How to Start a Business in Tennessee
Starting a business in Tennessee isn't a bad idea. Though the state has a somewhat high corporate tax rate, it also has no personal income tax on wages and salaries. Starting a business in Tennessee is as easy as selling something. Do that and you're automatically a sole proprietor. But to actually make money and protect your personal assets, you'll need to do a lot more. Here are the steps you need to take to get your Tennessee business off the ground.
Ready to Start a Business in Tennessee?Let's Get You Started
Pick a Business Structure
Name Your Business
File Formation Paperwork
Draft Internal Records
Get Tennessee Business Licenses
Organize Your Money
Get Business Insurance
Understand Your Tax Burden
Build Your Business Website
File Tennessee Annual Report
Apply for Trademarks
1. Pick a Business Structure
Sole proprietorships and general partnerships are the two most basic business types. If you offer an at-home editing service from your apartment as an individual with no partners, you are a sole proprietor and are liable for all debts. Doing it with a partner or few? You have a general partnership. Though as a sole proprietor in Tennessee, you don’t need to register with the state, you will need to get a business license from your county.
A general partnership is when two or more people come together to sell services or goods. General partnerships in Tennessee are similar to sole proprietorships and have the same liability protection, which is none. As a general partnership or sole proprietor, there is no separation between you and your business, leaving you without any asset protection. For liability protection, you’ll need to form either an LLC or a corporation.
Tennessee Limited Liability Company (LLC)
Limited liability companies (LLCs) are business structures that provide personal liability protection. Many business owners find an LLC to be the right business structure for them because it provides the personal liability protection of a corporation, but the flexibility of a partnership. Corporations offer a few different options for how they can be taxed and managed. To start a Tennessee LLC, you’ll need to file paperwork with the Business Services Division.
Corporations are complex business structures with less flexibility than an LLCs. Corporations have stricter record-keeping rules and a more rigid management structure than LLCs, which makes them attractive to investors. To form a Tennessee corporation, you’ll need to file paperwork with the Tennessee Secretary of State Business Services Division.
Can an LLC be just one person?
Of course! A one-person LLC is called a single-member LLC, sometimes referred to as an SMLLC. Single-member LLCs are one of the most common kinds of businesses in the country. For the most part, single-member LLCs are very similar to multi-member LLCs; however, there are a few notable differences. For example, SMLLCs are taxed as sole proprietorships and multi-member LLCs are taxed as partnerships.
Read all about Single-Member LLCs.
What about a Tennessee nonprofit?
Are you thinking about starting a nonprofit in Tennessee? In 2016, Tennessee began allowing two types of nonprofit entities, public benefit nonprofit corporations and mutual benefit nonprofit corporations. To start a Tennessee nonprofit corporation, you’ll have to file a Charter Nonprofit Corporation ($100) with the Tennessee Business Services Division.
Want to learn more? Check out our Nonprofit Guide.
2. Name Your Business
We understand the process of naming a business isn’t always straightforward or easy to understand. Especially when you have to wade through lines and lines of legal statutes to make sure you’re not making a mistake. So here’s everything you need to know about naming your business in Tennessee.
When you do business as a sole proprietor or general partnership, your legal name is your business’s name. However, you can file a DBA that gives you the ability to operate without using your legal name to do business.
LLCs and corporations can have names other than their owner’s legal name. For an LLC or corporation, you’ll need a business name that will meet Tennessee’s requirements. Your LLC or corporation name must:
- Use an appropriate identifier or abbreviation like “Incorporation,” “Company,” “Inc.”for corporations or “limited liability company,” “limited company,” “LLC,” “LC,” or “L.L.C.,” for LLCs.
- Not use words that describe government agencies like “police” or “department of state.”
- Not use words that suggest a false business purpose, like “charity” or “nonprofit” (unless your business is a nonprofit).
- Not use words that describe a service that requires a professional license, like “architect” or “doctor.”
- Be unique in the state of Tennessee.
Find out if your desired name is available in Tennessee by searching the Tennessee Business Name Availability Database.
Can I reserve a business name in Tennessee?
