Starting a new business is always an exciting decision, so congratulations! If you’re here then you’re either curious about the process of forming an LLC in Tennessee, or you’ve already decided to choose this structure for your business and need someone to walk you through the steps.
I’ll provide you with a complete guide to forming an LLC in Tennessee, but first I’ll cover the fundamentals of what an LLC is and why many business owners choose an LLC as their preferred business entity. (This isn’t legal advice. Information presented here is purely educational).
(If you want to skip to the “How to Form an LLC” section, click here.)
What Is a Tennessee LLC?
A Tennessee LLC is a Limited Liability Company formed in the state of Tennessee that is governed by the laws, regulations, and statutes of the state of Tennessee.
Why Choose an LLC?
There are several advantages to selecting an LLC over a sole proprietorship or corporation as your business structure. However, three primary advantages influence business owners' decisions to create an LLC:
1. Limited Liability and Asset Protection
The first, and certainly the most significant, advantage of forming an LLC is the protection that LLC owners gain from personal responsibility. As the owner of a Tennessee LLC, you cannot be held personally liable for the financial and legal liabilities of your Limited Liability Company.
When a Limited Liability Company is sued or declares bankruptcy, its owners are shielded from their LLC's creditors seizing their personal assets. This means they cannot use your house, vehicle, or other personal property as collateral to satisfy your business's financial commitments and debts in Tennessee. They have no access to your Tennessee LLC's funds or assets.
Because the US economy is so volatile, no business is ever completely safe. Additionally, it just takes one unforeseeable occurrence (such as a natural disaster) to financially destroy a business overnight. Thus, the safety afforded by establishing an LLC in Tennessee is invaluable for company owners who value the time and effort invested in building their empire.
The second advantage of forming an LLC over another company structure (such as a sole proprietorship or corporation) is the privacy and security of your personal information that comes with forming an LLC in Tennessee.
Over the last decade, hackers and internet criminals using their expertise has increased dramatically. They are capable of stealing your identity by exploiting innocuous data (such as your name and address) and then amassing thousands of dollars in debt, credit card bills, and loans in your name. And it might occur so swiftly that you will be unaware until it is too late.
If you select a business structure such as a sole proprietorship, the Tennessee Secretary of State will make your information public. Anyone, regardless of their intent, may view anything posted publicly.
However, if you create a Limited Liability Company in Tennessee, you have the option of protecting your privacy and identity throughout the LLC creation process.
To do this, you just need to employ an LLC formation service. LLC formation services will use their own information to register your LLC with the Tennessee Secretary of State. This means that their information, rather than yours, will be included on the public record. It's a win-win scenario for LLC owners, since their information is not publicly available yet they retain control of their Limited Liability Companies.
The third most advantageous aspect of creating an LLC is the tax savings associated with incorporating an LLC in Tennessee. These tax advantages become most apparent when a Limited Liability Company is compared to a corporation.
If you form a corporation rather than a Tennessee LLC, you will be subject to what is known as “double taxation.”
Corporate income tax is initially charged on the corporation's profits, and personal income tax is then paid on those profits after they are distributed as dividends to the corporation's shareholders. The term double taxation refers to the fact that earnings are taxed twice before corporate shareholders get them.
However, when you form an LLC in Tennessee, you escape double taxation.
Profits earned by the Tennessee LLC are taxed at the corporate rate, however profits distributed to LLC owners are treated as personal income and claimed on their individual tax returns. This means that if you own a Tennessee LLC, you will not have to pay taxes on your LLC's profits more than once.
However, there is more! Apart from avoiding double taxation, LLCs offer a number of other tax benefits.
The 2017 Tax Cuts and Jobs Act included the Qualified Business Income Deduction (QBID), which significantly favors LLCs. QBID allows the majority of LLC owners to save up to 20% on taxes that they would have to pay if they had selected another business type. This is a good reason to form a Tennessee Limited Liability Company.
How to Start an LLC in Tennessee
Now that you know the basics of what an LLC is and some of the advantages of forming one in Tennessee, you’re able to make a well-informed decision about whether or not the LLC business structure is right for you and your business venture. If you’re still intent on forming an LLC in Tennessee, then these are the five steps you’ll need to take to get your LLC established.
*IMPORTANT* If you’re new to LLC formation and want some guidance through the process, then I have good news. Professional services are available to help form your LLC on your behalf. They’re called LLC formation services and they can make the whole process significantly easier.
LLC formation services will help you with every step of the process, from filing your documents to even offering assistance with post-formation paperwork. These services can cost as low as $0 plus your state filing fees and are a great way to make maintaining a “Good Standing” status with the Tennessee Secretary of State a breeze.
