How to Start an LLC in Tennessee: 7 Steps
Tennessee offers a favorable business climate and no state income tax. Knowing how to start an LLC in Tennessee can give your small business the edge it needs without the extensive formalities of a corporation. Here are seven steps to starting an LLC in Tennessee.
Step-by-Step Guide: LLC Formation
Step 1: Check Your Preferred Business Name
If you’re looking into how to start an LLC in Tennessee, you may have already chosen a name for your new business that you like. However, your name must meet the state’s requirements, including uniqueness. Here is how to ensure you name your business correctly.
Review Naming Requirements
In Tennessee, all LLC names must:
- Contain “LLC” or “limited liability company”
- Not suggest a specific trade (like insurance) unless your business operates in that industry
- Not claim affiliation or sponsorship by any fraternal, veterans, service, religious, charitable or professional organization without secretary of state certification
- Avoid terms suggesting a connection with the government, e.g., “agency’ or “department”
Tennessee doesn’t explicitly prohibit names with offensive or derogatory terms, but it’s a good practice to avoid such terms. Also, it’s a good idea to keep your business name short and to the point; people are more likely to remember the name if it’s concise.
Run an Online Name Search
Use the business information search to ensure your chosen name is distinguishable from others. You’ll want to search using name elements rather than your full business name. For example, if your desired business name is “Wendy’s Exotic Poultry,” you may want to search “exotic poultry” to see what comes up and figure out your business name from there.
If you find your business name is similar to another business’s name and still want to keep it, you must file a “name consent.”
A name consent is a written document indicating that the business approves of you using a similar name. The secretary of state’s office provides a form. If the existing company consents, you must use the same registered agent they do.
Step 2: Find a Registered Agent
A registered agent is a company or individual who accepts legal correspondence on your LLC’s behalf. Your registered agent must maintain a business office in Tennessee to serve in this capacity.
Your LLC’s registered agent can be you or your friend, business partner, attorney or relative. However, the primary duty of a registered agent is to be available during business hours. That can be difficult for a single individual if they leave on vacation or don’t work at your LLC’s physical location. Also, many business owners are busy and don’t have time to act immediately on legal matters — which can cause problems later.
A possible solution is to hire a registered agent service company. Since these offices are always staffed, there are no delays in receiving essential documents. You can find one through the Chamber of Commerce.
Step 3: Choose Management Structure
Your LLC’s management structure determines who makes decisions for your business. This step can be challenging when you’re just learning how to start an LLC in Tennessee. But you don’t have to make it more difficult than necessary; many LLCs thrive on simple management structures.
You just have to choose what is best for your LLC. Tennessee allows three options — member-managed, manager-managed and director-managed. Here are the differences between these options.
Member-Managed
Corporations have shareholders, and LLCs have members. Members hold an ownership interest in your company. They also work for the LLC. For example, if your LLC is a law firm, your members are licensed attorneys representing clients and making money.
In a member-managed LLC, the members also make decisions regarding vendors, capital, expansion and other critical decisions. Members may discuss these issues in meetings and come to a consensus or agree to place authority in one member.
Manager-Managed
In a manager-managed LLC, members focus on the business purpose (dog training, practicing law, etc.) and don’t make management decisions. Instead, they delegate those decisions to non-member managers.
Most LLC managers are salaried employees with company management expertise in human resources, marketing and other essential business functions. Manager-managed structures work well if members have few management skills or wish to focus on their business rather than make everyday decisions.
Director-Managed
Director-managed LLCs appoint a board of directors to make decisions. Members vote for the directors and have the power to remove them — much like shareholders in a corporation. Each board has a president who the directors elect.
Most small businesses opt for member-managed or manager-managed structures. It is usually all you need for your business to run smoothly. Director-managed LLCs are more common with larger companies with independent interests and hundreds of members who may not know or talk to each other. In those cases, it’s easier to govern the LLC with a board familiar with all aspects of the company.
Step 4: File Articles of Organization
Filing articles of organization with the secretary of state is the most critical step to learning how to start an LLC in Tennessee. The articles of organization are a formal legal document that creates your Tennessee LLC.
Tennessee offers an online platform for creating and filing your articles of organization, but you can submit paper forms, too.
Articles of organization must contain the following information:
- Your business’s name, including “LLC”
- Your business purpose, e.g., financial planning, law practice, bakery, etc.
