If you’ve chosen to form a Limited Liability Company, then you’re not alone. LLCs are the most popular business type in the United States. They provide loads of tax benefits, and afford business owners with personal asset protection, which makes them a good option for many people. But what sort of formation time frames can you expect in the state? We’ll tell you everything you need to know about formation times, the business environment in the state, and the formation process in this guide.
Discovering Tennessee
We’ll start off by describing the state and what it’s like to do business there.
No one really knows how it got its name, but it is similar to two different Indigenous American words- “Tanasi” and “Tanasqui”- which both sound pretty close to “Tennessee”. It’s bordered by North Carolina, Virginia, Kentucky, Arkansas, Missouri, Mississippi, Georgia, Alabama, and the Mississippi River.
Some of its geography includes forests, the Smoky Mountains as well as other mountains, valleys, ridges, streams, gorges, fertile farmland, hills, lakes, and swampland. The western part of the state is situated on a fault line and it experienced the worst earthquake in the continental U.S. in 1812. It was so bad that the Mississippi River actually flowed backwards, the surrounding land sank several feet, and a new lake was created called Reelfoot.
When it comes to natural resources, the biggest one in Tennessee is its fertile soil. Around half the state is farmland. It also mines different minerals like pyrite (fool’s gold), fluorite, marble, calcite and zinc.
Economic Overview of Tennessee
Tennessee's GSP (Gross State Product) is $374.8 billion, with a growth rate of 20.6k% from 2018-2023, which ranks it 16th in the nation for its GSP growth.
The biggest industries in the state by revenue are: Drug, Cosmetic & Toiletry Wholesaling, Hospitals, Health & Medical Insurance, New Car Dealers, and Commercial Banking. The largest employers in the state are Walmart Inc., Amazon.Com, Inc., Vanderbilt University Medical Center, The Kroger Co., and the United States Postal Service. And the sectors that contribute the most to the state’s economy and GDP are Manufacturing, Real Estate & Rental & Leasing, Healthcare & Social Assistance, Professional, Scientific & Technical Services, and Wholesale Trade.
Tourism is a big industry in the state because of the Great Smoky Mountains National Park, which gets 10 million visitors per year. There’s also Elvis Presley’s Graceland in Memphis, as well as Gatlinburg, Nashville and Chattanooga, all of which receive lots of tourists.
FedEx has its headquarters in Tennessee. And the Manufacturing, Mining, Construction and Logging industries are strong in the state, as well.
Business Environment in Tennessee
Tennessee’s economy was rated #12 by usnews.com, #19 for business environment, #31 for employment and #6 for growth. Job growth in the state is 0.2%, which matches the national average. Long-term fiscal stability is rated #2, and short-term fiscal stability is #12.
Infrastructure in the state is a mixed bag. It’s ranked #11 for internet access and #16 for transportation. Only 5.4% of the state’s roads are in poor condition, while the national average for poor roads is 19.0%. But it’s rated #31 for energy because it only uses 10.4% renewable energy, compared to the national average of 12.3%.
The Opportunity section is interesting, as well. It ranks #14 for affordability and #40 for economic opportunity. The cost of living index is 90.9, down from the national average of 100.0. That should mean that people in the area should enjoy low costs of living, right? But the poverty rate is 13.6%. For comparison, the national average is 12.8%. This may be because the median household income is $59,695 while the national average household income is $69,717.
State Specific Regulations and Incentives for Forming an LLC in Tennessee
Tennessee provides a handful of programs to help businesses. Here’s a look at Tennessee’s incentives:
- FastTrack Infrastructure Program: This is a discretionary program that provides grants to government agencies on the local level for improvements to the public infrastructure which will provide benefits to at least one company. Businesses must create new full-time jobs and make capital investments. The program also requires funds to be matched from the local government. The match amount is based on the community’s financial situation and ability to pay.
- FastTrack Economic Development Fund: This program provides grants to local government agencies to reimburse project-related expenses to businesses which weren’t covered by grants from the FastTrack Job Training Assistance and Fast Track Infrastructure programs. This grant is designed to help with the offset of expenses like equipment relocation, capital improvements, retrofitting and temporary office space. The business is required to create new full-time jobs and make capital investments to qualify. Premium projects can receive a 35% bonus incentive if they locate in one of the Appalachian Regional Commission’s “at risk” locations. 50% bonuses are awarded to projects that are located in “distressed” areas designated by the Appalachian Regional Commission.
- Job Tax Credit: If a business makes a minimum capital investment of $500,000, it could qualify for a one-time corporate tax credit of $4,500 per job. You can use the credit to offset 50% of F&E (franchise and excise) tax liability in a year. The job requirements depend on the tier of your county. Tiers 1 and 2 must create 25 jobs, Tier 3 must create 20 jobs and Tier 4 must create 10 jobs.
- Industrial Machinery Tax Credit: This is a credit of between 1%-10% to either purchase, install via third-party, or repair industrial machinery. This tax credit is permitted to be used to offset as much as 50% of F&E (franchise and excise) tax liability for a year.
