How to File an LLC in Tennessee: Setting up a Tennessee LLC
Tennessee is a popular state to start a limited liability company in, and having a limited liability company, or LLC, is a smart way to protect your personal assets when choosing to open a business. You can use an LLC for business ventures or as a way of holding assets like boats, aircraft, vehicles, and real estate. With that said, you may be wondering how to start an LLC in Tennessee and how an LLC works to protect your personal assets.
LLC stands for limited liability company, and people will sometimes use this as a way of structuring and protecting their personal finances to keep them separate from the business . For example, operating your business under a limited liability company allows you to protect your home, your car, and your bank account from debts and lawsuits if your business doesn’t succeed as according to plan. Luckily, the process of forming a Tennessee LLC is quite simple.
How to Get Started with Forming a Tennessee LLC
The process of starting your Tennessee LLC is fairly simple. When you decide to open up your new limited liability company, you will first have to choose the business name for your company. This is the first and most important part of the process of getting started. Before you choose a name, you need to make sure that the name you have chosen will comply with the naming requirements in Tennessee.
You have a couple of different guidelines that you need to follow to successfully name your Tennessee LLC. First, the name that you choose will need to have LLC at the end of it. It will either be LLC or L.L.C. Next, you have to choose a name that won’t have any confusion with government agencies like the State Department, FBI, or the US Treasury.
In addition, you should also beware of restricted words that they sometimes use. For example, an LLC that includes the words university, attorney or bank will sometimes require further paperwork, and you will usually have to be a licensed individual for this to be part of the LLC.
Is the Name Available?
You should always do some checking to first make sure that the name will be available. To check if it has been taken, you will need to conduct a name search through the Tennessee SOS Business Search on the Tennessee Secretary of State Website. You can find the information here.
Is the URL Available?
Next, you have to check to see that the URL will be available. Imagine going through the process of paying the Tennessee LLC cost, and then you can’t even use your own business name as domain because someone else owns it. In fact, this could run you into trademark issues, so you have to be certain that you have followed this process correctly. You should buy the URL ahead of time because this prevents other people from acquiring it and disqualifying you from using it as the name for your Tennessee LLC.
You Don't Have to Go through This Process Alone
You should understand that you don’t have to go through this process on your own. In fact, you can hire a company, a lawyer, or a registered agent who understands this field of law so that you can get the best results from it. Forming a business in Tennessee can be a tricky process in some cases, so it helps to have a professional who will guide you through the process of setting up an LLC correctly. After you have completed the first few tasks, such as choosing your name, you will continue forward into the registration process of forming an LLC.
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Getting Your Tennessee LLC Registered
In the next step, you will register your Tennessee LLC. To form an LLC in Tennessee, the cost is $300 for the state LLC filing fee. You pay this filing fee one time, but every year after, you will have what is known as an annual report fee, which will cost you $300 yearly when you file an annual report.
Next, you will need to set up a registered agent in the state of Tennessee. Your registered agent will be the person who has agreed to accept mail on your behalf. The registered agent will give you a general point of contact when it comes to payment reminders, tax notices and other important documents. Additionally, your registered agent can provide you with the physical street address needed when operating a Tennessee LLC from another state. All of the legal documents and correspondence will go through your registered agent at the provided street address, who can then file and organize information on the behalf of your company.
In this state, you’re required to nominate a registered agent for your LLC. Think of your agent as someone who serves as a point of contact between you and the state. They’re the middleman.
Who Can Be a Registered Agent?
For someone to become a registered agent, the registered agent will have to be a resident of the state, or they will need to act as a corporation within the state. Basically, the registered agent has to be authorized to do business in Tennessee. You might also choose to elect someone within the company to serve as the registered agent, and it could even be yourself. To be a registered agent, you will need to have a street address within the state, and they must be available for regular business hours from 9 am to 5 pm.
It’s important to note that the state of Tennessee doesn’t allow for the registered agent to only have P.O. boxes. Basically, it all comes down to looking at how the legal system in the state of Tennessee works. The registered agent must have a reliable street address, and they must have court documents that they can track.
What if You Want to Be a Registered Agent Yourself?
