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Starting a business is an exciting and challenging endeavor, and opening a Limited Liability Company (LLC) in Tennessee can be a great way to protect your personal assets while pursuing your entrepreneurial goals. However, the process of forming an LLC can seem overwhelming, especially if you’re unfamiliar with the legal requirements and procedures involved.
In this guide, we’ll walk you through the steps on starting LLC in Tennessee, from choosing a name to filing your paperwork with the state. With our help, you can navigate the process with confidence and start your business off on the right foot.
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Pros on Starting LLC in Tennessee
Tax Benefits: No State Income Tax on LLCs
One of the biggest advantages of forming an LLC in Tennessee is the lack of state income tax. This means that any income your LLC generates is not subject to state income tax. This can be major cost savings for LLCs, allowing you to keep more profits.
Asset Protection and Limited Liability
LLCs are designed to provide asset protection and limited liability to business owners. This means that the personal assets of LLC members, such as their homes and personal bank accounts, are protected from any financial losses incurred by the company. Also, LLCs limit the personal liability of business owners, which can be especially important if you’re in a high-risk industry.
Charging Order Protection for Single Member LLCs
In Tennessee, single-member LLCs also enjoy charging order protection. This means that if a creditor seeks to collect on a debt owed by your LLC, they can only obtain a charging order against the LLC’s distributions to its owner rather than seizing the LLC’s assets. This provides an extra layer of protection for LLC owners, helping to safeguard their personal assets from business-related liabilities.
Confidentiality: Members and Managers Are Not Listed with the State
Another benefit of forming an LLC in Tennessee is that the names of LLC members and managers are not listed on public records. This can be especially advantageous for business owners who value their privacy and want to keep their personal information confidential.
Strong Asset Protection Laws
Tennessee has strong asset protection laws that protect LLC owners from personal liability. For example, Tennessee law exempts certain types of property from creditors, such as retirement accounts, personal property, and homesteads. This means that even if a creditor obtains a judgment against you, they may be unable to seize these assets to satisfy the debt.
LLC Assets Are Safe from Personal Liabilities
Finally, it’s important to note that LLC assets are generally safe from personal liabilities. This means that if a member of your LLC incurs a personal debt, their creditor cannot seize the LLC’s assets to satisfy that debt. However, it’s important to ensure that your LLC is properly structured and maintained to maintain this protection.
Cons on Starting LLC in Tennessee
Additional Administrative Requirements
One potential downside of forming an LLC in Tennessee is that it typically requires more administrative maintenance than other business entities. LLCs must hold regular meetings, keep detailed records of business transactions, and file annual reports with the state. Failure to meet these requirements can result in penalties or even dissolution of the LLC.
Higher Startup Costs
Forming an LLC can be more expensive than operating as a sole proprietorship or partnership. LLCs require filing formation documents with the state and paying associated fees. Also, LLCs may require the services of an attorney or accountant to ensure that the business is properly structured and compliant with all applicable laws and regulations.
7 Steps on How to Start LLC in Tennessee
Follow these steps to learn how to open LLC in Tennessee
1. Research and Choose your LLC Name
Choosing the right name for your LLC in Tennessee is crucial in building a successful business. Not only does it represent your brand identity, but it also plays a role in the legal and regulatory aspects of forming an LLC.
Here’s a step-by-step guide to help you research and choose the perfect name for your LLC:
- Determine potential names: Start by generating a list of potential names for your LLC. Your name should be unique, descriptive, and easy to remember. Consider your brand identity, target audience, and industry when brainstorming ideas.
- Check name availability: Once you have a list of potential names, use the Tennessee Secretary of State’s online business name database to check availability. You can also do a quick Google search to ensure no other businesses use the same or similar names.
- Choose a name: After checking availability, narrow down your list to the top 3-5 names that best represent your brand.
- Reserve your name: You can reserve your name for up to 120 days by filing a Name Reservation Request with the Tennessee Secretary of State. This will ensure that another business does not take your desired name while forming your LLC.
- Register your name: Once you’ve reserved your name, you can officially register it by filing your Articles of Organization with the Tennessee Secretary of State. Your name must include “Limited Liability Company,” “LLC,” or “L.L.C.”
- Consider a DBA: If you want to operate your business under a name different from your LLC, you can file for a “doing business as” (DBA) name. This will allow you to use a different name for marketing and branding while maintaining your legal LLC name.
- Reserve a website URL: Finally, it’s essential to reserve a domain name that matches your LLC name for your business website. You can check domain availability and register your domain name with a domain registrar.
