How to Apply for an LLC in Tennessee

Starting a limited liability company (LLC) in Tennessee can be a great way to formally structure your small business. An LLC combines the tax benefits of a partnership or sole proprietorship with the liability protection benefits of a corporation. Forming an LLC can help shield your personal assets from business debts and obligations. The process involves filing articles of organization with the Tennessee Secretary of State, drafting an operating agreement, obtaining licenses and permits, and more. This article provides step-by-step guidance on how to start an LLC in Tennessee.

Understanding LLCs

An LLC, or limited liability company, is a business structure that combines aspects of partnerships and corporations. LLCs provide liability protection for the owners, called members, so their personal assets are generally protected from business debts and lawsuits. At the same time, LLCs allow pass-through taxation like partnerships, avoiding double taxation on business profits.

There are a few key things to know about LLCs:

• LLCs don’t have stocks like corporations, but members can sell ownership interests based on the operating agreement rules
• LLCs need articles of organization and an operating agreement to outline management rules, ownership details, member responsibilities, etc.
• Most states require LLCs to have at least one official member handling management and paperwork filing
• LLCs still must follow regulations like obtaining licenses and permits, charging sales tax, filing annual reports, etc.

Understanding the basics of how LLCs function will help when starting your Tennessee LLC so you can make informed decisions.

Choosing a Name for Your LLC

When starting an LLC in Tennessee, one of the first steps is choosing a business name. Here are some tips for choosing an LLC name:

• Make sure the name is available by checking the Tennessee Secretary of State’s business name database. The name must be distinguishable from other businesses in Tennessee.
• Include words like “Limited Liability Company,” “LLC,” or “L.L.C.” at the end of the LLC name. This identifies your business as an LLC.
• Choose a name related to your brand or business. Using keywords can help with SEO as well.
• You can trademark your business name if you want additional protection.

The LLC name sets the tone for your Tennessee business, so choose wisely and ensure it complies with state regulations.

Selecting a Registered Agent

When starting an LLC in Tennessee, you must designate a registered agent. This is a person or business that agrees to accept legal documents on behalf of your LLC if you are sued or served papers. Choosing the right registered agent is important for properly maintaining your LLC.

• You can designate yourself as the registered agent if you want to save money. However, this means you must be available at your registered office address to receive legal documents.
• Using a third-party registered agent service ensures there will always be someone available at the registered office to accept papers. This costs around $100-200 per year but may be worth it for the reliability.
• Make sure the person or company you select as registered agent agrees to take on that responsibility before designating them.

Do your research to pick the best registered agent option for your new Tennessee LLC. This decision impacts how smoothly your business can handle any potential legal processes.

Filing Your LLC Paperwork

Once you have chosen a business name and registered your LLC with the Tennessee Secretary of State, there are a few more steps to complete to officially form your LLC:

• Prepare your Articles of Organization – This document names your LLC, lists the principal address of your business, names the LLC’s registered agent, and states whether your LLC will be member-managed or manager-managed.
• File the Articles of Organization with the Secretary of State’s office – You can file online, by mail, or in person. The filing fee is $100.
• Create an Operating Agreement – This document outlines the management, membership rights and responsibilities, profit/loss distribution, voting procedures, and other governance rules for your LLC.
• Get an EIN from the IRS – An Employer Identification Number will be needed to open business bank accounts and pay taxes.
• Comply with licensing and permit requirements for your industry and locality.

Ensure you complete all the necessary paperwork thoroughly and accurately to successfully start your Tennessee LLC. The Tennessee Secretary of State’s website provides useful resources and filing instructions.

Drafting an LLC Operating Agreement

After officially forming your Tennessee LLC, the next important step is to create an operating agreement. An operating agreement is a document that outlines the ownership structure, member responsibilities, distribution of profits and losses, voting rights, and other governance rules for your LLC. While Tennessee does not legally require an operating agreement, it is highly recommended for all LLCs.

Here are some key things to address in your Tennessee LLC operating agreement:

• Ownership percentages – Specify each member’s percentage of ownership based on their contribution.
• Member roles and responsibilities – Define if there will be any managers, and outline the roles and duties of each member.
• Member voting rights – Determine if voting will be based on ownership percentage, or if each member gets one vote.
• Profit and loss distribution – Specify how net profits and losses will be allocated among members.
• Member changes – Outline procedures for adding or removing members, as well as membership transfers.
• Rules for dissolution – Establish steps for dissolving the LLC and distributing assets.

There are many free LLC operating agreement templates available online that you can customize for your Tennessee business. Using a template can help ensure you cover all important bases. However, it is wise to have an business lawyer review your finished agreement to make sure it complies with Tennessee laws and protects your business interests.

Having a comprehensive operating agreement is one of the best things you can do to set your new Tennessee LLC up for success. Take time to carefully consider all aspects of how you want your LLC to function during drafting.