As long as you have met up with the requirements, you can be a registered agent on your own in the state of Tennessee. Some people prefer to be their own registered agent when they go to form an LLC in Tennessee, especially if they are a single-member LLC. You have four different routes when it comes to being your own registered agent. First, you can choose to be your single-member LLC’s registered agent. Second, you could choose to use your business as its own registered agent. Third, you could ask for a friend or family member to serve as the registered agent for your business.
Finally, you could choose to hire someone for this, known as a commercial registered agent. You have many benefits that come with hiring a commercial registered agent because they will have the deepest know-how of the business structure and the understanding of how to go about forming an LLC. If you want to form an LLC in Tennessee without the headache of a lot of paperwork and due dated, it may be with to allow a registered agent to help you with forming an LLC in Tennessee.
What Benefits Come with Each Registered Agent Option?
You have a few benefits that come with each option of choosing a registered agent for your limited liability company. Let’s say that you were to go to the first option of being your own registered agent when you form an LLC in Tennessee. You will need to have a Tennessee street address, but it is possible to make it happen.
In the second choice, you may ask a friend or family member living in Tennessee for their address. They have to be available during the business hours in the state of Tennessee even if you’re operating as the registered agent for your Tennessee LLC.
Finally, you have the most professional option of choosing a commercial registered agent to help you form an LLC. The commercial registered agent will know the most about the LLC business entity, your preferred business structure, will be available for the necessary business hours, and can help you with all of the paperwork and business license.
What Risks are Associated with Being Your Own Agent?
To sum it up, you do have some risks when it comes to being your own agent when you go to form an LLC in Tennessee. However, the dangers in this are minimal at best, and they don’t have a high likelihood of occurring. If they did occur, you could lose your right to liability protection or possibly your business licenses. Not to mention, the worst part is that the Tennessee Secretary of State has the power to pull the plug on your LLC. They might also do this if the Tennessee Secretary of State can’t reach your registered agent, which is why it is so important that you choose someone that you can depend on when you form your Tennessee LLC.
You have another risk related to lawsuits and personal assets. Let’s say that a disgruntled customer has filed a lawsuit against your company. If the person who serves the court documents can’t reach your registered agent, this does not mean that the lawsuit will go away. In fact, the court proceedings could even happen without your knowledge of them going on, and all of your personal assets could be at risk if you don’t respond to the information sent out to your registered agent. An LLC does protect your personal assets from mishaps that may occur within your Tennessee LLC, but an LLC cannot fully protect you when you ignore lawsuits or other important information.
We have seen this arise for a couple of different reasons from honest mistakes, but it led to huge financial devastation. For example, your registered agent went on vacation during the time that the court documents were served. Another issue that arose is that you had a friend or family member who wasn’t available during the business hours, they were contacted, and did not follow up with the information. Finally, the registered agent moved out of state, and you never replaced the registered agent with someone else.
All of these dangers can happen to an LLC in Tennessee when someone chooses to have the registered agent as themselves. Typically, you get more privacy and have a more dependable source when you choose to do a commercial registered agent to handle your Tennessee LLC information. You can take vacations, and you don’t have to stress out about coming home to a huge mess. For most LLC’s, the advantages of going with a registered agent will outweigh the cost. A registered agent can make your life must easier so you can focus on growing your Tennessee LLC instead of spending business hours sifting through paperwork.
The Articles of Organization
The Articles of Organization relates to the Secretary of State. This is the document for forming an LLC in Tennessee. You need the Article of Organization when you form an LLC in Tennessee. You can choose to do this part either in person, online or via mail. When you first go to file this, you will have to state if you will choose to do this as a manager-managed or member-managed LLC. To file this document, it starts at $50 per member fee. At a minimum, you will pay a fee of $300, and on the higher end, you will pay a maximum of $3,000. It depends on how many members you have.
What Happens if I Want to Expand to the State of Tennessee?
Maybe you came from out of state and you want to expand into the state as a Tennessee LLC. To become a Tennessee LLC you will create what is known as a foreign LLC. If you choose to file your LLC online, it typically takes 24 hours to get a response, but in some cases, they will respond to it instantly.
