how to create an LLC in tennessee
Overview – What is a Limited Liability Company in Tennessee?
An LLC, short for “limited liability company”, is a specific business entity formed according to certain legal requirements, which are listed at Tenn. Code Ann. § 48-201-101. LLCs are not specific to Tennessee but are available all over the United States.
In short, a Tennessee LLC is a type of “hybrid” organization that offers multiple benefits. For instance, the Tennessee LLC is taxed as a “pass-through” entity, just like a sole proprietorship, but offers the protection of limited liability like corporations against business-related lawsuits.
How do I create a Limited Liability Company in Tennessee?
Step-by-Step Guide
The requirements for the creation of a Tennessee LLC are outlined in Tenn. Code Ann. § 48-205-101, and are fairly straightforward. To create an LLC in Tennessee, you need to draft Articles of Organization and file them with the Tennessee Secretary of State. Follow this guide to create your Tennessee Limited Liability Company:
Name your Tennessee LLC
The name of your LLC has to contain the words “limited liability company,” or the abbreviation “LLC.”
The name cannot contain the word “corporation,” or “incorporated,” and it must be distinguishable from other businesses registered in Tennessee. You can check your name against other business names in the Tennessee Secretary of State’s database.
Finally, the name cannot imply that the LLC is a government agency or affiliated with one.
Choose a Registered Agent for your LLC
Every Tennessee LLC must maintain both a registered office and a registered agent in the state.
Registered Office
A registered office is an address in the state and may be the LLC’s place of business.
Registered Agent
A registered agent is an individual or business entity who is authorized to receive service of process and other legal documents on behalf of your LLC if your LLC is ever involved in a lawsuit. A registered agent also receives all official paperwork from the State of Tennessee.
A registered agent can be a person (even the owner of the LLC) or an entity (e.g. another LLC, corporation, etc.) authorized to transact business in Tennessee.
The registered agent must have a business office in Tennessee, and it must be identical to the registered office. Importantly, the agent must be on-site and available to accept documents during business hours.
Choose your Management Structure
When you form an LLC, you have the choice to make it either manager-managed or member-managed.
Manager-managed LLC
A manager-managed LLC is a straightforward structure in which a member of the LLC (someone who has an ownership interest) has an authoritative position and is involved in the daily management of the company.
The managing member has the authority to represent the company in negotiations and to bind the company in contracts.
Member-Managed LLC
A member-managed LLC is an organizational structure in which all of the LLC members can be involved in the day-to-day management tasks of the business, rather than just one or two members.
In addition, member-managed LLCs require a vote of the members for any major business decisions, so it is better to have an odd number of members in order to avoid ties.
Which structure should you choose for your LLC?
There are benefits to both types of LLC management structures. However, in general, manager-managed LLCs are better when there are a lot of members who do not wish to be involved with the daily management tasks of the business.
On the other hand, member-managed LLCs are good for businesses with a small number of members who are interested in participating in management.
It is important to decide as a team which kind of management you want when you form an LLC. This will help avoid feelings of resentment in the future.
File Articles of Organization
After you have chosen your management structure, the next step in forming your Tennessee LLC is to file your Articles of Organization. You can do so using this form provided by the Tennessee Secretary of State.
There are a few pieces of information that are required in your Articles of Organization:
The LLC’s name;
The name and address of the registered agent and office;
The fiscal year close month;
The management structure;
The number of initial members;
The address of the LLC’s principal executive office;
Any special LLC designation (e.g. Professional, non-profit, etc.); and
Any other information that you’d like to include.
After completing your Articles of Organization, you must file the same with the Secretary of State, and pay the required filing fee.
How Much Does it Cost to Form an LLC in Tennessee?
The filing fee ranges from a $300 minimum fee, up to $3,000.00 depending on how many members you have ($50 per member with a minimum fee of $300 and a maximum fee of $3,000)
Draft an Operating Agreement
Operating agreements aren’t legally required for Tennessee LLCs; however, they are good to have for any business.
In short, operating agreements define the responsibilities and obligations of each member of the LLC. They also structure the business and set out how it makes business and financial decisions.
Naturally, if you’re creating a sole-member LLC, an operating agreement may not be needed, but for a business with multiple members, operating agreements are a good idea.
Keep in mind that these documents can get complicated, so consulting with an attorney can be beneficial.
Other Considerations
After you have completed the steps to create your LLC in Tennessee, there are some additional tasks that you need to keep track of.
Employer identification number
If you have a multi-member LLC, you will need to apply to the Internal Revenue Service for an employer identification number (EIN).
In addition, if you have a single-member LLC, you will need an EIN if you have employees or wish to file taxes as a corporation.
Taxes
You will also need to make sure you pay any sales or business taxes, as well as unemployment insurance (if you have employees) and any other additional state and city taxes that may be required.
Annual report
All LLCs in Tennessee must file annual reports, which update the state on business information.
An officer, member, or partner can file the report, and the consequence of failing to do so can be the dissolution of the LLC.
Franchise Taxes
LLCs in Tennessee must register for and pay franchise and excise taxes.
The franchise tax is based on the greater of the net worth or book value of the business.
The excise tax is based on the net earnings or income for the tax year.
The minimum franchise tax amount is $100.
Benefits of a Tennessee LLC
There are a few benefits of utilizing a Tennessee LLC over a sole proprietorship or other business entity, which is why they have been gaining in popularity.
Liability protection
Perhaps the most well-known and advantageous benefit of a Tennessee LLC is liability protection. If the LLC is ever sued or accumulates debt, the assets of the members are not at risk.
There are ways that members can expose themselves to liability, such as mingling personal and LLC funds, however. Thus, it is important to utilize proper accounting practices for the LLC.
Cost to form
As discussed above, Tennessee LLCs are relatively inexpensive to create. The maximum filing fee is $3,000; however, for any LLCs formed with 6 members or fewer, the fee is $300.
Tax options
LLCs are “pass-through entities”, meaning that the LLC's profits and losses are taxed on members’ individual tax returns and at the members’ tax rates.
This also means that LLCs do not have to pay corporate income tax, avoiding “double taxation” that owners of corporations are subject to.
LLCs can also be taxed as an S corporation or a C corporation.
Legitimacy
Creating an LLC can be perceived as “more legitimate” than a sole proprietorship or partnership.
It signals to the public that you are treating your business seriously and responsibly.
Summary
While Tennessee LLCs are relatively easy to form, consulting with an experienced attorney can certainly be less stressful than doing it yourself.
LLCs can be a great boon, especially where the consequence of being sued without one in place is the potential that your personal assets are exposed.
If you plan to run a business, own rental properties, or work as a consultant, it pays to form an LLC (or corporation) in order to protect your assets and lend legitimacy to your business.
If you are interested in creating an LLC, book a consultation today.