2. Choose a Registered Agent
A registered agent is a person that receives legal and official documents on behalf of your LLC, such as tax notices, lawsuits, and government correspondence.
Here’s what you need to know when selecting a registered agent:
- Eligibility: Your registered agent must have a physical address in Tennessee and be available during regular business hours to receive and forward documents for your LLC.
- Choose a person or a professional service: You can either appoint a person within your LLC, such as a member or manager, or hire a professional registered agent service.
- Consider the benefits: Hiring a professional registered agent service can provide added benefits, such as privacy and convenience, as they handle all the paperwork and legal documents for you.
- File your agent’s information: You must file your registered agent’s name and address with the Tennessee Secretary of State as part of your LLC formation paperwork.
3. File Your Business Articles of Organization
Once you’ve chosen your LLC name and selected your registered agent, the next step is to file your Articles of Organization with the Tennessee Secretary of State. This document formally establishes your LLC as a legal entity in Tennessee.
Here’s what you need to know when filing your Articles of Organization:
- Basic information: You will need to provide basic information about your LLC, such as its name, purpose, and principal place of business.
- Registered agent information: You must include the name and address of your LLC’s registered agent.
- Management structure: You must indicate whether your LLC will be member-managed or manager-managed.
- Filing fee: You must pay a filing fee to the Tennessee Secretary of State.
Filing your Articles of Organization is an important step in forming your LLC and establishing it as a legal entity in Tennessee.
Here are the steps to file your Articles of Organization:
- Download the Articles of Organization form from the Tennessee Secretary of State website.
- Complete the form by providing all required information.
- Submit the completed form and the filing fee to the Tennessee Secretary of State. This can be done online, by mail, or in person.
4. Obtain an EIN
An EIN is a unique nine-digit number assigned to your LLC for tax and financial purposes, such as opening a business bank account. Here’s what you need to know when obtaining an EIN:
- (Visit the IRS website) to complete an online application for an EIN. Alternatively, you can apply by phone, mail, or fax.
- You must provide information about your LLC, such as its name, address, and structure.
- You must also provide information about the LLC’s owners, such as their names and Social Security numbers.
- Once you have submitted your application, you will receive your EIN immediately if applying online or within a few weeks if applying by mail or fax.
Once you receive your EIN, you can open a business bank account, apply for business licenses and permits, and file tax returns.Opening a business bank account is essential in managing your LLC’s finances. It allows you to separate personal and business finances and simplifies tax preparation. Carefully select a business bank that will help you achieve your business goals.
5. Get an Operating Agreement
An operating agreement outlines how the LLC will be managed, how profits and losses will be allocated among members, and how disputes will be resolved. It is not required by law in Tennessee, but having one in place can protect the business from legal and financial issues down the line.
If you need help creating an operating agreement, there are many free customizable templates online that can be tailored to your LLC’s specific needs. These templates guide what to include in each section of the agreement and are easy to edit and download. Having a well-drafted operating agreement in place can help ensure the long-term success of your LLC.
6. Get Business Permits and License
The specific permits and licenses required to depend on the nature of your business and the location. Some of the most common licenses and permits include:
- Business tax registration
- Sales tax permit
- Professional licenses
- Zoning permits
- Building permits
To determine the permits and licenses required for your business, check with the appropriate state and local agencies. You can also consult with an attorney or a business license service provider. Please obtain the necessary permits and licenses to avoid fines, penalties, and even the closure of your business.
7. Maintain Proper Records and Fulfill Ongoing Requirements
Once your LLC is up and running, it is important to maintain proper records and fulfill ongoing requirements to ensure your business remains in good standing. This includes keeping accurate financial records, filing annual reports, paying taxes, and renewing necessary licenses and permits. Failure to meet these requirements could result in penalties, fines, or even the loss of your LLC status.
Cost To Set Up LLC in Tennessee
The cost to set up an LLC in Tennessee varies depending on several factors, such as whether you use a lawyer or online service to assist you, the type of LLC you are forming, and any additional fees for permits or licenses.
The state filing fee for LLC formation in Tennessee is $300. If you choose to expedite the process, there is an additional $50 fee. You can also reserve your LLC name for $20. If you use an online service to assist with the process, their fees can range from around $50 to $500 or more, depending on the level of service you choose.
FAQs on Starting LLC in Tennessee
Conclusion
Starting an LLC in Tennessee has its advantages and disadvantages, and the cost to set up can vary depending on the business’s specific needs. You must understand the steps in forming an LLC and the ongoing business maintenance requirements. With proper planning and execution, forming an LLC in Tennessee can provide asset protection, flexibility in management and taxation, and a professional business structure.
