Tennessee is an excellent state to form a Limited Liability Company (LLC) because of the small business programs that provide access to startup funding and mentorship. And the number of eligible grants and support has only increased as of lately.
To form an LLC means that you’re establishing a business entity separate from you personally.
If your business is sued, LLC members have personal liability protection for their assets from legal claims against the business.
An LLC requires more effort than forming a limited partnership, but it’s less complicated than forming a corporation where you’d have to appoint a board and keep meeting minutes, for example.
Table of contents
- Step 1: Choose a name for your Tennessee LLC
- Step 2: Designate a registered agent
- Step 3: File for articles of organization with Tennessee Secretary of State
- Step 4: Obtain an EIN (Employer Identification Number) from the IRS
- Step 5: Prepare an LLC operating agreement
- Step 6: Register with Tennessee State Tax Authorities
- Step 7: Open a Tennessee business bank account
- Taxes, costs, and fees in Tennessee for LLC
- Business permits and licenses in Tennessee
- Pros and cons of forming an LLC in Tennessee
- Key takeaways
- Formation FAQs for an LLC in Tennessee
Step 1: Choose a name for your Tennessee LLC
The Tennessee Secretary of State requires LLC business names to:
- Include the words ‘Limited Liability Company’ or ‘LLC’ (or their abbreviations, L.C. or LLC.) at the end of its name.
- Not contain any words prohibited by Tennessee law.
- Not be deceptively similar to another Tennessee existing business entity’s name.
Business owners can use the name search tool to check if their intended name is available. If that’s the case, you can also opt in to reserve a business name for 120 days. It costs $15 to do so.
The Tennessee name reservation form can be completed online, by mail, or in person at the Tennessee Secretary of State’s office in Nashville.
Also, you may choose to register an assumed name (doing business as “DBA” name) on top of your LLC name. It makes sense if you plan to operate several types of brands or just want to brand your business under a name different from your legal one.
The cost of DBA in Tennessee is $15 per name.
Step 2: Designate a registered agent
The good news is that you can pick anyone to serve as your registered agent, and it doesn’t necessarily have to be someone affiliated with your LLC.
Whether you name a corporation or an individual as your registered agent, you’ll need to list their physical street address (not a P.O. box) on the company formation documents. Most LLC owners designate either an employee or a trusted third party to act as their registered agent.
You may want to hire a registered agent service provider instead. Registered agents charge fees, but they also offer other statutory compliance assistance like annual registration renewals and business document processing.
You can hire a professional service provider for about $100/year. Using a professional service also ensures your registered agent is available during business hours to receive service of process on your LLC’s behalf.
Some business owners choose to serve as their own registered agents. It’s the least expensive option, but you’ll have to personally accept legal papers on behalf of your Tennessee LLC and handle all statutory compliance issues internally.
The only problem with this is that if you can’t receive any legal documents, the state can suspend your company for failing to comply with LLC requirements.
Step 3: File for articles of organization with Tennessee Secretary of State
The official step to forming an LLC is to file Form SS-4720, the Articles of Organization for a Limited Liability Company, with the Tennessee Secretary of State (SOS).
Tennessee has a peculiar fee structure where articles of organization cost has a base fee of $300 + an extra $50 for each LLC member:
- Minimum fee is $300 for single-member LLC.
- Maximum fee is capped at $3,000.
This cost structure applies to both domestic and foreign LLCs.
The registration form can be filed online or mailed with the fees to:
The Tennessee Secretary of State
Business Services Division
312 Rosa L. Parks Avenue | Snodgrass Tower, 3rd Floor
Nashville, TN 37243
Step 4: Obtain an EIN (Employer Identification Number) from the IRS
LLC members can apply for an Employer Identification Number (EIN) on the IRS website. The EIN is a 9-digit number that uniquely identifies your business structure for federal tax purposes. It’s similar to an individual’s social security number.
Once the application is complete, you can immediately use the EIN to register with state tax authorities, apply for business credit, or add employees to your payroll.
Step 5: Prepare an LLC operating agreement
An operating agreement legally specifies your LLC’s management structure, members’ duties and responsibilities, capital investment and profit distribution provisions, and any other operational tidbits you may want to include. Having an operating agreement can protect you from future disagreements among members.
