Many people are moving to Tennessee because of its affordable cost of living, large number of manufacturing companies, and relatively low corporate tax rate. One of the best ways to launch a business in the state is through a limited liability company (LLC). Let’s take a look at the steps for setting up an LLC in Tennessee.
Different Types of LLCs
LLCs combine the protection from legal responsibility afforded by corporations with the flexibility of sole proprietorships and partnerships. As a business owner, if you want to protect your personal assets from corporate obligations and legal actions, you might consider establishing an LLC. There are different types of LLCs, including the following:
A Tennessee single-member LLC has a single owner and no legal partners. For tax purposes, a single-member LLC is treated like a sole proprietorship or a separate business entity. Owners of single-member LLCs must take special care to separate their business and personal finances.
Having partners in an LLC makes it a multi-member LLC. If the LLC has more than one partner, each will own a percentage of the business based on their investment. The operating agreement for the LLC should make this percentage clear to avoid any misunderstandings in the future. When it comes to taxes, the Internal Revenue Service views a Tennessee multi-member LLC the same way it views a commercial partnership.
Setting Up an LLC in Tennessee
Forming an LLC in Tennessee involves the following steps:
1. Decide on an LLC Name
The name of your LLC must be distinct and not easily confused with that of another business. It must include the word LLC, L.L.C, or Limited Liability Company. Some terms are prohibited, such as “Treasury” or “FBI,” while others, like “Attorney” or “Bank,” are restricted. You can check if your company’s potential name is taken by searching the Business Name Database maintained by the Tennessee Secretary of State.
2. Choose a Registered Agent
Tennessee LLCs need a registered agent. The agent acts as your company’s representative in legal matters, accepting and forwarding all necessary documents to the right person in your company. Either an individual who resides in Tennessee or a corporation that is qualified to conduct business in the state can serve as the registered agent. To qualify as a registered agent, they need to provide proof of a physical address in Tennessee.
3. Submit the Required LLC Documents
The state of Tennessee offers several different ways to register an LLC. Articles of Organization can be filed electronically or prepared online using Form SS-4270, printed out, and mailed to the Secretary of State’s office. An empty form can be printed, filled out by hand, and sent out. The state of Tennessee imposes a fee of $50 per member of the LLC, with a $300 minimum and a $3,000 maximum. There is also a processing fee for online filings.
4. Prepare an Operating Agreement
In Tennessee, an LLC operating agreement is optional but strongly recommended. This document lays out the company’s internal procedures. It details the management structure of the LLC as well as the members’ and managers’ rights and responsibilities. Having this documentation on hand can help you keep your limited liability status by demonstrating that your company is a legally distinct entity. If your company doesn’t have an operating agreement, it will be subject to Tennessee legislation on LLCs.
5. Ensure Legal and Tax Compliance
Your LLC may have had to comply with a broader range of tax and legal regulations, such as:
- Employee Identification Number (EIN): Even though your LLC has no employees, the law requires it to obtain its own IRS EIN if it has two or more members.
- Business licenses: To legally operate, a Tennessee LLC may need a business license provided by the county clerk.
- Department of Revenue: Some businesses in Tennessee require registration with the Department of Revenue, such as those who plan to sell products and collect sales tax.
The Bottom Line
Forming an LLC in Tennessee involves several steps, but you can go through them with relative ease if you just take things slowly and carefully. If you need help setting up an LLC in Tennessee, however, Drafted Legal can help. Our goal is to help you start your business and handle all the documents the right way. Contact us today.