For those who choose to file by mail, it will take anywhere from three days up to five days. If you choose to file online, you will have to pay a filing fee for filing online for your Tennessee LLC.
How Do Foreign LLCs and Domestic LLCs Differ?
You don’t have a big difference between the two, but it identifies where the LLC was formed. For example, Domestic LLC’s were formed within the state that was chosen for the business entity. Meanwhile, a foreign LLC started in another state, but they decided to expand their operations over into another state to help with company growth.
What is a Member-Managed Structure?
A member-managed company structure does a few things for a Tennessee LLC. First, you might choose this option when you have a small number of members in your Tennessee LLC. The members will also be involved when it comes to working in the daily operations of the business. This structure is best when you have members who will actively engage with the Tennessee LLC. They will vote when it comes to all the biggest business decisions. The member-managed structure has sometimes been called a decentralized structure because of how no single member wields all of the power in the business.
What is a Manager-Managed Structure?
You will want a manager-managed structure for your LLC when you have a large number of members because this will cut down on your fees. In addition, the members involved in the LLC don’t want to be as involved in the day-to-day operations of the business. Typically, with a manager-managed LLC, they will allocate the administrative power over to some of the more specific managers. Especially when you have a lot of members, this provides you with a more efficient method of managing the business. With this system, the members aren’t required to vote on all the decisions made at the business, but the managers will handle a lot of this. This has sometimes been referred to as a centralized form of management because you have someone who handles the daily operations of the Tennessee LLC.
The Operating Agreement
With a Tennessee LLC you have what is known as the operating agreement. You don’t necessarily need to have an operating agreement in the state of Tennessee, but it is highly advised that you do. This outline of your operating agreement will look at the operating procedures and ownership as a form of agreement. It is recommended that you first come up with a draft to help you with making decisions on how to further proceed. This draft can later be used for further information on the LLC.
Keeping a Copy with Your Business Documents
When you go to set up an operating agreement, you should keep a copy of it with your business records. The purpose of the operating agreement is to spell out who the members are of the agreement, how the daily business operations are handled per member, and how you plan to pay taxes on your Tennessee LLC. It will also look at how the profits and losses get distributed per member.
Why Have This Document if It Isn't Required?
You will want to have this operating agreement because it ensures that everyone plays fair and it will name the responsibilities of each member included in your limited liability company. This is a legal document that keeps everyone honest in the daily operations, and if someone violates the agreement, they will have to pay for it. If you’re opening up a Tennessee LLC, we highly advise you to write up an operating agreement for your protection.
Using a Template for Your Tennessee LLC
In many cases, you can use a template for the Operating Agreement of your LLC. An operating agreement must include the name and responsibilities of each member, and there are many other additions that can be written in. Getting the help of an attorney is one of your best bets to make sure that you have crossed all your t’s and dotted your i’s for the safety of you, your business licenses, and you’re Tennessee LLC.
When an Operating Agreement Isn't Necessary
You do have some cases where you may not need an Operating Agreement for your Tennessee LLC. For example, let’s say that you’re only a single member. In these cases, it doesn’t make sense if you don’t plan on having multiple members under your Tennessee LLC. In these cases, your interests will always be protected. An Operating Agreement exists to protect the people who are involved in the company. If you choose to add individuals in to your Tennessee LLC later on, it may be wise to draft an Operating Agreement.
Who Needs an Operating Agreement?
Some cases do require an Operating Agreement, and it makes a lot of sense to get one. The reasons that you may want to get one include the following businesses:
- Financial lending
- Title company for buying real estate
- Investors of your business
Intended for Fluidity
It’s important to note that this document has been built for greater fluidity. You want your Operating Agreement to be able to change as your business continues to expand. You can make simple changes and all that you have to do is save the document as it is in a new version. In most cases, it would make the most sense to hire an attorney because this can be a tricky legal process, and you don’t want to run into problems regarding you’re Tennessee LLC.
What Happens When You Make Changes
Each time that you make changes, you will need to make all the members sign the agreement. All of your members’ names and your name must be on the new version of the document with the date. This ensures that everyone follows through with the Operating Agreement under the new version. In addition, you want to keep a copy of all the previous versions because this can be used to see how the business has evolved over time. If you have to submit an annual report, be sure to include your updated Operating Agreement with the other documents.
