your marketing efforts:

  • Create an Impressive Business Website: Your website serves as the face of your company for potential customers and helps nurture existing client relationships. You can either build your site using platforms like SquareSpace or enlist the services of a professional website designer.
  • Engage on Social Media: Foster your brand presence on various social media platforms such as TikTok, Facebook, LinkedIn, Twitter, and others. This approach can enhance your business’s credibility and trust and cultivate an enthusiastic client base.
  • Utilize Real-Life Connections: Participate in or sponsor local festivals, charity events, church functions, and other community gatherings to connect with your community while promoting your business. Display your contact information on QR codes, business cards, flyers, or merchandise.
  • Focus on Local Initiatives: Reach out to your local chamber of commerce or small business association to explore opportunities for local promotion, funding, and collaboration.
  • Establish Connections: Leverage Tennessee’s Small Business Development Centers, which offer valuable resources to help you understand the necessary steps for your small business’s success and connect with other helpful services.

Insider Tip: The State of Tennessee’s Smart Start platform is an interactive tool that links you to a wealth of public and private resources, encompassing funding, mentorship, and educational opportunities. If your company requires licenses or permits to operate legally, Smart Start provides information on these requirements as well.

>> Market Your Tennessee LLC With ZenBusiness >>

How to Form an LLC in Tennessee – FAQs

What Is a Tennessee LLC?

A Tennessee LLC, or “limited liability company,” is a specific form of business entity distinct from corporations and partnerships. It affords its owners, referred to as “members,” the advantage of limiting personal liability for business debts and obligations. Unlike corporations, LLCs don’t necessitate certain formalities, such as electing a board of directors or holding regular meetings.

The establishment of an LLC is governed by state law rather than federal law. Although there are similarities among LLCs in various states, crucial differences exist. Therefore, understanding how Tennessee defines key LLC terms is essential for those considering the creation of an LLC in the Volunteer State.

What Are the Ongoing Compliance Requirements for Tennessee LLCs?

Tennessee LLCs bear several ongoing compliance responsibilities, including:

  • Annual Report: Tennessee LLCs must submit an annual report to the Secretary of State and remit the associated fee. This report verifies the continued existence of the LLC and provides updated contact information. The annual report fee amounts to $300.
  • Franchise and Excise Tax: Tennessee LLCs may be liable for franchise and excise taxes based on the company’s net earnings or net worth. These taxes are payable to the Tennessee Department of Revenue.

Can I Serve as My Own Registered Agent for My Tennessee LLC?

Certainly, you can serve as your LLC’s registered agent in Tennessee, provided you maintain a physical address within the state where legal documents can be served during business hours. Alternatively, you have the option to designate a professional registered agent service or select a trustworthy individual or business entity for this role.

Is an Operating Agreement Mandatory for Tennessee LLCs?

Although Tennessee doesn’t mandate LLCs to have an operating agreement, it’s strongly advisable to create one. An operating agreement, an internal document, outlines the management structure, member roles, voting procedures, and other critical operating rules for the LLC. 

Even single-member LLCs can benefit from having an operating agreement, as it serves to clarify the company’s structure and operating procedures while affording legal protection for members.

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