It might seem like a daunting task at first, but starting a Tennessee LLC can be accomplished entirely on your own provided you carefully follow every formation step. In this review, we will cover the basics of Tennessee LLC formation, as well as some initial tasks you might have to take care of after the registration itself, including:
- The main steps required to form an LLC in Tennessee;
- Maintenance tasks and compliance filings;
- Tennessee service fees and other costs that go into LLC formation.
- How to Form an LLC in Tennessee
- First Tasks After Registering your Tennessee LLC
- Keep Your Tennessee Company Compliant
- FAQ About Tennessee LLC Registration
How to Form an LLC in Tennessee
Step 1: Find a Name to Get an LLC in Tennessee
The first major step of business formation is finding a good LLC name for your Tennessee entity. Much like other states, Tennessee has specific naming regulations when it comes to most businesses. Filing your formation documents with an uncompliant LLC name will likely get your application rejected.
Words You Have to Use
Under Tennessee Code Section 48-249-106, every domestic and foreign LLC must contain an indicator of its business structure such as:
- Limited liability company;
The same applies to professional LLCs that have to include indicators like PLLC/PLC.
Words You Can’t Use
In subsection (2) of the Tennessee Code Section 48-249-106, you will also find naming restrictions for LLC entities. They state that an LLC name can’t use words that indicate:
- The LLC is engaging with certain business practices without appropriate authorization;
- The LLC is in any way related to veterans, religious, fraternity, professional, or charitable organizations unless explicit certification has been obtained;
- The LLC is affiliated with government agencies unless written certification has been issued by the relevant agency.
|If you don’t know whether your LLC needs a license, contact the Secretary of State office and your local county/city rep to ensure your business remains compliant.|
Perhaps the most pertinent naming rule has to do with uniqueness. In Tennessee, an LLC name must be sufficiently distinguishable. This means that even if an LLC name is not identical to an already existing business name but is still deceptively similar, such a name won’t be considered valid.
Research the LLC Name You Want
When you narrow down your options, don’t rush with the actual filing just yet. Each of your potential LLC names must first be checked for validity. You can see whether your preferred name is sufficiently distinguishable by using the nifty business name search tool on the Tennessee Secretary of State’s website.
If your name is a close match with another business, there are a few ways to resolve this:
- Obtaining a written agreement from the other business to use the name after which both entities commit to operating under the same registered agent;
- Obtaining a written agreement stating that the other entity agrees to change its name;
- Obtaining a court order granting you the rights to use the name.
Should your name be deemed distinguishable, you have an option to reserve it for up to four months. Under the Tennessee Code Section 48-249-107, available names can be reserved for up to four months but it’s possible to renew the reservation after the initial period expires.
Reserving an LLC name costs $20 per filing. To do so, you have to submit an Application for Reservation Of Limited Liability Company Name (Form SS-4228) along with the fee.
Unfortunately, the state of Tennessee accepts only paper applications at the following address:
|Corporate Filings312 Rosa L. Parks Avenue|
6th Floor, William R. Snodgrass Tower
Nashville, Tennessee 37243
You can also transfer or cancel the reservation by filing a form with the Secretary of State.
Tennessee DBA: Using an Assumed Name
Remember that it’s not the end of the world if you can’t get the perfect LLC name during your formation. In fact, many businesses, even the ones that got lucky with their registration, eventually use one or multiple DBA names.
A DBA (“doing business as”) is a fictitious name assigned to a specific business entity that allows them to do transactions under a name other than their registered LLC name.
In Tennessee, DBAs are called assumed names. According to the Tennessee Code Section 48-249-106, assumed names can be registered for five-year periods after which you will have to renew DBAs for another five years and so on. The renewal application must be submitted no later than 2 months before the DBA’s expiration date.
|For faster processing times, you might want to submit your DBA forms online. However, you can also send the application by mail in which case there will be no service fee added to the $20 filing fee|
To register a DBA, company owners must file the application online using the Secretary of State’s registration form. You will be asked to provide the following information:
- The LLC’s registered name;
- Place of registration (where the entity was formed);
- Purpose of registering a DBA;
- The assumed name you wish to use for your LLC.
