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One of the first things to do when planning a business is to create an entity. The limited liability company is similar to a corporation in that it offers the same protections. However, it is taxed differently, based on the type of LLC you decide to create. Before deciding to register as an LLC as opposed to a corporation, nonprofit, partnership, or another entity, be sure to speak to a business attorney about the tax ramifications of the various entities.
Tennessee also allows “series” LLCs. A business creates one or more limited liability companies under the same umbrella as the master LLC. Each LLC has its own bank account. They do share certain factions.
Before starting a limited liability company in Tennessee, you will need certain information and a business name. If you have everything ready before starting, you won’t have to stop to look up information or take additional steps.
To form an LLC in TN, you’ll need to:
Keep reading for a detailed walk-through of the steps to start an LLC in Tennessee.
Tennessee has several rules to create a business name, including that the name must be available.
You’ll need to include LLC, L.L.C or Limited Liability Company to your business name and make sure that it’s not violating any of Tennessee’s naming guidelines. First, begin by checking that your business name isn’t already in use.
You can search for your business name to ensure that no one else is using the name. Just changing the type of entity is not enough. If someone else has a business named ABC, Inc., you cannot use ABC, LLC.
The Secretary of State only compares the name to the state’s database, not other state or federal trademark databases, so if you plan on having a business that is nationally known, you should check those databases yourself or have an attorney help you.
You may reserve a business name before registering it so that another business cannot use the name. While Tennessee does not require that you reserve the name, we recommend it.
We also recommend reserving a DBA if you plan on using one. A DBA is a second business name that you might use to do business under. For example, you might have a business name of ABC, LLC and prefer a name that more aptly describes your business. The DBA would be part of your branding. For example, you might use ABC, LLC DBA Joe’s Small Business, LLC.
You must register the main business name and the DBA name separately.
A trademark identifies your brand or the goods and services you sell. The trademark cannot be the same as another business’s or person’s trademark. Normally, trademarks are filed at the federal level. However, Tennessee has a trademark database on which you can trademark your business name and logo.
Be sure to follow the instructions for filing a trademark for your business or goods and services in Tennessee. This is at the state level. If you wish to trademark your brand nationally, contact an attorney experienced in trademarks to help you with the process.
Tennessee requires a limited liability company to file articles of organization. You can complete a simple form or have an attorney complete it for you. The articles of organization is the document that defines your business as a limited liability company.
The fees for registering a name and filing Articles of Organization and other documents change often. You can find the fees on each document you need to file. Currently, it is $50 for each member to file articles of organization with a minimum fee of $50 and a maximum fee of $3,000. Reserving a name is currently $20.
The articles of organization need specific information, including:
Tennessee allows a business to file the LLC via one of four different ways, including:
A registered agent must be in the office during business hours. The registered agent accepts important and time-sensitive documents, including those from the Secretary of State and lawsuits.
Additionally, the registered agent lets you know when important filings are due with the Secretary of State. Missing filings could cost the business hundreds in filing fees.
You can opt to be your own registered agent, but if you do not expect to be in the office during regular business hours, even for a few days per year, it is better and safer to use a registered agent at Tailor Brands.
If you choose to register an LLC in Tennessee, but you do not live in the state or otherwise do business in the state, you can. However, you must have a physical address to register for an LLC in Tennessee. A registered agent provides that service. Thus, if you live in Washington but like Tennessee’s business practices better, you can form a TN LLC with a registered agent in Tennessee as the registered agent provides a physical address in the state.
An operating agreement dictates how you run the business. Even sole-member LLCs should have an operating agreement. While Tennessee does not require a limited liability company to have an operating agreement, we recommend (and so does the SBA) that you create one nonetheless. In short, the operating agreement is a contract between the members.
The operating agreement dictates many business actions, including but not limited to:
These are only a few of the sections of a detailed operating agreement. The agreement could prevent lawsuits between members. Many banks and loan companies require a copy of an operating agreement before extending a business loan or allowing the business to open a bank account.
Tennessee does not require its limited liability companies to have an operating agreement. However, banks, loan companies, vendors, and others might require an operating agreement before doing business with you.
Tennessee does not have specific requirements for an operating agreement since it does not require a limited liability company to draft this document. However, should you decide to draft an operating agreement, it should have the information on the Articles of Organization. We recommend a complete, detailed operating agreement if the business has members.
When applying for an EIN (Employer Identification Number), you can use our services or go directly to the Internal Revenue Service’s website. You must complete the application in one sitting, so be sure you have a valid taxpayer identification number, such as a Social Security number, ITIN, or an EIN of another company. The session expires in 15 minutes, after which you’ll have to start over. Furthermore, you can only apply online Monday through Friday from 7:00 a.m. through 10:00 p.m.
You can choose to print your EIN after you complete the application or have the IRS mail it to you.
If you are single-member LLC and do not plan to add members later, you do not need an EIN. However, we recommend that you apply for one as it keeps your personal finances separate from your business finances.
If you are not comfortable with applying for an EIN yourself or are not sure of the answers to some of the questions on the application, Tailor Brands can apply for the EIN for you as part of starting your business.
You can also apply by mail by completing Form SS-4 and mailing it to the Internal Revenue Service at the address listed in the form’s instructions. It takes about four weeks to receive your EIN if you apply by mail.
You can also fax Form SS-4 24 hours per day, seven days per week. The IRS will send your EIN by fax within four business days.
The IRS taxes a limited liability company based on how you set it up. We recommend discussing the tax ramifications of the various ways to set up an LLC with a business tax attorney. In most cases, federal taxes pass through to the owner of the limited liability company.
Tennessee also has tax requirements for businesses. These also depend on factors such as how you set up the limited liability company and whether you have employees.
