How to Form an LLC in Tennessee: The Affordable Way

Starting a new business can be scary. However, following a structured approach can help reduce some of the burdens. The first step in starting your business is to decide on the organizational structure. An excellent pathway to enter the US business arena is by forming a Limited Liability Company (LLC).

Having an LLC in Tennessee opens the door to tax savings. In addition, it provides flexibility similar to a sole proprietorship and the limited liability that a corporation enjoys. You can register your LLC with the State of Tennessee by following the detailed steps in this article.  

Name your Tennessee LLC

Before you incorporate an LLC, you need to decide on a name for your company. It is a crucial step as the name you choose will be the identity of your business. A good name can help you create a brand in the market and attract customers. Make sure you select a name that is attractive and easy to remember.

While naming your LLC, you must ensure that you follow the rules laid down by the State.

Naming Guidelines

The guidelines you must follow while naming your Tennessee LLC are provided under § 48-249-106 of the Tennessee Revised Limited Liability Company Act.

The LLC’s name should contain the words “limited liability company” or any of its abbreviations such as “L.L.C.” or “LLC.” You cannot use the words “corporation,” “incorporated,” or any of their abbreviation.

The LLCs name cannot imply that the company can carry out any business for which it has no authorization. For example, you cannot name your business “ABC BANK LLC” unless you have a banking license.

Similarly, refrain from using words in the name that imply your LLC is a fraternal, veterans, service, religious, charitable or professional organization. The name should also not imply an association with or impression that any such organization sponsors it.

Suppose indeed your LLC is formed as, associated with or sponsored by any of the above kinds of organizations. In that case, you should submit a certificate to this effect to the Secretary of State and obtain permission.

Additionally, the name you select cannot give the impression that you are associated with the government. Therefore, you are precluded from using words such as the “FBI,” “Treasury Department,” etc. in your LLC’s name.

You must ensure that the name you select for your company is unique. It must not be identical or similar to the names of any existing entity registered with the State.

To know the complete list of naming guidelines of Tennessee, read § 48-249-106 of the Tennessee Revised Limited Liability Company Act.

Does Your Business Require a DBA?

DBA (doing business as) is an alternate name adopted by a business entity different from its legal name. In simple terms, DBA is an assumed name meant for trade purposes. 

For instance, DBA can be a good idea if your company needs rebranding or if you plan to diversify your products. In addition, DBA can be your way of getting a name that better represents the services/products you provide. In Tennessee, a DBA is called an “Assumed Name.”

You must apply with the Secretary of State to register an assumed name for your LLC. The application must set for the following details:

• Name of the applicant LLC
• The jurisdiction in which the LLC was formed
• The LLC’s intention to transact business under an assumed name; and
• The assumed name that the LLC wishes to register for itself

Once registered, an assumed name is valid for five years. After that, you will need to renew it. You may also choose to cancel or change the assumed name you have registered at any time. To know more, read Tenn. Code § 48-249-106 (d).

Doing a Name Search and Name Reservation

Your business mustn’t have a similar name to other existing businesses. You can use the State’s Business Entity Search portal to make sure the name you have in mind is genuinely unique. 

The State provides you an option to reserve the name you have chosen. An application needs to file with the Secretary of State stating the applicant’s name, address and the name that the applicant wishes to reserve. The name shall be reserved for four months. After that, you may apply to reserve the name again in case you need more time to incorporate your LLC.

Ensure that you read the Instructions: Form SS-9425 before you fill out your application for name reservation.

Registering your business domain

You may not have immediate plans to take your business online. However, considering how customers prefer a business with an online presence, it would be prudent to plan and set up a website for your business.

Your website address is how the customers find your business online. Therefore, it is vital to ensure that your business has a website address that matches the name you selected. Do a domain search to check if the domain you want is available to register.

Choose a Resident Agent in Tennessee

You can think of a registered agent as a bridge between your business and the Tennessee State Secretary. A registered agent can be an individual or another entity that receives legal main on behalf of your LLC from the State authorities.

Remember to have a registered agent before filing to incorporate an LLC. Otherwise, the application is bound to be rejected. A registered agent must satisfy the requirements under Section 48-249-109 of the Tennessee Revised Limited Liability Company Act.

Who Can Be a Registered Agent?

A registered agent that you appoint for your LLC must:

• Be above 18 years of age (in the case of an individual)
• Have authorization to transact business in the State (in case of a domestic corporation, a not-for-profit domestic corporation, a domestic LLC or a domestic registered limited liability partnership; or a foreign corporation, a not-for-profit foreign corporation, a foreign LLC, or a foreign registered limited liability partnership.)
• Have a street address in Tennessee
• Be available during regular business hours.

Thus you may appoint yourself, another member of your LLC, a friend or even a family member as the LLCs’ registered agent. You may also choose to appoint a professional registered agent service.