Yes! Tennessee allows you to file an Application for Name Reservation ($20) to reserve your business’s name while you wait to form your LLC or corporation.
What is a DBA?
DBA stands for “doing business as” and in Tennessee is referred to as an assumed name. DBAs are a way of allowing business owners to have more than one name for their business: a legal name that goes on formation documents and one or more public names. Since Tennessee refers to DBAs as assumed names, you’ll file an assumed name form with the Tennessee Corporate Filings to register your DBA.
- LLCs file an Application for Registration of Assumed Limited Liability Company Name ($20)
- Corporations file an Application for Registration of Assumed Corporate Name ($20)
- Sole proprietorships and general partnerships file an application with their local county clerk and apply for a Business Tax License
What about trademarked names?
It’s a good idea to check with the US Patent and Trademark Office (USPTO) to make sure your business name hasn’t been trademarked by someone else. If it has, and you use it anyway, there’s a chance that you could be sued for infringement.
3. File Formation Paperwork
Sole proprietors and general partners don’t need to file formation paperwork since sole proprietorships and general partnerships are not separate business entities from their owners. LLCs and corporations, on the other hand, are legally required to file paperwork with the Tennessee Secretary of State. This is the step that officially brings your business from an idea to an actual business you own and operate.
- To form a Tennessee LLC, file Tennessee Articles of Organization ($300 minimum)
- To start a Tennessee corporation, file Tennessee Charter For-Profit Corporation ($100)
To fill out these forms, you’ll need to list a Tennessee registered agent like Northwest to handle your state and legal mail. Once you’ve completed your required registration form, you’ll need to file it online, in person, or by mail.
Note: The address you list on this form will become part of the public record. This means that the names and addresses you provide will be posted online on the Tennessee Secretary of State site.
How can I keep my information off the public record?
Hire a registered agent that will allow you to list their name and address instead of yours—like us! Luckily, Tennessee doesn’t require business owners to list their name on business formation documents. However, if you choose to act as your own registered agent, you will need to list your name and physical address. To take advantage of Tennessee’s privacy benefits, you’ll need to hire a registered agent.
What is a registered agent?
A Tennessee registered agent is the person or entity who is responsible for receiving state and legal mail on behalf of your business. By law, your registered agent is required to have a physical address in Tennessee where they’re present during business hours to accept service of process.
4. Draft Internal Records
Now that you’ve formed your business, it’s time to draft your internal records and documents. These are the documents that allow you to outline how your business will operate and function. Your Tennessee internal records give you control over your business in a way that’s legally binding.
Though these documents are internal, you’ll likely need to show them to third parties like the bank or—if you start a nonprofit—the IRS. Because you’ll most likely have to share these documents with third parties, you may want to have an attorney review them to make sure you are within Tennessee state law.
Here are the major internal documents you need to organize for LLCs and corporations:
Tennessee LLC Operating Agreement
This is your LLC’s rule book. It defines how your LLC will do things like make decisions, distribute money, manage operations, and appoint members. Your operating agreement plans for every big picture scenario your LLC is likely (or unlikely) to face, including dissolution.
While you can simply search the internet for an operating agreement template that’s just been thrown together, we offer a free attorney-drafted Tennessee LLC Operating Agreement template that you can use as a solid foundation.
Tennessee Corporate Bylaws
Bylaws are the rules your corporation will adopt and follow internally. Bylaws detail how your corporation will appoint directors and officers, hold shareholder and board meetings, and handle emergencies, among other things. Tennessee requires all corporations to draft corporate bylaws (Tenn. Code Ann. § 48-12-106).
As with operating agreements, you can find plenty of bylaws templates online. But bylaws are serious, so you don’t want to just use the first template you come across. Our attorneys drafted a free Tennessee Corporate Bylaws template you can use to get started.
Starting a nonprofit? Learn about Tennessee nonprofit bylaws.