The IRS allows several classifications for limited liability companies, all of which have different tax consequences. If an LLC is not classified as a corporation and the business does not file Form 8832, the IRS will classify the business under the default rules. The default classification is based on whether the LLC has one or more members.
If an LLC has one member, it is classified as a disregarded entity, which means the IRS considers the owner and the business as the same entity. A limited liability company with more than one member is classified as a partnership.
Single-member LLCs file taxes on their personal tax returns. Depending on your business, you might need to file Schedule C, Profit or Loss from Business (Sole Proprietorship), Schedule E, Supplemental Income or Loss, or Schedule F, Profit or Loss from Farming.
Single-member LLCs are subject to taxes on net earnings in the form of self-employment. However, if the LLC is a single-member limited liability company and is disregarded but is owned by another corporation or partnership, the corporation or partnership claims the LLC on its federal tax return as a division of the main corporation or partnership.
When setting up your LLC, be sure to choose a classification so that the IRS does not choose it for you.
In many cases, Tennessee imposes an excise tax and franchise tax on limited liability companies. If your LLC is liable for one or both taxes, you must register with the Tennessee Department of Revenue.
The franchise tax is based on the net worth or book value of the tangible personal property and real property the LLC owns, whichever is higher. The minimum franchise tax is $100 if you are registered through the Secretary of State to do business in Tennessee, even if the company is inactive.
The excise tax is based on net earnings for the tax year (income tax).
If your LLC sells tangible personal property and certain services, you will need to register with the Tennessee Department of Revenue to file sales tax returns and make payments for sales and use taxes. Depending on which industry you are in, you might have additional taxes, such as lodging taxes and rental taxes.
Since most limited liability companies are pass-through entities and the business tax passes onto the owner, you may have to pay self-employment tax on profits from the company. The self-employment tax is figured on your personal federal income taxes, usually via Schedule C.
If you have employees, you will need to create an account at Tennessee’s Department of Labor and Workforce for state unemployment taxes. You will also have to pay federal employment taxes.
Tennessee has other taxes that might or might not apply to your situation, including but not limited to:
After you form a limited liability company, you still have several administrative tasks to take care of.
Even if you are the sole member of a limited liability company, you should open a separate bank account. Keeping business and personal finances separate helps with limited liability and other factors.
If you commingle funds – mix business funds with personal funds – and someone sues you, that person could argue that you are also personally responsible for liability since you and the business are one and the same instead of two different entities.
Keeping a separate bank account and taking a paycheck shows the courts that the business is a separate entity from you. It will be much more difficult for someone to go after your personal assets, such as your home, if your insurance does not cover the settlement or amount awarded in a trial should you lose the case.
Additionally, a separate bank account provides the business with credibility and shows customers that you are professional. It also makes it easier to keep track of your finances. And, it makes your accountant’s life much easier since the accountant will not have to “guess” which expenses are personal and which are business.
Finally, a separate bank account makes it easier for you to track money going in and out. If you are able to track money easily, it is easier to determine if someone who has access to your account is siphoning money from the business.
Limited liability companies must file an annual report. The fee is $20 per year. However, if the LLC makes any changes to the registered agent or the registered agent’s office, the Secretary of State levies an additional $20 fee. Additionally, the annual fee for the LLC is a minimum of $300 per year. Each member is an additional $50 for more than six members. The maximum fee is $3,000.
The annual report tells the state certain details of your business. It also contains any changes you might have, such as a change of address, new members, deleted members and more. The annual report also gives the state a chance to tell you of any new legal requirements, such as licenses.
The annual report includes the limited liability company’s name, the registered agent’s information, and the control number from the Secretary of State that you received when you originally formed the company.
The easiest way – and the best way to ensure your annual report is on time – is to file it online. If the annual report is late, you are saddled with a late fee. If you continue “ignoring” the filing, the state will administratively dissolve the limited liability company.
Because a limited liability company can be set up in various ways, we advise that you consult a tax attorney for help to get the most out of tax benefits. Once you have the LLC set up, you can work on setting up the rest of your finances, including financing for the business and an accounting package or accountant.
As part of your finances, you will need to determine how much each member, including yourself, is paid.
Plan ahead to invest in growth. You do not want the business to become stagnant. You should have a marketing plan in place, especially if you took out a loan to get the business going. In addition to investing in a good marketing plan, be sure to invest in your customers. The only way to keep repeat customers is to keep them coming back. Hiring quality people and providing quality products and services ensure repeat customers, word-of-mouth marketing, and business growth.
Apply for business credit and make sure you pay the creditors to keep the business credit good. Your ability to obtain loans without personally signing for them depends on good business credit. Good credit will also lead to lower interest rates in the future.
Make sure you have a good billing strategy if you are not a cash business. Don’t let accounts receivable fall through the cracks or lose money because customers do not pay. You do not want a lot of cash tied up in accounts receivable, so you’ll want a good mix of receivables and cash customers.
As for tax payments, you can estimate what monthly, quarterly, or yearly taxes should be. If you believe you will have trouble paying the full amount by the due date, divide the tax payments into weeks. Set aside enough each week to have enough by the due date.
Always keep an eye on ROI – return on investment. If something isn’t bringing in as much as you thought, change it or remove it from your inventory.
Finally, make sure you monitor your book daily, even when working with an accountant or bookkeeper. This is the only way you can ensure that someone isn’t pilfering cash or products.
Certain businesses must obtain licenses and permits. You can locate industry-specific licenses on Tennessee’s government website. Counties and municipalities might have separate licenses and permits, such as a city or county occupancy permit to do business.
Now that you have everything set up, you need to have insurance to protect the business. The type of insurance you obtain depends on your industry. For example, if you have an office, you might need general insurance, but if you own an auto shop, you’ll need garage keeper’s insurance.
As with anything else to do with your business, research your options to obtain the best value for your money.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.