Obtaining Tax Identification Numbers

One of the key steps in forming an LLC in Tennessee is obtaining tax identification numbers from federal and state agencies. Here’s what you need to know:

• Apply for an Employer Identification Number (EIN) from the IRS. This number will identify your business for federal tax purposes. You can easily apply online at IRS.gov.
• You’ll also need to register for Tennessee tax accounts with the Tennessee Department of Revenue. This includes obtaining a Tennessee EIN for state tax reporting purposes.
• If your LLC will have employees, you may need to set up tax accounts for payroll and unemployment taxes as well. The Tennessee Department of Labor and Workforce has helpful information.

Getting your tax IDs lined up early in the LLC formation process ensures you can easily manage important tax filings and other government requirements down the road.

Pros and Cons of Starting an LLC in California

Forming a limited liability company (LLC) can be a great way to structure your small business in Tennessee. However, as with any business structure, there are both advantages and disadvantages to consider.

Here are some of the key pros and cons of starting an LLC in Tennessee:

• Pros:
  • Limited personal liability – An LLC helps protect your personal assets if your business is sued
  • Tax flexibility – LLCs can choose corporate taxation or pass-through taxation
  • Credibility – The LLC structure carries more credibility with customers over sole proprietorships
• Cons:
  • Increased legal formalities – More legal paperwork is required compared to sole proprietorships
  • Higher taxes – You may pay more in taxes compared to a sole proprietorship
  • Lower access to business finance options – Banks may be hesitant to lend to new LLCs

Overall, LLCs are one of the most flexible and protective business structures in Tennessee. However, the pros and cons will depend on your specific business goals and circumstances. The Tennessee Secretary of State website has additional information on starting an LLC.

Cost Considerations

When starting an LLC in Tennessee, there are several costs to consider. The filing fee to register your LLC with the Tennessee Secretary of State is $100, and you may have additional fees if you choose to use an expedited service. You will also likely need to pay franchise and excise taxes each year. Furthermore, you may need licenses and permits depending on your industry, which could cost over $500 in fees.

Other costs may include:

• A registered agent service, which can cost $100-200 per year
• Accounting services to handle bookkeeping, taxes, and financial statements
• Legal services for drafting operating agreements and other business contracts
• Insurance policies like general liability insurance to protect your business

Overall, be prepared to spend at least $1,000-2,000 in the first year when starting an LLC in Tennessee. Have a budget planned out prior to filing to ensure you can cover all expected establishment and maintenance costs.

Economical LLC Formation Options

When starting an LLC in Tennessee, it’s important to keep costs low, especially when just launching your business. Here are some of the most economical options for LLC formation:

• Use an online service like LegalZoom to handle all the paperwork and filing with the state. While they charge a fee, it can be cheaper than hiring an attorney.
• File the articles of organization yourself through the Tennessee Secretary of State’s website. The filing fee is only $100, making this the most budget-friendly route.
• Consider finding a template for the articles of organization online to avoid having to pay anyone to draft the document.
• Use an online site like Northwest Registered Agent to act as your registered agent for receiving important legal documents. This costs around $125 per year but saves you the hassle.

While you want to keep expenses low when starting your Tennessee LLC, it’s also important not to sacrifice legal compliance. Finding the right balance will lead to long-term savings down the road.

Pre-Formation Steps

Taking the proper pre-formation steps when starting a Tennessee LLC can set your new business up for success. Here are some key things to do before officially forming your LLC:

• Choose a business name – Pick a name that is distinct and memorable. Check the Tennessee business entity database to make sure your desired name is available.
• File for an EIN – An Employer Identification Number (EIN) acts like a social security number for your business. Apply for your EIN early so you have it ready when forming your LLC.
• Create an operating agreement – An operating agreement outlines the ownership, structure, and rules for your LLC. While not required in Tennessee, having one can help prevent disputes among members.
• Set up accounting & record keeping – Decide how you will keep financial records and track taxes owed. Using accounting software can make this easier.
• Obtain business licenses & permits – Research if you need any state or local licenses to operate your Tennessee LLC.

Completing these key pre-formation steps allows you to go into officially starting your Tennessee LLC prepared and set up for success.

Comparing Business Entity Types

When starting a business in Tennessee, you have several options for structuring your company. Some of the most common business structures include sole proprietorships, partnerships, corporations, and limited liability companies (LLCs). Here is a brief comparison of some key factors to consider when choosing an entity type:

• Formation Requirements – Sole proprietorships have almost no formal requirements, while corporations and LLCs require filing articles of organization with the Tennessee Secretary of State.
• Liability Protection – Sole proprietors and partnerships offer no personal liability protection, while corporations and LLCs limit owners’ personal liability.
• Taxes – Sole proprietors pay personal income tax on business profits, while corporations and LLCs have pass-through taxation where profits are taxed only at the personal level.
• Ownership Flexibility – LLCs allow for greater flexibility of management and ownership structures compared to corporations.

Many small business owners choose to form an LLC because it combines the liability protections of a corporation with the tax advantages and flexibility of a partnership or sole proprietorship. Forming an LLC also has fairly low filing fees and ongoing requirements in Tennessee compared to corporations.

After Filing Your LLC

Once your Articles of Organization have been filed with the Tennessee Secretary of State and approved, there are still some important next steps you need to take to properly set up your Tennessee LLC.