5. Get Tennessee Business Licenses
Depending on what industry and services you plan on providing through your business, you probably need to get a business license to legally operate in Tennessee. Let’s go over some of the most common licenses you may need:
Tennessee State Business License
Tennessee has a state-wide business license requirement, but licenses are not issued by a state agency. Instead, you’ll need to apply for a business license with your county and/or city clerk’s office. If your gross receipts total more than $3,000 but less than $10,000, you’ll need a minimal activity license. Once your business exceeds $10,000 in gross receipts, you must obtain a standard business license from your local county and/or city clerk.
In Chattanooga, for example, you need a business license from both Hamilton County and the City of Chattanooga. If you’re in Nashville, you only need a business license from the Davidson County Clerk.
Professional Business Licenses
Professional services are ones that require specialized training or education to perform safely. Think architecture, midwifery, counseling, construction, or dentistry, just to name a few. To get a professional license, you have to apply with the board that regulates your industry in Tennessee. Each board has its own licensing process, so be sure to check.
Learn more about How to Get a Business License.
How do I get a Tennessee business license?
To get a business license in Tennessee, you’ll need to contact your local clerk’s office. Like with filing your original business’s formation documents, getting a Tennessee business license requires you to file more documents. However, you won’t be filing your documents with the Secretary of State, but with your county and/or municipality clerk.
How much does it cost to get an Tennessee state business license?
It costs $15 for a Tennessee state business license. You pay your fee to your local jurisdiction by contacting the county or city’s licensing board where your business operates.
How do I get a professional license in Tennessee?
The process for getting a professional license will vary depending on your profession and the specific service your business provides. Professional licenses are issued by the regulatory board that oversees your industry in Tennessee. For example, home inspectors need to submit an application and pay $300 to the Tennessee Department of Commerce and Insurance, along with providing proof of other state requirements like certifications, insurance coverage, and more.
6. Organize Your Money
The liability protection you get from forming an LLC or corporation is only as strong as the separation between you and your business. At a minimum, you’ll need to open a bank account for your business. And if you’re going to hire employees, you’ll need to tackle payroll, too. Below, we get into what you need to know to organize your Tennessee business’s money in a way that works for you.
Open a Business Bank Account
To keep your business spending separate from your personal spending, you’ll need to open a business bank account. If you don’t, a court could find that your business is not actually separate from you, under the Alter Ego Doctrine. Also known as piercing the corporate veil, this is the outcome when a judge finds that a company is not a separate entity but rather an alter ego of the owner. If this ever happens, you could lose your limited liability status.
Opening a business bank account as a sole proprietor is important, too. Though sole proprietors and general partnerships have no limited liability status to protect, both will benefit from organizing their business finances come tax season.
How do you set up a business bank account?
Do I need a business bank account to accept credit card payments?
Probably. Payment processors require you to provide them with a bank account. This is where they’ll deposit funds from transactions. Most of the time, this needs to be a business bank account.
Some payment processors may let you get away with listing a personal bank account, but it’s not a great idea. Mixing your business finances with your personal finances erodes the separation between you and your business, weakening your liability protection. It also turns tax season into a nightmare.
Learn more about Payment Processing.
Set up Payroll
One of the biggest decisions you’ll have to make as a business owner is whether or not to hire employees. If you choose to go that route now or in the future, we’re here to help! Let’s get into some basics of what you’ll need to run payroll in Tennessee:
- get an EIN
- register your business with the Secretary of State
- register with the Tennessee Department of Revenue
- get your Tennessee employer number from the Department of Labor and Workforce Development
- determine whether you’re hiring employees or independent contractors
- prepare the forms your employees will fill out
- choose a payroll service or software
- decide on a payroll schedule
While you’re able to set up employer accounts through Tennessee’s tax and employment departments, you’ll still need a reliable and secure payroll service, system, or software. A good one will:
- withhold payroll taxes
- file state and federal returns on your behalf
- pay your employees either by check or direct deposit
What forms do my employees need to fill out?
Your new employees will need to fill out a W-4 to determine how much you’ll withhold and an I-9 to verify that the employee is eligible to work in the US.
What’s the difference between an independent contractor and an employee?