My top recommendation for an LLC formation service is Northwest Registered Agent, which charges $39 plus state filing fees. They provide excellent service and go above and beyond.
If you’d like to know more about what an LLC formation service can do for you, check out my guide to the best LLC service.
1. Obtain Articles of Organization Form
To start the LLC formation process in Tennessee you’ll need to obtain a copy of the Articles of Organization form (form ss-4270) from the Tennessee Secretary of State.
This is the primary document you’ll be filing and the most important in the overall process. You can file the Articles of Organization online or via postal mail, and both methods carry a filing fee of $50 per LLC member (minimum fee of $300, maximum fee of $3000).
The following steps correspond to areas on the Tennessee Articles of Organization form.
2. Choose Your Business Name
After obtaining the Articles of Organization, the next step is to register the business name for your LLC.
Sadly, this step is more complex than registering the first name that comes to mind.
Under Tennessee Law, your LLC must have a name that is distinguishable from any business names that have already been registered with the Secretary of State, similar to how many websites require a unique username. The name for your LLC must also include the words “Limited Liability Company” or the abbreviations “L.L.C.” or “LLC.”
To make the process easier, you can file an Application for Reservation of Limited Liability Company Name (form ss-4228) with the Tennessee Secretary of State to reserve a business name for a four-month period. The filing fee for the reservation is $20 and can be filed online or by mail.
3. Choose a Tennessee Registered Agent
The next step to forming an LLC in Tennessee is appointing a registered agent.
Tennessee law requires all foreign and domestic LLCs to appoint an agent for service of process.
A registered agent is an individual or business entity that acts as your LLC's point of contact, receives mail, official government correspondence, and legal documents, accepts service of process during business hours, and safeguards your information by registering their name and address with the Tennessee Secretary of State instead of yours.
When it comes to selecting a registered agent in Tennessee for your LLC, you have two options. You may serve as registered agent for your company either on your own or via a commercial registered agent service.
If you choose to serve as registered agent for your LLC, it is critical to note that you will be legally obligated to receive mail, legal documents, and service of process on business days during normal business hours. This may complicate your business’s operations, since the majority of Tennessee LLCs operate during regular business hours on business days, and overextending yourself by acting as a registered agent is not a good idea.
If your Tennessee LLC fails to comply with a service of process, you may face a default judgment. Additionally, failing to respond to a service of process on time may result in your LLC losing its “Good Standing” status with the Tennessee Secretary of State, thereby preventing you from doing business in the state.
Using a commercial registered agent service in Tennessee rather than acting as your own registered agent significantly minimizes your personal energy output and safeguards your information. Appointing a registered agent provider for your business guarantees that you receive and are aware of any mail and service of process that the registered agent provider accepts on your behalf. The only downside to using a registered agent service is their company services are priced between $99 and $299 each year.
Given the risks involved in acting as your own registered agent in Tennessee, the cost of employing a registered agent service is justified. I recommend that newly created LLCs use the services of a registered agent rather than trying to perform the registered agent duty on their own.
If you're interested in learning more about registered agent services, click here to read my piece on Tennessee's best registered agent.
4. Choose Your LLC Address
After appointing a registered agent, your Tennessee LLC will need to register a business address.
The business address of the Tennessee LLC is critical and must be included in the Tennessee LLC Articles of Organization. All Limited Liability Companies in Tennessee must register with the Tennessee Secretary of State using a principal business address, which is then made public.
If you do not use a registered agent or a service for LLC creation, you must record the physical street address of your LLC. If your company does not have a physical location or office, you must use your home street address as the business address for your LLC.
You are not required to provide an address on the Tennessee Secretary of State's website if you have employed the services of a registered agent. When you hire a registered agent, they will provide their own address on the form, ensuring that no one else has access to your confidential information.
5. Sign and File Your Articles of Organization
The next step is to ensure that all the information on the form is correct and then file Articles of Organization for your LLC with the Tennessee Secretary of State.
The information necessary to complete the form consists of the following:
- Your LLC name
- A name consent form if your LLC name is similar to the name of an existing business entity in Tennessee
- Official LLC designation—professional LLC, series LLC, obligated member entity, bank, or other designation
- Your registered agent’s information
- The month your LLC’s fiscal year ends (it’s typically December)
- Your LLC’s effective date
- The management style of your LLC (member-managed or manager-managed, single-member or multimember LLC, etc.)