Individual v. Resident Agent Service

You or any other person satisfying the requirements under Section 48-249-109 of the Tennessee Revised Limited Liability Company Act can be your LLC’s registered agent. However, appointing a registered agent service has certain advantages.

Firstly, registered agent services are professionals with the know-how and the infrastructure facilities to function appropriately as registered agents. They ensure that the LLC does not miss any important communication from the State and also remind you of deadlines in terms of State filing requirements.

The details of your registered agent are provided in the State records and are therefore in the public domain. If you are someone working from your house and worried about your privacy, having a registered agent service would be the ideal option.

If you appoint yourself as the registered agent of your LLC, you will have to be available at the street address provided to the State authorities during regular business hours. This severely restricts your ability to travel. You can focus your time and energy on growing the business if you have a registered agent service.

File the Articles of Organization with Tennessee

Articles of Organization is a legal document. It needs to be filed with the Secretary of State’s office to incorporate your LLC. Once you have completed this filing, your LLC becomes a lawful entity in the State of Tennessee.

Section 48-249-202 of Tenn. Code lays down a list of details that your Articles of Organization should mandatorily contain. They include:

• Entity Name
• The street address and Zip code of the initial registered office
• Name of the registered agent
• The street address and Zip code of the principal executive office.
• A statement indicating if the LLC will be member-managed, manager-managed, or director-managed
• Details of the number of members as of the date of filing (in case the LLC has more than sex members)
• Effect date of the existence of the LLC
• Duration of the LLC

To know more, read “Mandatory contents” as provided under Tenn. Code § 48-249-202. Make sure you read the articles of organization form instructions before filling it out.

Expedited Filing

It can take as much as 4-6 business weeks to process your LLC formation request. Unfortunately, Tennessee does not have any provision for expedited filing. However, online applications are mostly approved on the day of the filing itself.

Publish Notice

Tennessee does not mandate the publishing of Articles of Organization or any other legal document in the newspaper. 

Create Operating Agreement for your Tennessee LLC

An operating agreement is a legal document. You can think of it as a contract between the LLC members to govern matters of management, voting, profit sharing, etc. In a multi-membered LLC, disputes are bound to happen if there is no clarity on how the LLC should operate. An operating agreement helps avoid misunderstandings by clearly laying down managers’ and members’ duties, rights and responsibilities.

Tennessee does not mandate an operating agreement. However, you should have one. Section 48-249-203 of Tenn. Code provides that members of an LLC may bind themselves through an operating agreement to regulate the LLC’s affairs.

It can be used to clearly define and govern the relationship between various internal stakeholders of the LLC, including members, managers, officers, etc. Even external stakeholders such as a holder of the financial right in the LLC may become a party to the agreement.

Since it is not a mandatory document, you can draft your LLC at the time of incorporation or any time after that. Tennessee law does not mandatorily require your operating agreement to be in writing. However, it would be prudent for you to have a written document.

Also, ensure that you provide a procedure for amending the document within the operating agreement. It will come in handy if you need to modify your operating agreement later. In case the document is silent regarding the procedure for amendment, you will have to acquire the consent of all the members and other parties to the agreement before you can amend it.

You can draft an operating agreement according to the needs of your LLC. However, irrespective of the nature of your business, it shall be advisable for your operating agreement to cover the following matters:

• Organization Details 
• Ownership 
• Duties of Members and Managers
• Management and Voting 
• Capital Contributions
• Division of Profit and Losses
• Bookkeeping Procedures
• Procedure for adding new members
• Requirements concerning Meetings and Procedures thereof
• Procedure for amending the Operating Agreement
• Dissolution

Writing The Operating Agreement Yourself vs. Hiring a Service

You can draft an operating agreement for your LLC in various ways. You can call for a meeting of all the members and other stakeholders and agree on the terms that should be included in your operating agreement. Or, you may purchase readily available templates online and modify them to suit your names.

Alternatively, you may choose to hire a professional such as an attorney. They are experts in the laws of Tennessee and will help you draft an agreement that best protects the interest of your LLC.

Limits of Operating Agreement

There are no specific formats for an Operating Agreement. However, it cannot include any matters prohibited under the law.

In Tennessee, Section 48-249-205 of the State Code provides details of the provisions you cannot waive through your operating agreement. For example, you cannot include a clause in your operating agreement that precludes your LLC from the responsibilities under the Workers’ Compensation Law. Similarly, the operating agreement cannot impose an unreasonable restriction on the right to information or access to records.

Obtain an EIN for your Tennessee LLC

EIN (Employer Identification Number or Federal Identification Numbers or FEINs) is an identification number allotted by the IRS. The IRS uses it to identify an operating business entity for taxation purposes.

Other than tax filing purposes, it is required for opening a business bank account in your LLC’s name, applying for certain business loans, obtaining licenses, and hiring manpower.

File Annual Reports in Tennessee

An annual report is a legal document that an LLC must file with the State annually. The authorities use this document to update their records about the businesses operating in the State.