It’s important to understand the difference between an independent contractor and an employee. That’s because for employees, you’ll need to withhold and pay income, social security, and Medicare taxes. Independent contractors pay these taxes on their own.
An independent contractor is self-employed and not an insured member of your employee base. Independent contractors are held to a contract for a specific type of work or project, usually with a specified end date or target budget. An employee is hired by your business as a regular full- or part-time employee insured through your business and required to follow your internal documents, handbooks, and operating practices. You can file Form SS-8 with the IRS and let them decide if you are unsure.
How do I get a Tennessee Employer Account Number?
To get your Tennessee Employer Number, register online with the Tennessee Department of Labor and Workforce Development.
7. Get Business Insurance
Forming an LLC or corporation protects your personal assets. But if anything disastrous befalls your business—like a lawsuit, burglary, flood, or fire—your business is on the hook to pay. Business insurance can help cover the costs.
Do you need Tennessee business insurance? Yes. Tennessee requires all employers to carry workers’ compensation insurance if they have more than five employees, unless they are construction employers. Construction employers must have workers’ compensation insurance even if they only have one employee. However, it’s sometimes not that simple, so let’s dive into it more below:
Workers’ Compensation Insurance
Workers’ compensation insurance gives medical and indemnity benefits to your employees when they suffer work-related injuries or illnesses. In Tennessee, workers’ compensation insurance is required of all construction or construction trade businesses. All other employers in Tennessee only need to get workers’ compensation insurance once they have five employees. Many insurance companies offer workers’ compensation insurance policies along with business insurance.
Liability insurance covers the costs of claims against your business for injuries or damage to the property of others, like clients or customers. This includes medical expenses, legal fees, settlements, and judgments. Whether or not you need it depends on whether your business is likely to be sued and how many assets your business needs to protect. If it’s just you and your computer in your basement, you might feel comfortable skipping liability insurance. Or maybe you won’t. Beyond general liability insurance, you can purchase or add on more specific types, like professional, cyber, commercial, home-based business, or product liability insurance.
Do business owners need workers’ compensation insurance in Tennessee?
Yes. The only exceptions to the rule are businesses with under five employees.
Do I need business insurance for my home-based business?
Probably. You can’t count on your homeowners’ or renters’ insurance policy to cover damages related to your business. Most insurance companies offer a home-based business insurance plan.
8. Understand Your Tax Burden
Operating a business also means you gotta pay taxes. Among those taxes, Tennessee has a privilege tax its counties can levy against businesses. Tennessee’s privilege tax is based on a percentage of gross receipts. The structure of your business determines what your tax burden is. Corporations pay a franchise tax of .25 per $100 and an excise tax of 6.5%. There is also a sales and use tax in Tennessee for businesses that manufacture, distribute, or sale tangible personal property. But your tax burden isn’t determined by the state alone. You’ll also have federal taxes to consider. We get into all the details below!
- LLCs. Single-member LLC? By default, you’re taxed similarly to a sole proprietor. More than one LLC owner? You’re taxed as a general partnership. Either way, your default tax status is “pass-through,” which means you don’t pay corporate taxes. Instead, your LLC’s owners report profits and losses on their personal tax returns. Good news: because there’s no personal state income tax in Tennessee, you’ll only have to pay the 15.3% federal self-employment tax rate. An LLC can file paperwork with the IRS to be taxed as an S-Corp or C-Corp instead.
- Corporations. Corporations are taxed as C-Corps by default. This means that corporations pay the 21% federal corporate tax rate and the applicable Tennessee corporate tax rate.
To pay your federal taxes (and take a good deal of other steps required to start a business), you’ll need to get an Employer Identification Number (EIN). You can apply for one with the IRS or hire us to get one for you.
Do I need an EIN if I’m self-employed?
If you’re operating a sole proprietorship or single-member LLC that doesn’t employ anyone else and you don’t need to file excise or pension plan returns, you don’t legally need an EIN.
However, you can still get one—and you probably should. Otherwise, you’ll have to use your own social security number to do business. Plus, you’ll likely need an EIN to open a business bank account.
How do I get an EIN?
