You can use an LLC as a way of holding assets like boats, aircraft, vehicles and real estate. With that said, you may be wondering how to form a Tennessee LLC. LLC stands for Limited Liability Company, and people will sometimes use this as a way of structuring and protecting their personal finances. For example, it protects your home, your car and your bank account. Luckily, the process is quite simple.
The process of getting started is fairly simple. When you begin, you will first have to choose the name for your company. This is the first and most important part of the process of getting started. Before you ever choose a name, you should first check 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. First, the name that you choose will need to have LLC at the end of it for it to classify as this. 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 do a name search 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 you can’t even use your own 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 also be sure that you buy the URL ahead of time because this prevents other people from mistakenly acquiring it.
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 someone who understands this field of law so that you can get the best results from it. This 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 done these things like finding your name, you will continue forward into the registration process.
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Getting It Registered
In the next step, you will register your LLC. The Tennessee LLC cost is $300 for the State LLC Filing Fee. You pay this fee one time, but every year after, you will have what is known as an annual report fee, which will cost you $300 yearly. Next, you will need to set up a registered agent in the Volunteer State. They will be the person who has agreed to accept mail on your behalf, and they will give you a general point of contact when it comes to payment reminders, tax notices and other important documents.
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, they will have to be a resident of the state, or they will need to act as a corporation. Basically, they have to be authorized to do business transactions in the state. You might also choose to elect someone within the company to serve under this role, and it could even be yourself. To be a registered agent, they 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. Important to note, they don’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. They 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. Some people prefer it this way. You have four different routes when it comes to being your own agent. First, you can choose to be your own LLC’s registered agent. Second, you could choose to use your LLC as its own agent. Third, you could ask for a friend or family member to serve as the registered agent in this case. Finally, you could choose to hire someone for this, known as a commercial registered agent. You have benefits of hiring a commercial registered agent because they will have the deepest know-how and understanding of how to go about this process.
What Benefits Come with Each?
You have a few benefits that come with each one. Let’s say that you were to go to the first option. You will need to have a street address, but it is possible to make it happen. In the second choice, you may ask a friend or family member for their address. They have to be available during the business hours in the state of Tennessee. Finally, you have the most professional option where you have total privacy, and you will have a more reliable setup through this option. When you do a Tennessee LLC search, this has an equal level of importance for getting the best results.
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. 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. Not to mention, the worst part is that the Tennessee Secretary of State has the power to pull the plug on your LLC if they see fit to it. 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.
You have another risk related to lawsuits. 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. 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 it. Finally, the registered agent moved out of state, and you never replaced them 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. 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 costs.
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 this if you will register the LLC. 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 an LLC. To do this, 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 should understand that you will have to pay a convenience fee for filing online. After you have finished with it online, you will pay online.
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 LLCs were formed within the state that was chosen. Meanwhile, a foreign LLC started in another state, but they decided to expand their operations over into another state to help with growth.
What is a Member-Managed Structure?
A member-managed structure does a few things. First, you might choose this option when you have a small number of members in the 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 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.
The Operating Agreement
With an 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. However, most experienced business owners will also tell you that it’d be a good idea to have one. This outline will look at the operating procedures and ownership as a form of agreement. It’s a legal document. 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 one of these up, 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 get to run and how you plan to pay taxes on it. It will also look at how the profits and losses get distributed.
Why Have This Document if It Isn't Required?
You want to have this agreement because of how it spells out everything, and it ensures that everyone plays fair. 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.
Using a Template
In many cases, you can use a template for the Operating Agreement of your LLC. It will work in most cases, but you may want to make sure that this will be the right choice for your business. 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.
When an Operating Agreement Isn't Necessary
You do have some cases where you may not need an Operating Agreement. 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 to have multiple members under your LLC or investors in it. In these cases, your interests will always be protected. An Operating Agreement exists to protect the people who are involved in the company.
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 with it.
What Happens When You Make Changes
Each time that you make changes, you will need to make all the members sign the agreement. 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.
How to Complete the Operating Agreement
You will want to complete your operating agreement, and this will be easier for you to complete if you were to keep the most important information. For example, you want 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. 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.
Filling Out the Operating Agreement
To begin filling out the document, you will need to open it in OpenOffice or Google Docs. In some cases, you can simply print the document and fill it out by hand. That has the advantage of giving you a physical copy of it. If you ever experience any problems with your technology, you won’t lose the work that you had with it.
Getting Your Tax ID Number
In the next step, you will be getting your tax ID number for creating an LLC in Tennessee. 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 card for your business. 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
- Hiring employees for your company
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 you to prevent identity theft that can wreak pure havoc on your business. You have plenty of reasons that it makes sense to go with this option. For example, you can obtain a line of credit for your business loans. You might also open a business credit card to allow for you to make transactions more easily. Finally, you can apply for business licenses that allow your company to operate.
Wait for Your LLC Approval
Before you begin, you should first wait for your LLC approval. You don’t want to get an EIN until then because if you get rejected for having an LLC, 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 it, then you can move forward with getting 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 LLCs, they choose to do the default tax status. In some cases, you can lower your tax obligations by choosing the S corporation status. 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 you.
Applying for an EIN via Phone
Believe it or not, in the past, you could apply for an EIN using the phone. However, the IRS chose to discontinue this form of service. You do still have some business that could apply for an EIN. For example, foreign companies and those that were formed outside of the United States.
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 Do They Tax LLCs in Tennessee?
Based on a default tax law, they will tax LLCs based on how many members you have. This means that the 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. You should speak with an accountant on this because you have tons of details that you need to consider if you will get the best results.
Having an 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 LLC. For example, some might want to see that you have a proof of address. In addition, a non-US citizen may have to show the bank two documents as a way of confirming everything. 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 it. 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 All Your 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. 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 $50 for each member. The due date 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 this carefully 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, you should remember 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 even a receipt. This means that if a dispute arises, you could be in trouble. However, you can choose to pay by money order as a way of keeping careful documentation of everything.
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. 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. To get the most out of your tax advisor, you should start with your goals and continue from there. If you have basic needs, then almost anyone will do okay, but you do have cases where you will want a better tax specialist. You should ask for their credentials as well as their references to make sure that they have what it takes to help you complete a tax return 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 LLCs 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, you took the proper measures for maintaining your 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 an LLC. Perhaps you no longer want to do business under this system because you could find more benefits elsewhere. To do this, 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 for this. First, you will file for the Articles of Dissolution. Second, you will close the business tax accounts.
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 in the long run.
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 an LLC. For example, let’s say that you have a grocery store, food service or a restaurant. In all of these cases, 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. 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 do this, 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.
Ask Yourself the Following Questions
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 it. 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.