- Sales Tax Exemptions: These exemptions are for energy, fuel and water as well as industrial machinery used at manufacturing facilities. Businesses must also meet requirements for capital investments and job creation. Tax exemptions can be used for equipment purchases used at headquarters, R&D centers, data centers, warehouse and distribution facilities and call centers.
- FastTrack Job Training Assistance Program: This program supplies grants to companies to help them train new full-time employees. Businesses must meet a job creation and capital investment requirement to qualify.
Pros and Cons of Establishing an LLC in Tennessee
There are a lot of reasons that Tennessee is a good place to form an LLC, and several disadvantages for business owners in the state, too.
Tennessee has a reputation for being a pro-business state. It invests lots of money into global business relations, education, infrastructure and workforce development. Because of that, a lot of corporations are relocating to the state, and big names like Mitsubishi, Oracle, and FedEx have invested in the state.
Tennessee has several big cities: Nashville, Knoxville, Chattanooga and Memphis. This means a large pool of potential customers, and lots of investment opportunities.
Tennessee has a prime transportation location. Around ¾ of the population of the U.S. can be reached from Knoxville with just one day’s drive.
Tennessee has low taxes. There aren’t estate or inheritance taxes, no personal income taxes, and the corporate income tax rate is only 6.5%.
But there are challenges, as well.
The environment in Tennessee can be difficult to deal with. It’s extremely humid, and the heat in the summer can be downright brutal. When you couple that with extreme thunderstorms, tornados and even hurricanes, it can cause a real problem for businesses.
There are other states with lower taxes. 6.5% is a middle-of-the-road corporate income tax. For instance, New Jersey can have lower business costs. In fact, there are other states where corporate income taxes aren’t charged at all, like Nevada, Texas and Wyoming.
Procedure of Establishing an LLC in Tennessee
Before processing times take effect, you have to submit documents to initiate the formation process. We’ll explain each step so it’s easier. Here’s what you need to know.
Necessary Documentation for Filing an LLC in Tennessee
First, you’ll need to gather a number of applications and important documents before you officially file for an LLC. Here’s what you should collect.
- Articles of Organization: This is the main formation document you’ll need. It’s basically an application to get an LLC, but it’s also important because it proves the legitimacy of your LLC, and introduces it to the Secretary of State. Some of the information typically required on the form includes the business name, purpose, address, registered agent, and a list of LLC members along with their contact information. Sometimes an explanation of its management style is requested as well. For instance, is your LLC member-managed or manager-managed?
- Operating Agreement: Technically an operating agreement isn’t a legal requirement that you must meet, but because of its vital nature it’s something that even the Secretary of State recommends that you have. It serves a dual purpose of being a contract between LLC members and a set of instructions for how your business will run. Some of the information it includes is a list of LLC members, contact information, a description of their role in the company, the contributions of each member, information about how profits and losses will be divided, and instructions for managers on how to conduct meetings. There should also be instructions for how to add and remove members, so that if a member dies then there will already be a plan in place.
- Initial Report: LLCs in Tennessee are required to file an annual report each year, but the first one that’s submitted with your formation documents is called an initial report. Every subsequent report after your initial report ranges from $300-$3000 and you must also pay a filing fee of $50 per LLC member.
- Business License: Your business will need a number of licenses and permits. You’ll need one from the state government, but it may require licenses or permits on the county and local levels as well. To check local and county requirements, ask county or city clerks. But for state business licenses, head to the Tennessee Smart Start website.
- Tax Registration: If your company plans to hire employees or sell goods, then you’ll need to register it with the Department of Revenue for tax purposes. The form is called an Application for Registration, and you can learn about it on the Department of Revenue’s website.
- Name Reservation Application: You need to complete a few steps to secure a business name. First, to make sure that no other business is using the same name you need to check the business name database on the Secretary of State’s website. Once you’ve found a name that you can legally use, you need to submit a Reservation of Limited Liability Company Name to secure it with the Secretary of State.
- Employer Identification Number (EIN): Another important document you need to secure is an Employer Identification Number, or EIN. Even if you don’t plan to hire employees, you’ll need one for other tasks, like opening a business bank account, or filling out tax forms. Fortunately, you can easily obtain one from the IRS website and it’s free.
Legal Requirements for Starting an LLC in Tennessee
Once you’ve got all of your paperwork together, it’s time to start the filing process. Although the LLC formation process is typically considered simpler than starting a corporation, there are still several steps. Here’s the process to form an LLC in Tennessee.
- Get an Articles of Organization Form: The first step to getting an LLC is getting an Articles of Organization form. You can print a paper copy or file online through the Secretary of State.
- Pick a Name: Legally, you can’t choose a business name that’s already being used by another Tennessee business, and your name can’t be too similar to another business’s name. So, you need to run a search on the business name database, then file a Reservation of Limited Liability Company Name with the Secretary of State to lock it in for your business.