How to Complete the Operating Agreement
You’ll need to keep documentation of when you first started the LLC. You will also need to keep the address and the name of your registered agent since your registered agent will have access to almost all of your business information. In addition, you will need the general purpose of your LLC, the ownership percentages of the members, and the names of your members and their addresses. All of this organizes the document so that you can see everything more clearly, and if any disputes arise, you can always refer to this document as a way of dealing with it. Of course, your company name must be included as well as all relevant information.
Getting Your Tax ID Number
In the next step, you will be getting your tax ID number for creating your Tennessee LLC. Sometimes this has also been referred to as an EIN. This is used to identify a business tax entity. You could call this a social security number for your Tennessee LLC. Why would someone want to have an EIN? You have a couple of different reasons for getting this, and they include:
- For federal and state tax purposes
- To open a business bank account for your Tennessee LLC
- Hiring employees for your LLC
To acquire an EIN, you can simply speak with the IRS, and they will give you a free one after you have formed the LLC Tennessee company. You can choose to do this either by mail or through the internet.
When you have an EIN, this enables you to have a separate bank account for your business through the LLC. You will apply for the permits and licenses, and it will also handle the employee payroll through this system. While they call it the Employee Identification Number, you don’t necessarily have to have employees. This simply helps you to identify yourself to the IRS.
Understanding the Different Names for the EIN
You have several different names that you will sometimes hear the EIN referred to as. Some of the names that are included with the EIN include:
- Employer ID Number
- Federal Tax Number
- Federal Employer Identification Number
If you hear any one of these terms, what they are talking about is the EIN.
Why You May Want to Have an EIN as an LLC
This system helps businesses to prevent identity theft that can wreak pure havoc on your Tennessee LLC. For example, you can obtain a line of credit for your business loans under your LLC. You might also open a business credit card to allow for you to make transactions more easily for your LLC. Finally, you can apply for business licenses that allow your company to operate and expand.
Wait for Your Tennessee LLC Approval
Before you begin, you should first wait for your Tennessee LLC approval. You don’t want to get an EIN until then because if your Tennessee LLC application gets rejected, this will mean that you have an EIN and no business attached to it. Wait until after the LLC has been approved. After they have approved your Tennessee LLC, then you can move forward and file for an EIN.
Let’s say that you applied for the EIN, got it, and the Secretary of State rejected your application for an LLC. If this did happen, you can cancel your EIN and simply try to get another one. Luckily, they don’t make you wait for the cancellation to get the EIN.
What if You Don't Have a Social Security Number
You don’t need to have a social security number to get an EIN. Instead, you will file an IRS form known as IRS Form SS-4. You will leave Section 7B blank. You have a few different tax qualifications that you have to consider with an EIN, and you choose to set yourself up will determine how you get taxed. For most of the LLC’s, they choose to do the default tax status. In some cases, you can lower your tax obligations by choosing the S corporation status, and it can be different if you need to pay a franchise tax. To figure out your best option, it is advisable that you speak with your local tax specialist to determine what will work the best for your Tennessee LLC.
What Happens When Your LLC is Owned by Another Company
In 2018, the IRS made some changes that won’t allow for the responsible party to own a company. You have to list the individual owners of the company for this part. For those who are owned by another company, and they want an EIN, they will most likely experience an error message.
How Are Taxes Calculated for a Tennessee LLC?
Based on a default tax law, they will tax Tennessee LLCs based on how many members you have. This means that the Tennessee LLC has not elected to be a corporation. You may want to apply for an S corporation if you have a business that generates over $70,000 each year in the state of Tennessee. You should speak with an accountant about this because you have tons of details that you need to consider if you will get the best results.
Setting Up a Tennessee LLC Bank Account
You will normally need a couple of documents for setting up an LLC in Tennessee. Some of the documents needed include:
- Passport or driver’s license
- EIN confirmation letter
- LLC approval
- LLC operating agreement
It depends on the bank, but you may have to show further information to open a bank account for your Tennessee LLC. For example, some might want to see that you have a proof of address in Tennessee. In addition, a non-US citizen may have to show the bank two documents as a way of confirming everything. It’s important to note, if you first started your LLC in Tennessee, then that is where you will need to open the bank account.
