Everything you need to know to start your business in Tennessee
If you are not sure about which business structure is best suited for your startup, your not alone, many entrepreneurs struggle with this decision.
In this post we will introduce you to all the business structures available in Tennessee and give you step-by-step instructions for establishing each of them.
Startup ecosystem in Tennessee
Every successful entrepreneur has taken the time to investigate their startup ecosystem before establishing a business; in the infographic below we have aggregate some important startup stats in Tennessee:
As you can see, Tennessee is a great place to launch your startup!
Planning your business in Tennessee
The first thing you need to do, before any other startup activities take place, is verify that there is a scalable demand for your business solution with effective market research
. Once the demand for your business is verified, you will need to incorporate this information into a business plan.
A business plan logically lays out your plan for establishing your startup, and it also makes your venture very appealing to potential investors!
A typical business plan is comprised of the following components:
Thankfully, we've written an in-depth guide to crafting a winning business plan
Structuring and registering your business in Tennessee.
There are 6 main business structures in Tennessee, and all are applicable to both brick and mortar businesses and e-commerce businesses:
Limited Liability Company (LLC)
General procedures for all business types in Tennessee
The following key steps need to be completed regardless of which business structure you choose:
Get your EIN
Sole Proprietors and Partnerships that don't plan on hiring employees
do not need an Employer Identification Number (EIN), but it's still wise to get one in case you do bring on employees in the future.
All other business structures must get an EIN in order to register their business.
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Register a business name with the state of Tennessee
If you want to give your business a unique name that is different to your own full name, you will need to attain a "doing business as" registration (also known as a DBA or Assumed Name). The process is slightly different depending on which business structure you choose:
Sole Proprietors and General Partnerships need to register their Doing Business As name at their Tennessee local county office
Get your Tennessee business licenses and zoning permits
Certain businesses in Tennessee require a special license to operate. To check if your business type requires a license, search for your business type on the Tennessee Department of Commerce
The location of your business may also restrict business activities. This may especially be the case if you plan to run a home-based business. Contact your local Tennessee county office
to find out whether you need to apply for a zoning permit.
Open business banking accounts
This isn't necessarily a requirement, but highly recommended to keep business transactions separate from personal transactions.
Submit New Hire Reports
File a business annual report in Tennessee
The following business structures are required to submit an annual report
to ensure the Tennessee Secretary of State holds the most up-to-date contact details of their business:
Limited Liability Companies
Domestic Limited Liability Partnerships
Tax details for all businesses in Tennessee
You can also find up-to-date tax information
for all business structures on the Tennessee Department of Revenue website as well as on the IRS website
It is important for you to submit all state and federal tax filings in a timely manner. Failure to submit on multiple occasions may result in the automatic dissolution of your business.
Domestic vs Foreign business in Tennessee
To make sure you are accessing the correct business setup forms, it's important to understand the distinction between a domestic and foreign business in Tennessee.
A business in Tennessee is classified as a domestic if it is headquartered within the state. Foreign businesses, on the other hand, are headquartered outside of Tennessee.
Now let's discuss the processes of establishing each individual business structure.
How to start a Sole Proprietorship in Tennessee
If you are launching your business alone, the simplest and cheapest business structure you can choose is a Sole Proprietorship. You do not need to worry about irrevocably settling into any one business structure, you always have the option of changing to another structures.
Most entrepreneurs launch their startup as a Sole Proprietorship and then upgrade to a higher business structure as their business grows.
That being said, if your business solution poses any amount of financial risk
to your clients, it is better for you to settle with a business structure that offers a higher level of personal asset protection, such as an LLC or Corporation.
If you've already completed all the general steps for launching a business in Tennessee there's nothing more you need to do to register your Sole Proprietorship.
How to start a Partnership in Tennessee
A Partnership is the simplest business structure that accommodates two or more cofounders.
There are four different types of partnerships structures in Tennessee
General Partnership (GP)
This is the default type of partnership. All business debts are equally shared amongst General Partners. A general partnership is considered a 'pass-through-entity' which means the business is only taxed once at each member's personal tax income level.
How to form a General Partnership in Tennessee
You can also complete this registration process online
Limited Partnership (LP)
A Limited Partnership is comprised of both General and Limited members. Limited members limit their personal liability to the extent of their monetary investment in the business.
Limited partners don't have as much jurisdiction over business decisions as general partners, they function more like investors.
How to form a Limited Partnership in Tennessee
Limited Liability Partnership (LLP)
Limited Liability Partnership members are not held responsible for any financial negligence or fraud committed by other members.
How to form a Limited Liability Partnership in Tennessee
A Limited Liability Partnership can either be registered by mail
Foreign Limited Liability Partnerships should register with this form
Create Tennessee Partnership Agreement
Regardless of which type of Partnership you register, you should create a Partnership Agreement for it
Though this isn't a State requirement, it is highly recommended to ensure all partnership members remain aligned
A Partnership Agreement as an internal document all members sign to indicate their agreement with set business procedures. To save time you can use a partnership agreement template
How to form an LLC in Tennessee
An LLC offers a superior level of personal asset protection to its members. LLCs can either be run by managed by members or a designated manager.
