Tennessee‘s economic growth rate has been impressive, leading to an influx of entrepreneurs and small business owners in search of new opportunities. Furthermore, the state offers various benefits to businessmen, including its strategic geographical position.
Undoubtedly, among the best ways to expand a business is by establishing a Limited Liability Company (LLC). LLCs provide the owner various benefits including limited scope of personal liability, flexible structure management, and tax benefits.
This article will provide you with step-by-step instructions on how to form LLCs in Tennessee. This state is home to numerous companies and a lot of opportunities.
Whether this is your first business start-up or just one of many you have started, comprehending the LLC formation will provide you with a lasting business advantage.
Why to Form an LLC in Tennessee
Protection from Personal Liability
Limited liability companies are preferred by many because one of their primary benefits is personal asset protection. The members have limited obligations towards the debts and other liabilities of the business. Hence, if the LLC gets involved in a court case or goes out of business, the member’s home or other personal wealth is not at risk.
Management Structure
With an LLC in Tennessee, there is quite some leeway with how the management structure will be. Members can choose to either manage the LLC themselves or hire an external manager. With such limitations, LLCs can customize their management structures to meet their scope of operation and areas of specialization.
Pass-through Taxation
Another benefit of having LLCs is that they have pass-through taxation where the profits and the losses are reported on the personal tax returns of members thus avoiding double taxation which is characteristic of C corporations. This as a result may lead to tax benefits to the business and make the tax filing aspect easy.
Lesser compliance requirements
LLCs have fewer ongoing compliance requirements as opposed to corporates. In the state of Tennessee, LLCs are only required to file an annual report in addition to and pay the fee associated. This makes the compliance requirements less complicated and helps business owners devote more time to expanding their businesses rather than a lot of time in documentation.
No personal income tax
It has been determined that Tennessee is one of the few states that does not impose any tax on personal income on wages or salaries. Though there exists a franchise and excise tax for LLCs that operate in the state, the lack of personal income tax can create an added incentive for the members of the LLC who take income from the business activities performed.
Steps to form an LLC in Tennessee
Step 1: Name Your LLC
Tennessee Naming Requirements: The proposed title must be different from the titles of registered business entities. The phrase “Limited Liability Company” or its abbreviation(s) should appear in the name.
Prohibited Terms: Avoid using the words “bank,” “insurance” or any other similar words that may give the impression the company operates in a prohibited sector, without getting appropriate clearances.
Availability of Name Search: Check the name availability by the use of the databases maintained by the Tennessee Secretary of State.
Reservation Option: By filing a Name Reservation Form and paying the necessary fee, a name can be reserved for a period not exceeding 120 days.
Step 2: Appoint a Registered Agent
What does “registered agent” mean?: A registered agent is an individual or business entity registered with the state who is authorized to receive legal papers, mail from the government, and service of process concerning the LLC.
Requirements: The registered agent must have a physical location in Tennessee must not use a P.O. Box and must also be present at all times during business days.
Hiring a Professional Service: You may wish to offer the services of a registered agent to assure compliance with the laws and to maintain confidentiality if the LLC members do not have a permanent residential address in Tennessee.
Step 3: Filing the Articles of Organization
Document Details: This document includes areas like:
- The LLC’s name and postal address.
- Registered agent(s) name(s) and contact address.
- Management structure of the LLC (i.e. member-managed or manager-managed).
- Existence of the LLC either: forever, or till a certain date.
Filing Methods: The Articles of Organization may be completed and filed electronically through the Tennessee Secretary of State site or can be filed through mail.
Filing Fee: The fee starts approximately at $300 but may differ depending on the total number of members and any special requirements. Precede any filing activities with a check of the fee schedule.
Processing Period: Compared to mailing submissions, online applications have shorter timeframes to process.
Step 4: Prepare an Operating Agreement
Purpose of the Agreement: An Operating Agreement specifies the manner of operations of the LLC for the members as it outlines the members’ functions, voting procedures, and rights, sharing of profit among members, and rules and or decision-making on how new members can or cannot be inducted to the LLC.
Not legally, but recommended: Tennessee law does not require an Operating Agreement, but it is perhaps a key document to have to avoid misunderstandings and provide evidence of how the LLC is arranged internally.