- The number of members your LLC has
- If your LLC isn’t perpetual, then the duration of your LLC
- Your LLC’s principal office address
- Whether your LLC is a nonprofit
Once you’ve checked all of the information on the form for accuracy, it’s time to decide who will sign and file the Articles of Organization. If you’re using an LLC formation service, they’ll sign and file the form on your behalf. If you’re forming your LLC on your own, then you’ll need to sign and file the form yourself, but again be aware that your information will be listed on the public record if you do so.
You have the option to file Tennessee Articles of Organization online or by mail. If you choose to file by mail, you send the form and a check or money order for the filing fee to the following address:
Business Services Division
Tre Hargett, Secretary of State
State of Tennessee
312 Rosa L. Parks AVE, 6th FL
Nashville, TN 37243
If you prefer to file your Articles of Organization online, you can do so here.
The filing fee is $50 per LLC member, with a minimum fee of $300 and a maximum fee of $3000. There’s also a convenience fee to process the payment online.
Once you’ve submitted your Articles of Organization form to the office of the Tennessee Secretary of State, they will contact you by mail or email once they’ve processed the forms and payments. This processing time usually takes as little as 24 hours if you file online, and somewhere between 3–5 business days if you file by mail.
Other LLC Activities
Once you’ve filed your Articles of Organization, there are a few activities you’ll be required to take part in regularly to ensure that your LLC remains in good legal standing with the Tennessee Secretary of State. Here are a few of the activities you may be required to take part in as an LLC owner.
Most businesses in Tennessee must obtain a business license to conduct business in the city they’re located in. You can get business licenses from the local county clerk, city clerk, or other relevant government agency in your LLC’s jurisdiction. You can check out the Tennessee Smart Start guide for more information about business licenses in the state.
It’s possible that you’ll be required to register your LLC with the Tennessee Department of Revenue if your new business entity takes part in activities such as collecting sales tax or selling goods. You can register with the Department of Revenue online or submit a paper form called an Application for Registration. Here’s a link to the Department of Revenue’s website for more information.
Every LLC in Tennessee is required to file what is known as an annual report. Annual reports are a way for the Secretary of State to ensure that the information they have on record for your business is current and accurate, while also collecting a filing fee each year. The fee to file annual reports is $50 per LLC member, with a minimum fee of $300 and a maximum fee of $3000.
Your annual report is due before the first day of the fourth month after the end of your LLC’s fiscal year. So, if your LLC’s fiscal year ends on December 31st, your annual report is due by April 1st. You can file annual reports online here.
Every business in Tennessee that hires employees is required to register for the Unemployment Insurance Tax, as well. This tax is handled by the Department of Labor and Workforce Development, and you can register for the tax and qualifications here.
If all of this registration, form filing, and tax information seems like a lot of things to remember, that’s because it is. If you’d like to minimize some of that burden, you could hire a PEO service and subscribe to online legal services, which should help reduce your workload.
Tennessee LLC Fee Summary
How much does it cost to form an LLC in Tennessee? The LLC formation process has quite a few filings fees and costs, so here’s a list of each fee you’ll encounter when starting an LLC in Tennessee.
Articles of Organization: $300–$3000
Name Reservation: $20
Registered Agent Fee: $99–$299
Annual Report: $300–$3000
State Personal Income Tax: 0%
State Corporate Income Tax: 6.5%
After Starting Your Tennessee LLC
Getting through the LLC formation process is a monumental milestone for your business, and it’s one you should enjoy. So take time to have a beer or glass of wine, take a weekend vacation, or simply enjoy a decadent dinner at a fancy restaurant.
But don’t let yourself get too comfortable. There are still several tasks you need to complete so that your LLC will have proper business foundations.
Step 1. Create an Operating Agreement
The first step you must complete to ensure your LLC has the proper business foundations is to create a comprehensive Operating Agreement. Many small business owners overlook the importance of Operating Agreements, but once you understand why they are important you’ll be more keen to draft an Operating Agreement for your LLC.
Your Operating Agreement provides instructions about how your business operates. Your Operating Agreement should contain instructions about your LLC management structure (whether you own a member-managed or manager-managed LLC and whether it has a single-member or multimember LLC system), lists your LLC members, and designates which LLC members have the authorization to make high-level decisions for the business. It should also list information about the ownership percentages of your LLC members and their percentages of profits and losses.
The reason your Operating Agreement is of vital importance is your business is required to operate according to the instructions laid out in the Operating Agreement. So, getting the Operating Agreement wrong could mean that the growth of your business is stunted because you didn’t allow for things like innovation and change in your faulty operating instructions. But well-written Operating Agreements should allow owners of Tennessee LLCs to sit back and watch as their businesses grow because they aren’t held back by faulty Operating Agreements.