Multi-member LLCs benefit the most from having an operating agreement. Single-member LLCs need not worry about an operating agreement until you decide to scale your business and bring in another member on board.
Step 6: Register with Tennessee State Tax Authorities
Doing business in Tennessee means that you’re bound to pay different types of local state taxes such as:
- Business tax
- Gross receipts tax
- Annual franchise tax
- Excise tax
- Sales tax
Every LLC earning over $3,000 annually from the state of Tennessee has to register and pay the business tax. Business tax is managed by the state and paid annually, on the 15th of the 4th month after your fiscal year ends.
- Domestic LLCs with gross receipts less than $10,000, you must obtain a minimal activity tax license.
- Domestic LLCs with gross receipts over $10,000 must pay $15 for a business license from the county where the business is located.
Foreign LLCs don’t need a county tax to operate, but owners must pay taxes on gross receipts over $10,000 to the Tennessee Department of Revenue.
Certain businesses, mainly selling soft drinks and alcohol, are subject to gross receipts tax instead of business tax.
Finally, sale and use tax is charged atop of business tax. Also, Tennessee-based businesses are subject to the annual franchise and excise taxes.
You can learn more about your business tax obligations from a series of manuals published by the Tennessee Department of Revenue.
Step 7: Open a business bank account
The next step is to open a business bank account for your LLC.
Business owners must separate business transactions from personal finances. Failure to do so can lead to legal consequences and loss of good standing with the state.
You’ll need your articles of organization and, most likely, an opening deposit between $25-$100.
Some Tennessee banks like First Horizon, SunTrust, and local credit unions will also require you to complete a lengthy application which includes providing personal information for all LLC members.
Business checking accounts also offer debit cards, access to bankers, and higher interest rates than personal accounts.
Tennessee LLC costs, taxes, and fees
Tennessee LLCs have to file an annual report and update the entity or registered agent information if anything changes. The annual report fee is $300 minimum and increases by an additional $50 per member up to a maximum of $3,000.
Limited Liability Companies doing business in Tennessee must also pay annual excise and franchise taxes. The franchise tax rate is 0.25% and is based on the greater of the:
- Company net worth.
- Or book value of business property used in Tennessee.
The minimum annual franchise tax is $100. The excise tax rate is 6.5% of taxable income, similar to corporate income tax.
Depending on your industry and tax classification, other taxes may apply to your business, such as:
- Sales tax: Due to the state and locality, if you ship physical products from Tennessee to other states. The general state tax is 7%, and local rates vary.
- Employee taxes: If you plan on hiring employees, you’ll also need to pay necessary employee taxes. It includes withholding taxes from employee wages and remitting your portion of payroll taxes. Rates vary, but all LLCs must complete Form LB-4411 to determine their unemployment insurance liability.
Tennessee business permits and licenses
Aside from the Tennessee business tax, many regulated industries and professions need an occupational license or permit.
For instance, a business operating in the following domains need to obtain a state license:
- Real estate
- Collection agency
Fees vary from less than $100 for cosmetologists to $25,000 for a collection agency with 10 employees.
Pros and cons of forming an LLC in Tennessee
There are benefits to forming an LLC in general, but Tennessee has added incentives for startups and small businesses. The state has made many resources available — from online educational tools to financing options — for helping get your business off the ground.
Tennessee LLC pros
- Favorable business climate
- Access to funding, mentorship, and startup resources through the Tennessee Department of Economic and Community Development
- LLC formation steps can all be done online
Tennessee LLC cons
- Annual franchise and excise taxes
- State-wide business tax or gross receipts tax
- High annual report costs
- Tennessee LLCs registration can be completed online with the TN Secretary of State.
- A progressive fee structure applies for obtaining Articles of Organization with a minimal fee of $300 for a single-member LLC and a max cap of $3,000.
- Tennessee-registered companies and those operating in the state have to pay state-wide business tax (or gross-receipts tax).
- Annual LLC reports are required in Tennessee and cost a minimum of $300 + $50 for each extra LLC member.
Tennessee LLC FAQs
The following are some frequently asked questions regarding forming a Limited Liability Company in Tennessee.