Customization: Make changes to the agreement so that it fits some of the distinctive features of your LLC including the functions of members and other processes of management.
Step 5: How to Obtain an EIN (Employer Identification Number)
Reason to have one: An EIN serves as the Federal tax ID for your LLC. It works in a similar manner as a Social Security Number for an individual. It is necessary if your LLC intends to employ staff, intends to get business financing, or is considering filing its taxes with the IRS.
How to apply: You don’t need to pay any charges, it is free to obtain an EIN through the IRS website. Application can now be done via the Internet which is much faster than mail, if the need arises to fax, it can also be done that way.
Step 6: Register for State Taxes and Business Licenses
State Tax Registration: Depending on the nature of your business, you might be required to register for either sales tax, use tax, franchise tax, or any other appropriate tax through the Tennessee Department of Revenue.
Local Permits and Licenses: Contact the county and city governments of the areas where your LLC will be functioning to find out if some other permits and licenses are required. This may include, but is not limited to, health permits, area zoning permits, and professional licenses depending on the type of service offered.
Ongoing Tax Compliance: Keep all necessary records and file all state tax returns that are due as an active compliance measure.
Step 7: Annual Report Filing
Annual Report Requirement: Tennessee is among those states that require standings annual reports from LLCs as well. This report notifies the state of changes in prep files, registered agents, LLC members, business addresses, and other such information.
Deadline and Fee: Recall that an annual report is due on the first day of the fourth month following the fiscal year end of an LLC which in most cases falls on the 1st of April. It should also be noted that there are filing fees which come to an approximate value of 300 dollars though it is wise to check for such periodic changes.
How to File: The report may either be submitted to the Secretary of State’s office by mail or electronically through the site, My Tennessee. Using the online option minimizes waiting time and the confirmation process.
Other Recommendations for a Glamorous Performance
Open a Business Bank Account: An account to make transactions solely for the LLC without mixing them with personal transactions should be opened to remove confusion.
Secure Business Insurance: If possible, trying to acquire business insurance like general liability insurance could be useful in averting some risks and liabilities in the future.
Keep Records: Then, take care and responsibly file all important books, also take minutes of the meetings, book accounting records, and all kinds of operating agreements.
Wrapping Up
For self-reliant business owners who want to enjoy limited liability protection, great tax options, and an overall encouraging business atmosphere, creating their limited liability company (LLC) in Tennessee can be quite a sound decision.
Suppose the required procedures are followed ranging from naming the company and submission of Articles of Organization, and even to the submission of annual reports. In that case, they will be sure to have their Limited liability companies in Tennessee quite a success.
If one is well prepared and knows what the state expects from them, then starting and expanding in Tennessee is an easy and fruitful venture.
Book a free consultation for clear guidance on how to set up a Tennessee Limited Liability Company and any other services that you may need.
Frequently Asked Questions (FAQs)
Is it true that every limited liability company (LLC) in Tennessee needs to submit an annual report?
Yes. In Tennessee, LLCs are also obliged to submit an annual report and pay a certain fee. This report informs the state of importance such as whether the registered agent or any member of the LLC has been replaced. It must be submitted no later than the first day of the fifty-three months after the fiscal year of the LLC ends (April 1, for example).
How about the taxation of LLCs in Tennessee state?
In Tennessee, LLCs are required to pay both excise and franchise taxes based on either the company’s net profits, net assets, or both. Furthermore, the members must also remit Federal income tax on their portion of the profits. Depending on the type of business, other local taxes or even fees may be applicable.
Is it possible for someone living outside of the state to establish an LLC in Tennessee according to the law?
Yes, foreigners are eligible to set up an LLC in Tennessee. No residency or citizenship pre-conditions for LLC members or managers are applicable. However, a registered agent with a physical Tennessee address is still a requirement.
Do I have to acquire a business license for my LLC in Tennessee?
That will depend on the kind of business activity and its jurisdiction. Tennessee has cities and counties which have specific licensing needs thus it is important to consult with the local authorities about the permits and licenses that your LLC may require.
Can I modify the registered agent of my LLC once it has been formed?
Yes, Tennessee Limited Liability Company owners are allowed to update their registered agent by submitting a Change of Registered Agent form to the Secretary of State of Tennessee alongside the required applicable fees.
Nabin Adhikari