If you choose to pay online, the DBA filing fee is set at $20 plus service fees that vary based on the payment method (for credit/debit cards at least 2.29% and $0.95 for e-checks).
There are plenty of reasons for using DBAs, all of them valid. Many LLC owners choose to transact under DBAs to avoid the issue of name unavailability, while others simply need to expand their product lines or services beyond the narrow scope of the LLC’s initial name.
Additionally, you will be able to omit the business structure designation if you use a DBA, so there won’t be any need to tack on an “LLC” to the assumed name.
If you registered your company under the name “Cheatham Excavations LLC,” a DBA allows you to simply go by “Cheatham Excavations”.
For instance, you could use “Cheatham Construction” or “Cheatham Landscaping and Woodwork” or “Cheatham Electrical and Heating Services”.
Moreover, if the main purpose of your business was initially demolition and excavating services, but your company has expanded since then to providing residential constructions and adjacent services, you might want to get an assumed name that reflects these ancillary services.
Step 2: Appoint a Registered Agent starting an llc in Tennessee
Under the Tennessee Code Section 48-249-109, assigning a registered agent is mandatory for LLCs of all types, either domestic or foreign. A registered agent takes on the responsibility of receiving and managing the company’s correspondence and legal documents such as service of process.
|The service of process refers to the legal practice of serving court summons to the defendant by the representatives of the plaintiff. When you are involved in a lawsuit as an individual, the summons is delivered to you personally. For LLCs, these documents go to your registered agent first.|
In Tennessee, a registered agent can be almost anyone, including:
- An individual who is of age and a Tennessee resident;
- A domestic or foreign LLC;
- A domestic or foreign corporation;
- A not-for-profit domestic or foreign corporation;
- A domestic or foreign registered limited liability partnership.
Regardless of who is appointed as your registered agent, they are obligated to register a physical Tennessee address as their business office which should be identical to their registered office.
Subsection (b) of the Tennessee Code Section 48-249-109 also states that if a registered agent resigns or is no longer in your employ, it’s your duty to find a new registered agent as soon as possible. Tennessee businesses must maintain a registered agent at all times, otherwise, your LLC could be fined and stripped of its good standing.
Some entrepreneurs choose to act as their own registered agents. And while this method has its own merits, for the most part, it’s not the best course of action you could take for your entity management. But let’s look at the pros and cons of this method more closely.
- Reduced cost: You don’t have to pay annual fees for LLC services;
- Simple set-up: You can use one set of addresses for registering as an agent;
- No middle man: You will get all deliveries in person.
- Privacy issues: By law, registered agents are required to publish their name and address on the Tennessee Division of Revenue website;
- Inconvenient schedule: Registered agents have to remain at their registered office address at all times during business hours. This means you don’t get to have breaks or sick days;
- Disruptive situations: Being served a summons from a creditor in the middle of a client meeting can be both embarrassing and damaging, but it’s what could happen if you act as your own agent;
- Spam and junk mail: Publicly available addresses mean that you will get no shortage of spam;
- Liability risk: It will be your responsibility to make sure you don’t miss an important delivery. And if you do, the consequences will also be yours and yours alone.
Quite evidently, the disadvantages of being your own registered agent are more numerous than any benefits it can bring. The best thing you could do in this case is to hire a professional registered agent service.
|TipIf you don’t know how to choose a good registered agent service, be sure to check out our Best Registered Agent ranking to get a better idea of your options.|
Annual fees for these registered agents aren’t that high, amounting to about $100/year on average. Some LLC formation companies offer registered agent subscriptions for free for up to a year.
Step 3: File Your Articles of Organization
The articles of organization is the main formation document used for LLC registration. For business entities, their official status can only be confirmed when the secretary of state approves their formation documents. No Tennessee entity can legally operate without this authorization.
|If you prefer outsourcing your LLC filings, we recommend using professional services that specialize in LLC formation. You can find out more about these providers in our Best LLC formation services article.|
What to include in my Tennessee Articles of Organization?