- Choose an Address for Your LLC: This isn’t as simple as jotting down your home address. In fact, many business owners feel that’s a bad idea. This is because your business’s address is listed on the public record, so listing your home address as your business address makes your home address accessible to anyone who wants to access it. Since that’s a security threat and a privacy concern, many people avoid using their home address. If your business doesn’t have a physical address, you can research virtual addresses in your area, or ask your registered agent if you could use theirs.
- Designate a Registered Agent: Every LLC in the state is required to have a registered agent, which is someone who will accept service of process and other legal notices as well as correspondence from government agencies at their address on behalf of your company. They then forward the mail and correspondence to you. It’s more complicated than simply being a mail receiving service because they’re authorized to accept legal notices on your behalf, as well. You’re allowed to designate a friend, family member, employee, or generally anyone you want to fill the role. However, it should definitely be a responsible individual whom you trust because if a registered agent doesn’t properly perform their duties, your business could face penalties or be forbidden from doing business in the state. If you want the peace of mind that comes from hiring a professional, there are many qualified registered agent services on the market to choose from.
- Sign and File Your Articles of Organization: First check that you’ve included all of the necessary information, that you have all of the required copies and documents, and that the information is correct, then it’s time for your Articles of Organization to be signed and submitted to the Secretary of State Business Services Division. Signing yourself could mean that your name is listed on the public record as your company’s LLC Organizer. If you’d like to avoid that and don’t want the hassle of filling out the paperwork yourself, you could hire an LLC formation service.
Time Frame for Establishing an LLC in Tennessee
Once you’ve submitted all of your documents, the clock starts ticking for your formation time. Here’s how long you can expect to wait.
How Long Does the Initial Paperwork Take in the State of Tennessee?
To answer this, you must first understand approval times. Approval time refers to the total turnaround time from the time you submit your documents to the Secretary of State until you receive approval for your LLC, and it includes processing time and transit time.
Approval time in Tennessee to file online is immediate, or 2-3 weeks if you file by mail.
Processing Times in the State of Tennessee
Processing times only account for the time it takes for the Secretary of State to go over your documents and put the information in their system.
Processing time for online filing is immediate, and 3-5 days for mail filing.
Common Delays in the LLC Formation Process in Tennessee
A number of things could slow the formation process. Here are some of the circumstances that could cause delays:
- Document Issues: If you don’t include all of the requested information, or if you enter information that isn’t correct, then your application could be rejected which would certainly cause delays.
- Timing: Both the end of the year and the beginning of the year are high volume filing periods, which means that filing during these times will cause delays as clerks rush to complete the massive workload. Another thing to consider is that the Secretary of State’s office isn’t open on weekends or government holidays, so filing just before or directly on one of these days will cause delays.
- Filing Method: Filing by mail is slower than filing online because you have to contend with things like transit time. Because of this, if you don’t file online then you can expect slower formation times.
Expedited Processing for LLC Formation in Tennessee
Expedited processing rushes the formation process in states where it’s available and can greatly reduce the processing time of mail filings. Here’s everything you need to know about expedited processing in the state of Tennessee.
What Are the Expedited Options Available?
There isn’t an official expedited processing option offered by the Secretary of State in Tennessee. But there is a workaround for mail filings that can reduce formation times from weeks to just a couple of days.
To shorten your formation times, mail your filings using overnight delivery and include an overnight delivery envelope that can hold as much as 3 oz. This is the envelope that the Secretary of State will use to send you your approved LLC documents back. You can use any delivery system you choose for this, such as USPS, UPS or FedEx.
Additional Costs for Expedited Services in Tennessee
If the state of Tennessee offered a proper expedited processing option, then you would be required to pay fees for expedited processing on top of the filing fee. But since they only offer an option where you can overnight your documents, the only additional cost is the shipping cost.
Comparing LLC Formation Time Frame in Tennessee with Other States
It can be helpful to compare the formation time frames of other states to your state so you can determine its speed, and decide whether you’d rather opt for a foreign LLC in another state.
Brief Comparison with Key States
Tennessee’s processing times for online filing are immediate, and 3-5 days for mail filing. There isn’t a true expedited service option.
There are of course slower states. Processing times to file by mail in New York can be as long as 8 months. If you file online in Arizona you can expect processing times of 14-16 days. And expedited processing in Maryland takes 7 days.
While Tennessee isn’t the only state to offer immediate processing to file online, there are faster options as well. In Alabama, Massachusetts and South Dakota, filing by mail takes 1-2 days, and it’s only 1 day in Ohio and Kentucky. And expedited filing can be as fast as 1 hour in Delaware, Michigan, Montana, Nevada, Pennsylvania and West Virginia.
Why is Tennessee a Favorable Place for Forming an LLC?
Tennessee could be an optimal place to start an LLC because it’s in a great location close to many parts of the U.S. which makes transportation easy, it has low taxes, it’s known to be a pro-business state, and it has several major metropolitan areas.
