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Tennessee is enjoying rapid growth as Americans migrate to the state from other parts of the country, drawn to its lower cost of housing, thriving manufacturing sector, and competitive corporate tax rate.
Setting up as an LLC is a great way to start a business in the Volunteer State. Here are 11 steps to make it happen.
What is an LLC?
LLC stands for limited liability company. LLCs are business organizations run by one or more owners or members who control operations without the oversight of a corporate board of directors.
Managing members control day-to-day operations, while non-managing members hold an ownership stake but don’t actively participate in the LLC’s everyday activities.
LLCs in Tennessee
Tennessee recognizes single-member LLCs (one owner), multi-member LLCs (multiple owners), and is one of the few states to recognize series LLCs.
A series LLC is a business entity that collects multiple LLCs under one master LLC and can file taxes on behalf of its subsidiaries or “series.”
The master LLC and its series are treated as separate entities concerning debts, liabilities, obligations, and expenses.
Is an LLC right for you?
Tennessee small business owners often gravitate to LLCs for the way they balance the benefits of sole proprietorships, which are simple to organize but offer few tax or liability benefits, and corporations, which offer many business benefits but can be difficult to set up and maintain.
Here are the two advantages of setting up an LLC:
- Personal asset protection. An LLC shields your assets from creditors and litigants. It keeps your personal finances separate from your business and protects you from personal liability.
- No double taxation. An LLC is considered a “pass-through” entity that passes profits and losses through the company to co-owners. The pass-through structure also means that if your LLC loses money during a business year, you can claim a deduction on your personal income taxes.
How to start an LLC in Tennessee in 11 steps
- Name your Tennessee LLC
- Create a business plan
- Choose a registered agent in Tennessee
- File Tennessee articles of organization
- Get an employer identification number (EIN) and a state sales tax number
- Obtain a business license and permits
- Understand Tennessee state tax requirements
- Prepare an operating agreement
- Examine business insurance options in Tennessee
- Understand financial considerations
- Market your LLC
1. Name your Tennessee LLC
Your Tennessee LLC needs a business name. Choosing a memorable LLC is essential to building brand recognition and identifying your company as a unique entity.
As you brainstorm LLC names, keep in mind that your name must be original and unique. Once you’ve picked a business name, confirm that another Tennessee business hasn’t claimed it by checking the Tennessee Secretary of State’s online business name availability tool.
When you find an available name, file Tennessee Form SS-9425: Application for Name Reservation. You can mail your form or submit it through the state’s online portal for a $20 fee.
Tennessee requires an LLC to include the phrase “Limited Liability Company” or its abbreviations, “LLC” or “L.L.C.,” in its official business name.
If you’re set on an LLC name that’s already in use, explore DBAs. DBA stands for “doing business as” and applies to companies that organize under one legal name but interface with customers using a different business name.
For instance, East Mountain Properties LLC could use Whistling Wind Motel as a DBA. To use a DBA, register an assumed name with the state of Tennessee.
Ideally, you’ll be able to create social media counts and secure an online domain name for your website that exactly matches your LLC name.
2. Create a business plan
Entrepreneurs use business plans as roadmaps for success. A strong business plan sets organizational objectives, analyzes the target market, products and services, outlines the organizational structure, plans revenue streams, and determines metrics for success.
To save time, use a business plan template to generate goals and timelines for your LLC. Look at relevant business plan examples to refine your plan.
3. Choose a registered agent in Tennessee
All Tennessee LLCs must declare their own registered agent to accept tax documents and legal forms on behalf of the business.
The registered agent must maintain a physical street address within the state. You can select an LLC member as a registered agent or hire a registered agent service.
Note that Tennessee places no residency requirements on LLC owners—only registered agents must reside in-state.
4. File Tennessee articles of organization
All LLCs in Tennessee must file articles of organization with the Secretary of State’s office. Submit Form SS-4270 electronically, by mail, or in person, along with the relevant fee.
The state charges $50 per LLC member, with a minimum filing fee of $300 and a maximum filing fee of $3,000. This means that the total cost of establishing and maintaining an LLC in Tennessee varies depending on the number of LLC members (both managing and non-managing).
When registering with the state, you’ll receive a Tennessee Secretary of State control number, which you’ll use to make business filings. Chief among these is an annual report that you can file online.
Each annual report costs the same as your initial filing fee: $50 per LLC member, with a minimum fee of $300 and a maximum fee of $3,000.
5. Get an employer identification number (EIN) and a state sales tax number
After registration, all Tennessee LLCs must obtain an employer identification number (EIN) through the Internal Revenue Service. An EIN serves as your business’s federal tax number, mimicking the functions of a Social Security number (SSN), except for businesses instead of individuals.
You’ll need the EIN to hire employees and set up a business bank account for your LLC. With your EIN, you can obtain a state sales tax number from the Tennessee Taxpayer Access Point (TNTAP).
You’ll need both tax numbers to start accepting payments.
6. Obtain a business license and permits
Whether you’re an individual or business entity in Tennessee, you’re subject to business licensing and permitting regulations. Many licenses are issued at the county level. The Tennessee Department of Revenue provides information to get you started.
Common Tennessee business licenses include:
- Minimal activity license. Tennessee businesses with gross receipts of more than $3,000 but less than $100,000 must obtain a minimal activity license from their local county clerk. The registration fee is $15.
- Standard business license. Tennessee businesses with gross receipts exceeding $100,000 must obtain a standard business license from the local county clerk. The registration fee is also $15.
- Sales tax certificate. Tennessee LLCs must collect sales tax on merchandise sold.