To get an EIN, you can either apply online or file form SS-4 by mail with the IRS. Getting an EIN is free.
Check out our guide to applying for an EIN.
What is an S-Corp?
An S-Corporation is a federal tax election. Registered business entities like LLCs and corporations start out with a default tax status, but can file paperwork with the IRS to be taxed as an S-Corp. Like LLCs, S-Corps are taxed as pass-through entities. Like corporations, S-Corps can make distributions that aren’t subject to the 15.3% self-employment tax.
Learn more about the S-Corp tax election.
What is a C-Corp?
A C-corporation is the default federal tax election assigned to corporations. Most corporations are taxed as C-Corps, but LLCs can also apply for C-Corp tax designation by filing paperwork with the IRS. C-corps file federal corporate income taxes and state corporate income taxes (in Tennessee, the corporate tax rate is 6.50%). C-corps can pay their shareholders in distributions, and the shareholders report those profits on their personal tax returns.
Learn more about the C-Corp tax election.
Local Tennessee Business Taxes
Tennessee has a local privilege tax that some counties and municipalities may levy against businesses. Chattanooga is one city that requires businesses to pay a privilege tax.
9. Build Your Business Website
In the current Tennessee business climate, the world is competitive. You have to stand out in a sea of competition, and your best line of defense never stops working for you. An online presence. If you want your customers and clients to find your services or products, you need to build an online presence. You’ll just need the following:
- Domain name. Your domain is the address where your website will live. You’ll want a domain name that is short, unique, local, and—most importantly—available. If your domain is trademarked, you could face legal trouble.
- Domain registrar. Once you’ve decided on a domain name, you’ll want to register it with a domain registrar. Some domains are more expensive than others. Some domain registrars also offer hosting and most will provide you with a business email that includes your domain name (“[email protected]”).
- SSL certificate. An SSL certificate signals to your users that your website is secure. If your website will use forms—like a sign-up form or a “contact us” form—an SSL certificate is critical. But even if you don’t you use forms, you’ll still probably want one—it allows an encrypted connection, which means your users’ data is transported securely. There are several types of SSL certificates, and you can often get one through your domain registrar.
- Site design. The easiest option is to use a free website creation tool—there are a number of free options available. Most are easy even for a newcomer to use, with styles and built-in templates. For a more custom design, you can hire a web designer to work on your website, but this will be much more expensive.
10. File a Tennessee Annual Report
All Tennessee LLCs and corporations must file an annual report each year with the Secretary of State Business Services Division. Your Tennessee annual report is due the first day of the 4th month following the end of your fiscal year.
Read more about How to File a Tennessee Annual Report.
What if I don’t file an annual report in Tennessee?
If you don’t file a Tennessee annual report, you run the risk of having your business dissolved or revoked if not filed within two months of your annual report due date.
11. Apply for Trademarks
A trademark is a design, symbol, word, phrase, or any combination thereof that represents a brand’s goods or services exclusively. Only some businesses register trademarks.
You can apply to register your trademark with the state of Tennessee or federally with the U.S. Patent and Trademark Office (USPTO). Registering your trademark in Tennessee is cheaper and easier than registering with the USPTO, but doing so only protects your trademark in Tennessee.
You can only register a trademark once you’ve started using it (so slap it on that website you just made), and not all applications are approved. Trademark law is complex, and the strength of a trademark application (and the trademark itself) depends on many factors.
Our attorneys can review your application, offer advice, and prepare and submit the application for you. Check out our Trademark Service.
How do I register a trademark in Tennessee?
To register a trademark in Tennessee, you’ll need to file a Registration of Trademark or Service Mark form ($20 per class entered) with the Tennessee Secretary of State Business Services Division.
Can I register a trademark before I use it?
No. But you can file an application with the USPTO under Intent-to-Use status. This gets your application in line before you’ve actually used the mark, which could be helpful if you’re worried someone else might register your mark before you’ve had a chance to use it.
For your trademark to become official, you’ll eventually need to show proof that you’re using it. An Intent-to-Use application buys you some time to do that.
Learn more about filing an Intent-to-Use Trademark.