- Business contact information, including street and mailing addresses
- The name and contact information for your registered agent
- A statement as to whether your LLC is member-managed, manager-managed or director-managed
- The expiration date of your LLC, assuming it isn’t perpetual
If your business provides a licensed professional service, like legal advice or medical care, you must form a professional LLC or PLLC. PLLCs use the same form as regular LLCs; however, you must complete the certification in question 13 (or the online equivalent).
Also, be aware that your Tennessee LLC can’t engage in business transactions until the secretary of state approves your articles of organization. When they do, they’ll send you a notice.
Step 5: Cover Tax and Regulatory Requirements
Once the secretary of state confirms your LLC filing is complete, it’s time for the next stage. Before you start transacting business, you must ensure you comply with tax and regulatory requirements, including:
- Employer identification number (EIN). If your LLC has more than one member, you need an EIN; you can apply for one online
- Business license. Check your county and municipal offices to see if you need a business license
- State taxes. You must register with the Tennessee Department of Revenue if you plan to sell goods
- Professional licenses. If you form a PLLC, all members must have updated professional licenses; e.g., law practices must have licensed lawyers
Step 6: Draft and Finalize an Operating Agreement
Tennessee doesn’t require that you file an operating agreement with your articles of organization. However, you will be happy to have one to help resolve differences if you disagree with the other members, managers or directors at some point in the future.
The operating agreement outlines your business practices and procedures. It addresses:
- Members’ contributions to the LLC (e.g., cash, real estate, vehicles, etc.)
- Profit and loss distribution
- Managerial powers and responsibilities
- Voting procedures, including what to do in case of deadlocks
- Division of labor, e.g., which managers and members handle banking, finance, or human resources
- Procedures for department members or admitting new members
- If director or manager-managed, procedures for recruiting, assessing and hiring managers or directors
All members should have an opportunity to review the operating agreement before signing it. Once finalized, Tennessee law treats it like a contract with binding terms. So, you want to ensure it is clear and detailed so members start with mutual understanding.
Step 7: Maintain LLC Compliance
The reason for learning how to start an LLC in Tennessee understandably focuses on formation, but your work doesn’t end there. Creating an LLC in Tennessee also includes maintenance.
It’s true that LLCs are easier to maintain than corporations because they have fewer formalities. However, the record on your Tennessee LLC must remain current. You do this by:
- Filing annual reports
- Keeping registered agent information updated
- Adding new mailing and street addresses
- Updating articles of organization when necessary
Annual reports are critical to keeping your LLC active. These documents confirm that you remain in business and can be reached through your registered agent. The state may deactivate your LLC if you don’t file an annual report.
The secretary of state’s office will notify you when your annual report is due. You can file it online through the same system you used to register your LLC.
Frequently Asked Questions
Is there a filing fee for the articles of organization?
Yes. The filing fee is $50 per member listed in the articles of organization. So, if you have seven members on filing day, your filing fee is $350.
However, Tennessee charges a minimum filing fee of $300 and caps it at $3,000. So, if your LLC only has two members, you pay $300 — not $100.
How many members do I need for a Tennessee LLC?
There are no minimum or maximum member requirements. You can even start the LLC on your own and run it as a single-member LLC. Switching from a sole proprietorship to a single-member LLC offers you liability protection since it makes you and your business separate entities. Once your business becomes an LLC, your business’s creditors can’t pursue your personal assets to pay debts.
How are Tennessee LLCs taxed?
You can choose how to tax your LLC. One option is pass-through taxation, where you integrate profit and loss from your LLC into Schedule C on your tax return. The other option is C- or S-Corp taxation, where the LLC files a separate tax return like a corporation. Since your tax situation may vary, you may wish to consult with a CPA before choosing how your LLC is taxed.
Do I need an attorney to create an LLC in Tennessee?
No. You can fill in the forms yourself or use an online service. However, legal advice can be helpful if you require a complex operating agreement or run into a challenging issue.
How to Start an LLC in Tennessee Online
Now that you know how to start an LLC in Tennessee, you likely want help keeping all these steps straight. Here is our list of best LLC formation services to help you get started.
Legal Disclaimer: This article contains general legal information but does not constitute professional legal advice for your particular situation and should not be interpreted as creating an attorney-client relationship. If you have legal questions, you should seek the advice of an attorney licensed in your jurisdiction.