Under the Tennessee Code Section 48-249-202, the articles of organization must contain key information about the business in order for a company to do business in Tennessee. These items include:
- The name of the LLC;
- County, street address, and zip code of the LLC’s principal executive office;
- Registered agent information;
- Type of management (member-managed, manager-managed, or director-managed);
- Whether the LLC has more than six initial members, as well as the number of original LLC members;
- Date of formation (no later than 90 dates within the filing of the articles of organization);
- Date of dissolution if not perpetual.
In subsection (b) of the Tennessee Code Section 48-249-202 you will also find recommendations for other provisions you might want to include in your articles of organization.
In Tennessee, the articles of organization can be submitted online. Alternatively, you can do this filing by mail by sending Form SS-4270 to the secretary of state. Online applications are typically processed faster.
Filing Fee: How Much Is an LLC in Tennessee?
While all states have a mandatory service fee for this filing, in Tennessee, this amount is calculated differently. Here you will have to pay $50 for each LLC member at the time of filing with the caveat that the total amount is no lower than $300 and no higher than $3,000. In theory, this means an LLC must have at least 6 but no more than 60 members.
Online applications are typically processed immediately upon submission. Mail applications might take between 3-7 days to review.
Step 4: Draft your Tennessee LLC Operating Agreement
The operating agreement is an internal document designed for outlining the LLC’s standard operating procedures, general business conduct, and to regulate the affairs between LLC members and other key participants.
According to the Tennessee Code Section 48-249-203, LLC members can create an operating agreement at any time before, after, or during the filing of the company’s articles of organization.
In Tennessee, an operating agreement may be verbal. However, it’s strongly recommended to create it in writing. That said, the items you choose to include in the operating agreement don’t have to be in a single document.
This step of Tennessee LLC formation is essential for maintaining order among the company’s members, directors, officers, and managers. If you don’t draft a clear set of rules before or even after you start your LLC, it would be much harder to run your business in the future.
Operating agreements usually include the following provisions:
- Rights and responsibilities of LLC members: Duties and the limits of power allotted to each LLC member;
- LLC’s purpose: What type of business conduct the LLC will engage in;
- Rules of conduct for LLC managers: Responsibilities of each manager, as well as their authorization levels;
- Capital contributions: How much each member contributed to the LLC’s initial capital;
- Percentage interest and profit distribution: Details the individual shares of LLC members and how to calculate the allocation of profits and losses;
- Meeting schedules and voting procedures: How to conduct scheduled board meetings, members’ voting rights, and the LLC’s voting system;
- Replacing and hiring members: Procedures for overseeing an exit of a member, hiring a new one, prerequisites, qualifications, training, etc.;
- Transfer of ownership: How ownership shares are transferred to new members or distributed between existing members;
- Dissolution: Procedures for closing the LLC and distributing the assets;
- Amendment rules: Rules for making changes in the initial provisions.
What you must remember is that the operating agreement cannot go against nonwaivable provisions of the Tennessee Code. An operating agreement takes effect when each participating member has signed it. There is no need to file a Tennessee LLC operating agreement but it’s a good idea to always keep a copy on hand.
Step 5: Get an EIN (Employer Identification Number) to set Up an LLC in Tennessee
The same way individuals use SSN to report income taxes, LLC owners might also need a number similar in function for business tax filings, and this is where the Employer Identification Number, or EIN, comes into play.
The EIN is a nine-digit code assigned to a business entity by the IRS to track its financial activities. Although this filing is not strictly mandatory, obtaining an EIN is still something we highly recommend for every multi-member LLC.
If you aren’t sure whether your LLC requires an EIN, consider the following:
- Is your company classified as a multi-member LLC?
- Are you hiring employees? Does your LLC have a payroll?
- Do you want to open a business bank account?
- Have you elected a corporate tax system for your LLC?
If any of this rings true, then you will likely need to get an EIN for business tax purposes. One of the most common exceptions is single-member LLCs whose sole owners can use their Social Security Numbers to file tax returns.
In Tennessee, you can obtain an EIN online through the IRS website or you can mail the IRS form SS-4 at least 4-5 weeks before using the EIN. Naturally, online filings are much faster. The IRS tends to process them immediately upon submission.
It’s worth keeping in mind that while some formation services charge for EIN filings (usually about $50), this service is entirely free. The IRS has no service fees or hidden charges for EIN applications.