If you’d like some assistance with drafting the Operating Agreement for your LLC, there are a few options available to Tennessee LLCs.
The first option is the free Operating Agreement template that Northwest Registered Agent provides on their website to LLCs. You can subscribe to online legal services if you’d like help with some of the wording and legalese presented in the document. And, of course, if you hire an LLC formation service they will typically create an Operating Agreement for your LLC as part of their LLC services.
Step 2. Apply For an Employer Identification Number
If you plan to collect sales tax, hire employees, or have certain excise tax liabilities, then you’ll be required to obtain an Employer Identification Number (EIN). An EIN qualifies your LLC for certain licenses and permits that it wouldn’t qualify for otherwise and allows you to limit the amount of times you use your Social Security Number on documents. Of course, you don’t have to collect sales taxes or hire employees to receive an EIN—it’s simply a federal tax identification number for businesses.
EINs are issued by the Internal Revenue Service (IRS), and obtaining an EIN is quite simple.
To apply for an EIN, simply head to the IRS website (which you can find here) Monday–Friday between 7 a.m. and 10 p.m. to fill out and submit your application. However, if you hire an LLC formation service, they typically apply for an EIN on your behalf.
Step 3. Open a Business Bank Account
The last step you’ll need to complete is opening a business bank account or LLC bank account.
Many new business owners overlook the importance of opening a bank account dedicated to business transactions, but it’s one step you shouldn’t skip.
Rather than opening separate bank accounts for differing transactions, many business owners choose to make business transactions using their personal account. They seem to believe that it’s more convenient to use one bank account for multiple purposes. However, there are two very good reasons you shouldn’t conduct business this way.
First, even if you think you’ll be able to discern the difference between business and personal transactions on bank statements when the time comes to submit income tax returns, you likely won’t. It’s one thing when you’re determining the difference between two different transactions made the same day, but there are often hundreds of transactions and they were often made several months earlier. This makes filing federal taxes needlessly complicated.
Second, if you use your personal bank account for business expenses, it negates the limited liability and personal asset protection you receive when you form an LLC. This leaves you vulnerable to personal lawsuits, and all of the finances in your personal account can be counted as assets of the LLC rather than personal assets.
So, to make filing taxes easier and to ensure that you receive the full benefit of limited liability and personal asset protection, open a business bank account.
You need what is known as a bank kit to open a business bank account. This kit contains certified copies of several formation documents such as your initial resolution, your EIN, Operating Agreement and Articles of Organization. Of course, you can collate all of these documents yourself, but an LLC formation service will typically create a bank kit as another LLC service.
Tennessee LLC FAQs
Can I form a Professional LLC in Tennessee?
If your Tennessee LLC offers professional services, such as legal or accounting, you must adhere to the Professional Limited Liability Company (PLLC) formation guidelines. PLLCs are limited to delivering a single licensed professional service, and all members must possess the required business licenses and permits, or be registered with the state, in order to provide the licensed professional service for which the LLC was founded. You may be required to supply a copy of each LLC member's current business license or state registration as part of the LLC formation process.
Can I form an LLC in Tennessee from out of state?
If your LLC is based outside of Tennessee and you want to expand into the state, or if you are a nonresident of Tennessee, you must complete the foreign LLC registration procedure. This procedure is similar to that for establishing a domestic Limited Liability Company. The key distinction is that a foreign Limited Liability Company is required to submit an Application for Certificate of Authority (form ss-4233). This must be supported by a current Certificate of Good Standing from the LLC's home state. Additionally, you must choose a registered agent with a Tennessee street address. You must submit your application by mail and pay a filing cost of $50 per LLC member (minimum price $300, maximum fee $3000).
Congratulations for having the fortitude to establish a Tennessee LLC and take control of your new business life!
Without the assistance of an LLC formation service (which may cost as little as $0 plus the filing fee), you must complete these five procedures on your own to start a Tennessee LLC. The following are the five stages necessary to establish your Tennessee LLC:
- Obtain the Articles of Organization form
- Name your LLC
- Choose your registered agent
- Choose your LLC address
- Sign and file your Articles of Organization
It may be challenging to navigate the red tape and legalese involved in forming an LLC, and it can take some time if you opt to do it on your own. Nothing, however, compares to the feeling of success that comes from completing this massive work on your own. Attaining this first milestone marks the start of a chain of future milestones on your path to developing your business enterprise.
So again congrats on establishing your Tennessee LLC today and best luck on your endeavor!