Other Tennessee business licenses and permits vary depending upon your work. Many industries require special certification, including architecture, accounting, insurance, home inspection, and cosmetology.
7. Understand Tennessee state tax requirements
Tennessee LLC owners must pay taxes and fees to the state, in addition to any federal taxes. Taxes levied on Tennessee LLCs include:
- Franchise tax. Tennessee LLCs must pay an annual franchise tax, which can be filed and submitted online using a Franchise and Excise Tax Form. Tennessee calculates its franchise tax rate by assessing “0.25% of the greater of net worth or real and tangible property in Tennessee.” LLCs must pay a minimum annual franchise tax of $100.
- Sales tax. Like all business types, LLCs must collect sales tax and remit it to the state. Tennessee levies a 7% tax on merchandise sales. Many local municipalities add their taxes, leading to a 9.55% average tax on Tennessee retail sales, one of the highest rates in the nation.
- Corporate tax. Tennessee LLC owners can choose to have their company taxed as a corporation. The state charges a 6.5% excise tax on corporate profits, which LLCs can pay instead of passing LLC profits and losses to individual owners. This tax approach often appeals to companies whose members don’t want company profits increasing their personal tax obligations.
8. Prepare an operating agreement
An LLC does not need an operating agreement to do business in Tennessee. Still, many LLC owners choose to draft operating agreements to provide structure and protect membership interests.
An operating agreement essentially serves as your LLC’s constitution. Agreed to and signed by all LLC members, an operating agreement typically outlines the following:
- Your LLC’s name and primary address
- How long you plan to run the LLC
- Information on the LLC’s registered agent
- Information about the articles of organization
- The business’s purpose and mission statement
- Organizational chart listing members and their respective investments in the LLC
- How profits and losses will be divided between the members
- The process for admitting new members and offboarding outgoing ones
- An overall management plan for the LLC
- Various indemnification and liability provisions
9. Examine business insurance options in Tennessee
Although LLCs offer a degree of personal asset protection, you may still want to purchase insurance to shield your business against costly mishaps. Some types of insurance, like workers’ compensation insurance, are required by Tennessee state law, while other policies are not mandated but may be required by other entities like landlords or lenders.
In many cases, Tennessee LLC owners purchase higher levels of insurance coverage than the law mandates. Common policies include:
- Workers’ compensation insurance. Tennessee requires all businesses with five or more employees to purchase workers’ compensation insurance to cover their on-the-job injuries.
- Commercial general liability insurance. Commercial general liability insurance, or CGL, protects LLCs from financial claims involving property damage, bodily injury, libel, slander, and misleading advertising.
- Commercial automobile insurance. If you own a vehicle in Tennessee, it must be covered by vehicle insurance, whether it’s used for commercial or personal purposes.
- Unemployment insurance. As a Tennessee employer, you pay into an unemployment insurance policy, which pays employees laid off through no fault of their own.
- Cyber liability insurance. Cyber liability insurance protects against financial losses from cyberattacks and data breaches. You may find this coverage invaluable if your business collects customers’ credit card numbers or other personal information.
- Commercial umbrella insurance. Umbrella insurance adds to your existing insurance coverage and extends maximum payouts. Your umbrella policy can cover the remaining balance if your regular insurance limits don’t cover massive loss or liability.
10. Understand financial considerations
As you launch your Tennessee LLC, you’ll need to choose a financial institution to handle your company’s monetary transactions. Traditionally, this means opening a business bank account at a commercial bank or a credit union.
Several state and national agencies connect business owners with funding, grants, and information about tax benefits, including:
11. Market your LLC
As you tick off the legal requirements for starting an LLC in Tennessee, you can start work on the marketing and brand-building process.
Website design, slogans and taglines, and a brand voice will bring your LLC to life. As your products or services hit the market, consider advertising campaigns on these platforms:
- TV and radio ads. While pricey, this traditional advertising exposes your company to a broad audience.
- Social media influencer campaigns. An LLC may choose to pay a social media celebrity to promote a product or service to their large following.
- Store displays. Some LLCs pay to post displays in retail stores to inform customers and draw attention.
For more information, read this small business marketing guide to learn the basics of building an online audience, fostering customer relationships, and winning new customers.
Starting an LLC in Tennessee FAQ
How much does it cost to start and maintain an LLC in Tennessee?
Tennessee charges LLCs between $300 and $3,000 to register an LLC, depending on the number of LLC members. You’ll need to file an annual report with the state and pay the fee each year. Business owners must also pay an annual franchise tax, which is 0.25% of an LLC’s net worth or property value in Tennessee.
What are the pros and cons of establishing your LLC in Tennessee?
Tennessee boasts a growing population, a comparatively low cost of living, and a tax structure that favors business and property owners. The Tax Foundation rates Tennessee as the 14th best tax climate for business owners. Still, Tennessee has one of the highest sales taxes in the country, making it an expensive place for consumers.
Do you need a registered agent for your LLC in Tennessee?
Yes. All Tennessee LLCs must designate a registered agent who maintains a physical address in the state. An LLC’s registered agent must be available during regular business hours to receive documents and mailings on behalf of the LLC.
How do state taxes work for LLCs in Tennessee?
LLCs use IRS Schedule K-1 to report annual profits or losses, which are then proportionally divided among owners based on their company ownership stake. A Tennessee LLC passes its profits and losses through to its members, who declare these gains or losses as part of their personal income tax filing. A Tennessee LLC can choose to be taxed as an S corporation, which means the state taxes profit at Tennessee’s corporate rate of 6.5%. LLC owners must also collect and remit Tennessee’s 7% sales tax on retail purchases and additional sales taxes imposed by individual localities.
