How to Start a Business in Tennessee

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.

Tennessee Corporation

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.

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.

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.

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.

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.

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.

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

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

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.

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!

Federal Taxes

• 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.

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.

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.

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.

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.