First Tasks After Registering your Tennessee LLC
Although at this point, your LLC formation is technically complete, there’s still more to be done for business maintenance and long-term compliance. Below, we will discuss some of the most essential tasks that should be taken care of before your LLC could conduct business.
Open a Business Bank Account
It’s not mandatory for LLCs to have business bank accounts, but it’s generally recommended to open one anyway to make the financial aspect of your LLC management considerably easier.
There are a few major benefits to opening an LLC bank account, including:
- Account management: When you keep your personal and business accounts separate, bookkeeping and tax reporting become much more efficient;
- Credit: Funding can be tricky even for businesses with high gross profit margins, but a dedicated business bank account opens more credit opportunities;
- Personal asset protection: The only way to strengthen the LLC’s liability protection is to keep your personal and business bank accounts separate.
What you need to remember is that it’s nearly impossible to retain the LLC’s inherent personal liability protection if you use your individual bank account to conduct your company’s activities.
There has to be a clear legal line of separation between yourself as an individual and your LLC as a separate entity. To do that, your LLC’s transactions have to go through its own bank account with enough proof to show for it.
If the LLC is sued by creditors and you cannot provide sufficient proof that you and the company are two separate entities, then the court has full right to “pierce” the corporate veil and requisition your personal assets to pay the debt.
Get Business Insurance For Your Tennessee LLC
While insuring your business against every possible incident is impossible, it’s still within your power to protect the LLC against some very common risks. You might want to look into the following insurance policies for businesses:
- General business liability insurance: Aimed at the general risks of running an enterprise such as bodily injury and property damage;
- Commercial auto policy: Covers various risks of shipping and transportation for businesses, specifically vehicle damage and physical injury;
- Workers compensation insurance: Under the Tennessee Code Section 50-6-102, every LLC with five or more employees is required to purchase workers’ compensation insurance;
- Professional liability insurance: Meant for licensed professionals like attorneys, architects, or doctors in the event of professional negligence lawsuits;
- Business income coverage: Works best for businesses that operate on a smaller scale to cover financial losses during slowdowns in their industry or if the LLC has to shut down for a time;
Business property insurance: Covers the instances of business property damage such as equipment, inventory, offices, warehouses, etc.
Keep Your Tennessee Company Compliant
Ensuring that LLCs are fully compliant with the Tennessee law is the only way for business entities to maintain their good standing and operate smoothly on a day-to-day basis. Let’s look at the key filings you might want to do for LLC maintenance.
Tennessee Business Permits and Licenses
Every business is unique in how it relates to the Tennessee license requirements. This means that even if you don’t need a general business license, you might require other forms of permits depending on your LLC’s location, industry, and other factors. You can find out more about this policy on the Tennessee License & Permits page.
Tennessee Tax Requirements
Every LLC that plans to conduct business activities in Tennessee qualifies for state taxes, as well as specific taxes applied by the city the LLC is registered in. You can register your LLC for tax using the Tennessee Taxpayer Access Point (TNTAP) where you can also find more information about other tax regulations.
Federal LLC Tax Filing Requirements
As for tax regulations on the federal level, Tennessee LLCs are classified as pass-throughs by default and do not have to pay federal income tax. The company’s profits and losses are to be reported on the owners’ personal returns using Form 1040, Schedule C.
All businesses must also pay FICA tax, which extends even for LLCs without employees. However, businesses that do employ workers must also withhold the Medicare and Social Security taxes from their paychecks.
Annual Report and other Filing Requirements
Every LLC must inform the state if any changes have occurred since the date of its formation or previous annual report filing. Even if no changes occurred, an LLC must still file an annual report. According to the Tennessee Code Section 48-249-1017, an annual report must include:
- LLC name;
- Place of formation;
- Street address, zip code, and mailing address of the principal LLC office;
- Registered agent information;
- If it’s director-managed, manager-managed, or another equivalent;
- Names and business addresses of directors, managers, officers, or another equivalent;
- The number of members (must be over 6).
The fastest way to file your annual report is to submit it online. You can also file it by mail. The annual report filing fee works similarly to the initial formation fee in the sense that you have to pay $50 for every member the sum of which should be $300 or higher but should not exceed $3,000.
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