Create an Operating Agreement

An operating agreement is a document that outlines the ownership structure, rules, regulations and operating procedures for your LLC. While Tennessee does not legally require an operating agreement, it is highly recommended to have one drafted. An operating agreement helps prevent disputes among members and provides guidance in areas your Articles of Organization do not cover. Be sure to consult an attorney when creating your Tennessee LLC’s operating agreement.

Obtain an EIN

You will need to obtain a federal Employer Identification Number (EIN) from the IRS for tax and identification purposes. An EIN allows you to open business bank accounts, apply for business licenses and permits, hire employees and file tax returns for your business.

Comply with Licensing and Permit Requirements

Depending on your industry and location, your Tennessee LLC may need to obtain certain business licenses and permits on the local, state and federal levels before legally being able to operate. Research requirements for your specific business activities and locations.

Understand Tax Obligations

As a Tennessee LLC, you will have certain tax filings with the IRS and Tennessee Department of Revenue. This includes annual reports for your LLC along with possible quarterly estimated payments, employment taxes and other filings depending on your business activities. Be sure to understand all your tax obligations to avoid penalties.

Business Licenses and Permits

When starting an LLC in Tennessee, you may need to obtain certain business licenses and permits depending on your industry and location. Some common licenses and permits you may require include:

• Business license – Most cities and counties in Tennessee require businesses to obtain a local business license, for which requirements and fees vary. You can check with your local county clerk’s office.
• Sales tax permit – If selling taxable goods or services, you’ll need a Tennessee sales tax permit from the TN Department of Revenue.
• Zoning permit – If running your LLC from a commercial location, you may need approval for permitted zoning uses from your local zoning office.
• Health department permit – Industries involving food service, beauty, or child care may require permits from the health department.

Additionally, certain professional services may mandate licenses from Tennessee regulatory boards. Be sure to research any licenses and permits needed for your specific LLC’s industry and location.

Growth Considerations for Your LLC

As your Tennessee LLC grows, there are some key considerations to keep in mind. You’ll want to develop a strategic growth plan that aligns with your business goals and targets new markets or services. Some things to factor into your growth plan include:

• Hiring new employees or independent contractors to take on more work
• Upgrading or investing in new equipment, software, or other assets to boost productivity
• Finding larger office or warehouse space if you outgrow your current location
• Considering whether to restructure into a new entity type like an S corporation as the business scales
• Working with an accountant on tax planning for the growth phase

Laying the groundwork for these operational changes and budgeting for growth costs will help your Tennessee LLC successfully scale up over time. Consider an LLC business plan to map out expansion goals.

Additional Resources

Forming an LLC in Tennessee requires understanding various legal and tax considerations. Luckily, there are many useful online resources that provide helpful information. Below is a table with some recommended websites that offer guidance on starting and operating an LLC in Tennessee:

Furthermore, consulting with an accountant or business lawyer can provide guidance tailored to your specific business needs. With the right preparation, you will be well on your way to successfully starting your Tennessee LLC.

Conclusion

Starting an LLC in Tennessee provides numerous benefits for business owners, such as personal asset protection, tax advantages, and flexibility in management and ownership. By following the key steps outlined in this article, you can officially form your Tennessee LLC by filing the articles of organization, creating an operating agreement, obtaining an EIN, and complying with licensing and permit requirements applicable to your industry. Additionally, be sure to stay up-to-date on Tennessee’s annual report filings and franchise and excise taxes.

Forming an LLC establishes your business as a separate legal entity and also allows pass-through taxation so profits and losses are reported on your personal tax return. Maintaining compliance with Tennessee’s business regulations will keep your LLC in good legal standing. With the proper foundations put in place, you can shift focus to your startup operations and scaling your business venture.

FAQs

What are the requirements to form an LLC in Tennessee?

• To form an LLC in Tennessee, you need:
• At least one member (individual or business)
• A registered agent with a Tennessee address
• To file Articles of Organization with the Tennessee Secretary of State
• To create an Operating Agreement

What information do I need to provide in the Articles of Organization?

The Articles of Organization require basic information such as:

• The LLC’s name
• Principal address
• Registered agent’s name and address
• Name and address of each member
• Signature of all members

Do I need to publish my new LLC formation?

Yes. You must publish a notice of your LLC formation in a local newspaper in the county where your registered office is located within 60 days.

Does Tennessee require any special licenses or permits to start my LLC?

Tennessee may require special licenses, permits, registrations depending on your industry and business activities. Research requirements for your specific business.

What are the costs to form an LLC in Tennessee?

The filing fee to form an LLC in Tennessee is $100, plus you may incur other costs like publication fees, registered agent service, operating agreement creation, etc. Total costs range from $200-500.

Frank Gogol

A seasoned SEO expert, Frank has a long history of working with and for startups. Starting in mid-2018, Frank served as the SEO Strategist for Stilt, a fintech startup that provided fair loans for immigrants in the US and other underserved markets. While with the company, he scaled site traffic from zero to more than 1.5 million unique visits per month, driving the bulk of the company’s lead generation until it was acquired by J.G. Wentworth in December 2022. As employee #5 at Stilt, Frank was witness to, and part of, the successful building and sale of a fintech company, uniquely positioning him to create content for founders about all things startups.

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