Get Business Insurance
As you continue to develop and expand as a business, you will want to have insurance because this helps you to manage many of the risks associated with operating an LLC. You have a few different forms of insurance that can be helpful to business owners.
These insurance types include:
- Professional liability insurance
- General liability insurance
- Workers’ compensation insurance
Sign Your LLC Legal Documents Properly
Once you have opened up your LLC, you should make sure that you have properly signed all of your legal documents. That’s because a failure to sign them properly could lead to you being legally vulnerable. Using a registered agent or company is a great way to ensure that all of your documents are properly filled out, but you can follow this basic template for when you go to sign your documents:
- Your name
- Your signature
- The formal name of the business
- The position of the business with the authorized representative
Annual Report for Tennessee LLCs
As stated before, the annual filing fee will normally be $300 if you have between one to six members. If you have over six members, you will have to pay an additional $50 filing fee for each member. The due date for the filing fee comes around at the same time each year.
You have to pay your annual report fee on the 1st of April. You have to watch carefully for this date because the consequences for not filing your annual report can mean that your LLC gets shutdown and dissolved immediately. To avoid this danger to your business, it is recommended that you scratch it down on the calendar so that you can remember it more easily.
If you filed online, you should see a message that says you succeeded in the filing. Once this pops up, be sure to keep this as an important document for your own records. This is a better method in some ways because if you were to choose to file by mail, the state will not send you documents or a receipt and you could be in trouble if a dispute arises. However, you can choose to pay by money order as a way of keeping careful documentation of everything. Many businesses prefer paying by money order for this reason.
Doing Your Taxes for LLCs
Let’s say that you first formed your LLC in Tennessee. You should understand that you could be held liable for paying a franchise tax and registering with the Department of Revenue for your Tennessee LLC. The franchise tax will cost you 0.25 percent of your revenue, and you will have to make a minimum payment of $100. For the excise tax, you can expect to pay 6.5 percent of your income that you have made within this state. You should have a tax specialist to help you with calculating your taxes because this can be tricky, and you don’t want to do it improperly because this can mean the dissolution of your LLC.
You want to hire a tax professional after you have formed your LLC because they should keep you in compliance with the various tax laws, and they will make sure that you follow through with everything. Not to mention, this will give you an advisor that will allow you to ask other questions in business. Every year, whether you have made money or lost money, you still have to file your tax returns. You can’t take this lightly because you don’t want to experience problems with the state.
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The Characteristics of a Good Tax Specialist
Finding a good tax specialist can be done by looking for a few things. First, check to see that they have been certified. A good tax specialist will carry the CPA or some other qualification to show that they understand how to do taxes. You should ask for your tax specialists credentials as well as their references to make sure that they have what it takes to help you complete a tax return properly and for the least amount of money. If they can’t deliver on this, you should drop them immediately. You might also look into the specialist at the Better Business Bureau to see if any other customers have filed complaints against them.
You should also look for a tax specialist that makes you feel comfortable. Not every specialist will be the best fit for you. They should be willing to answer all of your questions, and you want to choose someone that you like both professionally and personally. That’s because you will be doing business with them for a while, and you have to prepare for that. Normally, you will want to interview two or three different specialists before you have decided on it.
You may also want to emphasize experience when you go to search for a specialist because this will have the biggest impact over the long term. Ask them if they have ever gone up head-to-head against the IRS, and you want to look for a specialist who understands how to work with an LLC because this will let you get the best results. Through finding the right advisor, you can save yourself plenty of cash that would have gone into the pocketbooks of the US government otherwise.
Get a Certificate of Good Standing
When you go to obtain a certification of good standing, this shows the state of Tennessee that you formed your LLC legally. In addition, it shows that you took the proper measures for maintaining your Tennessee LLC. You have a couple of scenarios where it makes sense to get a Certificate of Good Standing. Some of the reasons that you may want to get one include:
- Forming a foreign LLC from another state
- Getting funding from other lenders and banks
- Renewing specific permits and business licenses
What if You No Longer Want an LLC?