The Tennessee Secretary of State requires an annual report from all Tennessee LLCs and international LLCs that are permitted to conduct business there. This has to be accompanied by a $50 filing fee per member, subject to a minimum of $300 and a maximum fee of $3,000. 

Remember that the report is due on the first day of the fourth month following the end of the LLC’s fiscal year. If the LLC fails to file the annual report on time and the failure continues for more than 60 days, you risk having your LLC shut down by the State.

You may file the Annual Report online with the Secretary of State.  

Tax Liability For Your LLC in Tennessee

The way your LLC will be taxed depends upon the number of members in your LLC. There are four ways in which LLC will be taxed:

• Sole proprietorship: a business owned by a single person
• Partnership: a business owned by multiple people
• C – Corporation: income is split or segregated for taxation
• S – Corporation: tax liability is split between the business and its owners

Federal Tax Obligations

One of the significant benefits of forming an LLC is that it is treated as a ‘pass-through’ entity for tax purposes. LLCs themselves do not pay any taxes. Instead, members must pay self-employment and federal income taxes on the profits they take from the LLC. Of course, you may treat your LLC as a corporation, in which case Federal Corporate Taxes shall apply.

If you’re a single-member LLC, your default taxation type will be that of a sole proprietor or ‘disregarded entity. The LLC has to report its activities under Schedule C, Schedule E and/or Schedule F of Form 1040. 

If your LLC has more than one member, it will be taxed as a ‘partnership’ by default. In this case, apart from filing Form 1040, you’ll have to file your partnership return in Form 1065 and provide information in the K-1 of each partner. 

If you would like your LLC to be taxed like a C-Corp or S-Corp, you can do so by filing Form 8832 and Form 2553, respectively.

State Tax Requirements

Your LLC will be required to register to obtain a seller’s permit if you plan on selling certain products or providing services that are subject to sales tax. This will give you the right to collect sales tax from your customers. You can apply for a seller’s permit by visiting Tennessee’s Revenue Department website.

If your LLC has hired employees, you must sign up for Unemployment Insurance Tax.

Miscellaneous Taxes

Tennessee laws require you also to file Franchise and Excise Taxes for your LLC. These are the taxes you pay to Tennessee to avail yourself of the privilege of doing business under limited liability status in the State. The revenue department administers the taxes together under one structure, even though they are two separate taxes.

While excise tax is assessed on net income, the franchise tax is determined by the taxpayer’s net value. The former is levied at 25% for every $100, while the latter is imposed at 6.5% per fiscal year. You can fulfill these tax compliances via the revenue department’s online site. The tax has to be filed on or before the 15th day of the LLC’s fourth month (after the initiation of a tax year).

You may read the State’s Franchise and Excise Tax Manual for more information.

Permits and Licenses

Depending on the nature of the business, a Tennessee LLC may need to obtain permits and licenses from mainly three different jurisdictions: Federal, State and Local.

If, through your LLC, you are carrying out any business that is regulated by the Federal Government, you will need the requite license and permits. Some business activities requiring Federal Licenses and Permits are:

• Agriculture
• Alcoholic beverages
• Aviation
• Firearms, Ammunition and explosives
• Fish and wildlife
• Commercial fisheries
• Maritime transportation
• Mining and drilling
• Nuclear energy
• Radio and radio and television broadcasting
• Transportation and logistics.

At the State level, your LLC should get a seller’s permit if it sells specific physical products or services to which sales tax applies. You can apply for a retail license online using Tennessee’s Department of Revenue’s website.

Depending on where you operate your business, you may also be required to get the local government’s license and permit. Some cities/counties have specific permit and license requirements depending on the nature of your business. You can get in touch with your local government office to know more.

For more information regarding;

• Tennessee’s One Stop Licensing App 
• Federal Permits and License

Business Bank Account & Phone Number

It is always beneficial to watch your steps when starting a new company. Always use a different bank account for your business to avoid your personal assets coming at risk during any contingency. All you need to do is get the required documents handy. After this, visit your banker to open a bank account properly.

It is also advisable to get a business phone number for your LLC. This way, you can keep your personal numbers safe from identity theft and track business calls more efficiently.

Final Thoughts

Tennessee is home to a large number of start-ups and small business ventures. It is primarily due to the State’s good infrastructure facilities and favorable business climate. The State is an excellent choice to incorporate your LLC as you can take advantage of several business incentive schemes.

The Tennessee Economic Development Incentive Program is one such scheme wherein the State facilitates the growth of small and new businesses through programs such as the FastTrack Infrastructure Program, Job Tax Credit, Sales Tax Exemption program, etc. Contact your local administration to determine if your LLC qualifies for any incentive programs offered by the State.

Double checking all the form applications and required document attachments is an excellent way to avoid a last-minute frenzy. Remember to add the application fee wherever needed so your LLC formation process is not delayed.

You can also check out any other information and get more details in the business section of the Tennessee State Secretary’s official website. We wish you and your business the very best!