Choosing the right business entity (LLC, Partnership, S-Corporation, etc.) is a decision with enormous legal and tax implications. Listing out the pros and cons of each type creates a pretty complex web and the right decision is not always immediately clear. 

The decision should be evaluated at the beginning and then again from time to time as the business grows. However, assuming the decision has already been made that an LLC is the best fit… Here are the steps you need to start a Limited Liability Company (LLC) in Tennessee.

Steps:

  1. Get Prepared
    1. Choose an LLC Name
  • Your LLC’s name must be distinguishable from the names of other business entities already on file with the Tennessee Secretary of State. You can check for availability at the Tennessee Secretary of State business name database.
  • You don’t actually have to use your LLC’s official legal name out in the real world. Instead, you can use a “DBA” (short for doing business as). To do so, you have to also register your DBA name with the Tennessee Secretary of State.
  • The advantage is that DBAs can be more similar to other DBAs, whereas official legal names have to be more distinct from other already existing business names.
  1. Appoint a Registered Agent
  • Every LLC must have an official “Registered Agent” that agrees to accept legal papers on the LLC’s behalf if it is sued. Typically this person is the owner of the business, but it doesn’t have to be. You can choose whoever you like as long as they have a Tennessee address.
  1. File your paperwork with the state
    1. File Articles of Organization
  • A Tennessee LLC is created by filing Articles of Organization (Form ss-4270) with the Secretary of State. 
  • The articles may be filed online or by mail. The filing fee is $50 per LLC member, but the minimum fee is $300. An additional convenience fee is charged for online filings paid by card.
  1. Tax and legal obligations
    1. File annual reports
  • All LLC’s must file an annual report with the Tennessee Secretary of State and pay the same $50 per member (with a minimum of $300) fee. If your fiscal year is the same as the calendar year (for most people it is), this report must be filed online or mailed by April 1 of the following year.
  1. For most businesses:
    1. Get an EIN Number from the IRS
  • If your LLC has more than one member and/or intends to have any employees you must obtain an IRS Employer Identification Number (EIN). Your EIN number is how the IRS keeps up with wages paid to your employees. It’s basically like the social security number of your business. You can obtain an EIN by completing an online EIN application on the IRS website which is free.
  1. Obtain business licenses and permits
  • Most businesses are required to have a business license, which is issued by your local county clerk’s office. Check with your local county and/or city clerk for the location of your primary place of business for these requirements.
  1. For some businesses (example: if you sell goods and collect sales tax):
    1. You’ll also need to register with the Tennessee Department of Revenue. Tennessee doesn’t tax income at the state level, but it does impose a franchise and excise tax of 6.5% on any income earned for LLCs. You can typically be excluded from the franchise tax portion if you are a single member LLC, but this is figure out as part of the registration process with the Tennessee Department of Revenue.

Startup Tips (not necessary, but good ideas):

  • Buy a Web Domain and Set Up Social Media
  • Your business’ name can make or break the business, and if you’ve taken the time to come up with a good one. It’s worth the time and money to lock it down digitally. Even if the state of Tennessee says it’s yours, that doesn’t do anything from buying a domain or social media handle before you get to it.
  • There are a ton of websites out there like godaddy.com or domains.google where you can check out what domains are available and buy yours for typically less than $10 per month.
  • Setting up social media accounts is free, but make sure names align across all your digital platforms. And don’t be afraid to get creative. For example: when I started Talley Financial, some guy with the last name Talley had already been a financial advisor for years and was unwilling to sell me his domain talleyfinancial.com, so I bought mytalleyfinancial.com and then kept that same “my” in front of the firm name throughout each social media platform.
  • Create an LLC Operating Agreement
  • An LLC Operating Agreement is not required in Tennessee, but is strongly encouraged (especially if there are multiple members/owners). It can also help show that your LLC is truly a separate business entity in businesses where this is questionable like the formation of an LLC to hold a person’s investment real estate.
  • Open business bank accounts and build business credit
  • Opening business bank accounts adds credibility from a lending perspective, but more importantly it helps keep personal and business transactions separate
  •  In the event of a lawsuit, one of the ways good lawyers can sometimes overcome the “limited” nature of the liability an LLC provides is by showing that money flowed without specific business reasons from personal to business accounts, thus the business isn’t legitimate. And if you don’t even have separate business accounts this is really hard to argue.
  • Opening a small business credit card to charge to and pay off each month in the beginning starts your business’ credit history which can make financing way easier to obtain down the road if you want to borrow money for growth.

Frequently Asked Questions:

What is an LLC?

A Limited Liability Company is a business structure that offers “limited” liability protection and “pass through” taxation.

How much does it cost to file an LLC in Tennessee?

Typically, $300 upfront and a $300 annual filing fee.

How do I file taxes for my LLC?

LLCs are what’s known as “pass-through” entities for tax purposes, which means the business profits or losses will flow through to the personal tax return of each member. For this reason forming an LLC alone doesn’t impact your taxable situation. However once you are an LLC you have the choice to file as either a Sole Proprietor or as a Corporation which certainly does impact your taxes.

What are the benefits of filing an LLC?

The primary benefit of filing an LLC is to protect your personal assets from business related mistakes or lawsuits. Although “limited,” the creation of an LLC creates a layer of defense that shelters you from a wide range of possible bad luck.

Here are some articles on this topic you might find helpful:

Forbes

Nolo.com

Chamber of Commerce

By: David Talley, CFP®