You may reach a point where you no longer want a Tennessee LLC. To stop being responsible for your Tennessee LLC, you will have to dissolve your LLC. You have to do this in a timely fashion because you don’t want to run into penalties, tax liabilities, and legal consequences. You have two broad steps that you can follow to dissolve your Tennessee LLC. First, you will file for the Articles of Dissolution. Second, you will close the business tax accounts for your Tennessee LLC. If you are using a registered agent, be sure to let them know so they can handle your paperwork accordingly.
Why a Well-Managed LLC Matters
Having a well-managed LLC will make a huge difference. You want to make sure that you take the time to get everything in order. As a business owner, it helps when you remain up to date on your account.
This will allow you to better track your finances like bills, expenses, and income. In addition, you can simplify your annual filings for your taxes. When you stay organized, you will be more on top of things, which will give you better results for your Tennessee LLC.
Filing for the Necessary Business Permits and Licenses
It depends on the type of business you have. However, some businesses will have to get the proper permits and licensing for a Tennessee LLC. For example, let’s say that you have a grocery store, food service or a restaurant. For all of these businesses, you will need to get a permit from the health department. You may also need construction permits if you plan to build the LLC. For more information on these permits, you will want to speak with your local government office to see what is required.
You want to make sure that you followed the proper protocol and have the correct permits because it could result in you having to pay more in fees otherwise.
How to Know if an LLC is the Correct Choice for You
Knowing how to form an LLC in Tennessee could be helpful, but you also want to make sure that you will receive the most tax benefits from doing this. When you begin with an LLC, the startup costs will be low, and you don’t have to do too much paperwork when starting this type of corporation. Having this system can help you to get your business off the ground and in good standing. For a lot of the smaller business owners, this was what it was made for. It will help you to expand your business while keeping your costs low.
The LLC has become one of the most popular business forms that you will find within the United States. You will be in good company if you decide to form one. You have plenty of advantages of choosing to go with an LLC. Some of the things that you can do with it include:
- Cost effectiveness
- Tax choices
- Less paperwork
- Given some legal protection
- Property ownership—own as much property as you like
With all of this said, you also have some negatives associated with forming an LLC, and you have to look at the downsides as well to determine if this is the right choice for you. The biggest downside of an LLC is that you have a lot that you will have to figure out on your own.
Many of the benefits mentioned above could turn into negatives for some people. Another problem comes from how the termination of an LLC is quite simple for businesses. Any member who chooses to depart from the LLC can dissolve it. Shareholders in a company will come and go. Regardless, when you set out to form an LLC, you should make sure that all the members in the group are willing to make it work over the long term. It may not always be easy to keep businesses going long-term, so you have to consider this well in advance.
Limited liability companies will also be exposed to capital values tax or franchise tax. You want to check your jurisdiction to see if this will apply to you in your jurisdiction. Another one of the negatives comes from the fact that the renewal of your filing fees can sometimes be just as harsh as if you had formed a corporation. While you may find it less expensive to have an LLC in the beginning, it doesn’t always make sense over the long term because it could wind up costing you more.
Considerations Before Opening Your Own Tennessee LLC
To determine if an LLC will be the right choice for you, you should understand how no two businesses will be exactly alike. We’re speaking of the advantages and the disadvantages on a broad scale. For small business owners, in particular, you can derive the most benefits from it without having to worry about too much for the complexities of it. You should also be aware of some of the inflexibility associated with it. For example, let’s say that you want to make some key changes to the special documents like the Articles of Organization or the Articles of Incorporation. You will first have to file an amendment with the secretary of state in Tennessee.
These are some of the ways that you would go about forming an LLC in the state of Tennessee. You may find it useful to speak with an expert on the subject because they can help you to navigate some of the trickier parts of the process to have the most success with opening your own Tennessee LLC. Having someone who understands how to form LLCs can also lead to you getting the best results from it because they can help you to avoid the pitfalls. If you need help setting up a Texas LLC, be sure to check out our next guide.