Naming an LLC in Tennessee
All LLCs in Tennessee need to append any one of the following entity identifiers to the end of their business name:
Limited LIability Company
Appoint a Registered Agent in Tennessee
All LLC's in Tennessee are required to nominate a Registered Agent. A Registered Agent accepts all mail on behalf of the business so that any legal correspondence is collected in a timely manner.
All registered agents in Tennessee must meet the following criteria:
Be located in the state of Tennessee
Accept mail via a residential or business address (not via a PO BOX).
Guarantee availability during business hours.
Guarantee the timely forwarding of all accepted mail to respective business owners.
Should you be your own Statutory Agent in Tennessee?
You can legally appoint either yourself or a cofounder as a registered agent. However, this is not recommended because, as busy business owners, you can never guarantee your availability during business hours to accept all mail.
Alternatively you could appoint a friend, relative or any of the following professional registered agents in Tennessee:
You will need to nominate your registered agent in Section 4 of the Articles of Organization (see below).
Submit Tennessee LLC Articles of Organization
This document can also be filed online
Create a Tennessee LLC operating agreement
An LLC operating agreement keeps all members aligned the goals of the business and also minimises the risk of inter-member disputes.
Since this is an internal document and not a State of Tennessee requirement, you are free to design this agreement however you like, or alternatively use a template
All members should sign this document during the initial corporate meeting.
Host initial Corporate meeting
This is an opportunity for all members to plan the company's launch as well as complete the following procedures:
Vote for initial term directors to serve
Distribute stock certificates
Complete settlements for high-value business purchases
Create a list of corporate laws that will govern the business (Bylaws)
Foreign LLCs in Tennessee
A Certificate of Good Standing from the home State Secretary of the Foreign LLC must accompany this submission.
How to form a Corporation in Tennessee
A Corporation is the most sophisticated business structure available in Tennessee. This structure offers the most superior level of personal asset protection to its members.
A Corporation can be very complicated to set up on your own, so you might want to get help from an attorney.
There are two different types of corporate structures in Tennessee:
This is the default corporate structure. There's no limit to the number of members a C-Corporation can have and they can issue all classes of stock.
The primary downside of C-Corporations is the double taxation process that takes place at both the corporate and personal income level of their members.
An S-Corporation is classified as "pass-through-entity," so they're only taxed once at the personal income level of their members.
To elect to be an S-Corporation, you need to submit Form 2553
with the IRS.
S-Corporation can only distribute one class of stock and are limited to 100 members.
Naming your Corporation in Tennessee
All Corporations in Tennessee must append any of the following entity identifiers to the end of their business name:
Appoint a Registered Agent for your Corporation in Tennessee
The process of appointing a statutory agent for Corporations is the same as the process for LLCs.
Submit Tennessee a Charter For-Profit Corporation
To register a Corporation in Tennessee you must submit a For-Profit Corporation charter.
Host a Corporate organizational meeting
The following procedures should be completed during this organizational meeting:
Initial directors that will serve during the first term should be appointed
All members should agree upon a set of bylaws that will govern the Corporation
Stock certificates should be distributed to members
Finalization of important business purchases
Meeting minutes should be recorded and stored in a Corporate Records Book alongside all other important business documentation
Foreign Corporation registration in Tennessee
A certificate of Good Standing issued by the home Secretary of State of the business should accompany this submission.
How to form a Nonprofit in Tennessee
If your business solution is focused on improving the wellbeing of others, you should consider choosing a nonprofit structure.
Naming your Nonprofit in Tennessee
Nonprofits in Tennessee are not required to append their business name with a special entity identifier (such as Corp, Company, Incorporated etc)
Appoint a Registered agent in Tennessee
The process of appointing a registered agent for nonprofits is the same as the process for LLCs.
Submit a Tennessee Nonprofit Charter
If you prefer to speed up the submission process you can complete it online
If you also plan to also apply for Federal tax exempt 501(c)(3) status, you must include specific IRS standard statements in your Nonprofit Articles of Incorporation. For guidance, refer to the section "Articles of Organization" on page 25 of this IRS document
Host initial Corporate Meeting
All members should collaboratively create the bylaws that will govern the nonprofit, finalise any business transactions and settle any matters that require attention prior to officially launching the business.
Apply for nonprofit tax exemption in Tennessee
To obtain a 501(c) federal tax exemption with the IRS, nonprofits in Tennessee need to file Form 1023
with the IRS. Smaller nonprofits may be eligible to submit the simpler Form 1023-EZ
Protecting your business in Tennessee
Some recommended insurance policies for your startup in Tennessee are:
Business owners policy (BOP)
This type of insurance policy combines both business property insurance and business liability insurance.
This policy can protect business owners from theft, fire, loss of income, lawsuits and data breaches.
Commercial property insurance
This policy protects your business furniture and inventory in the event of a fire and theft
General liability insurance
A general liability insurance policy protects your business against reputational damage, property damage, personal injury and copyright infringement claims from any advertising.
Business income insurance
This insurance policy supplements any lost income you sustain while your business recovers from any damage to its processes.
Workers compensation insurance
This will ensure your employees get compensated in a timely manner in the event of any work related injuries.
Helpful resources for businesses in Tennessee
Register your new business in Tennessee online here.
Online tax return filings
This is a great resource for small business news, tips and advice, market research and industry-specific links.
The US Small Business Administration offers advice, advocacy and instruction for small businesses across the country.
Our own guide to launching your startup will walk you through every step of starting a business, from concept to execution.