The Ultimate Guide to How to Start a Business in Tennessee

It is simple to start a business in Tennessee like any other state. If you are starting a business in Tennessee that isn't a sole proprietorship or general partnership, you must file formation papers with the state. Your company must have a name, select an entity type, be registered online, obtain tax IDs, and submit applications for all relevant licenses and permissions.

Making your firm officially operational is straightforward in Tennessee, thanks to the Secretary of State's online business resources and registration process. We've included some answers to some of your questions in this guide, but you may want to speak with a business attorney to ensure you're taking the correct steps for your business.

How to Start a Business in Tennessee

There are several necessary steps to start a business in Tennessee:

1. Select a business idea

A strong business concept can help you outperform your rivals. You can desire to develop a brand-new product or service or enhance an existing one. To get your bearings, consider the following two questions:

Analyze the market and your target market, paying close attention to any clients that the existing offers don't entirely satisfy. You could wish to research successful companies in your industry, survey potential clients, and scan market trends. Before starting your firm, market research might point you in the right direction.

Establish your anticipated profitability. Making money alone is insufficient. Over the long term, you must earn more money than you spend on your personal assets. Determine the number of goods or services you must sell within a specific time frame to break even and profit after deducting your personal and business expenses.

2. Get a business name for your Tennessee company

Whether you run a physical business or a business online, simply by looking at a company's name, customers can learn a lot about its product choices, costs, and level of quality. Here's how to start a business with a solid reputation for your Tennessee company by selecting a proper business name:

Be creative

Unconventional names for successful enterprises often catch people's attention and stick in their memories. Alliteration, rhymes, and allusions to famous culture work wonders. You can refer to these business name guidelines if you need any additional advice.

Register your actual business name

Verify that no other company has claimed the name in Tennessee before registering it. A tool for checking the availability of business names is available from the Tennessee Secretary of State. You need to submit Tennessee Form SS-9425 after choosing a proper business name. The form is used to apply for name reservations to the state. You may do it through postal mail or an online portal by paying a $20 filing fee.

Add the necessary phrases

The term "Limited Liability Company" or "LLC" must appear in an LLC's official business name in Tennessee. The word "Corporation," "Company," or "Incorporated" (or an abbreviation of one of these phrases) must appear in the name of a Tennessee corporation. Professional services corporations registered in Tennessee must use the term "Professional Services Corporation" or "PSC."

Register a DBA

The term DBA denotes "doing business as." The phrase describes businesses that set up shop as a single legal organization but interact with clients under a false name. For instance, Happy Chickens Grain Feed could be a fictitious name Whittinghill Agricultural Ventures LLC used. You may register your business name with the state of Tennessee for $20 to use a DBA.

Reserve a domain name and social networking accounts online.

You need to ensure that clients can find your company online. Establish social media usernames and a domain name corresponding to your company name or DBA. You can utilize a domain name generator for the URL of your company website.

3. Develop a comprehensive business plan

Many prosperous business owners create and adhere to business plans that specify organizational goals, forecast expansion, and set success criteria. A business plan that balances business income and expenses is a component of most of these. If you own a business that requires a business plan but are unsure where to begin, look at sample business plans online or use a template. A successful business plan contains the following:

• An executive summary.
• Company description and its mission statement.
• Full description of the business structure.
• Complete plans of operations and logistics, including probable business expenses.
• A brief description of products and services.
• Market research and analysis.
• Marketing plans.
• A customer segmentation report.

4. Register your legal business entity

There are a few steps involved:

Going with the appropriate business entity

As a business owner, the specific business entity you select for your company mainly depends on the business's ownership structure and projected growth.

You have the option to run a sole proprietorship company or a single-member "Limited Liability Company'' or LLC being a sole owner. A sole proprietorship company may run its operations without being registered. You can set up an LLC to be legally and financially separate from your company.

You could sign up as a limited partnership (LP), limited liability partnership (LLP), or an LLC if your business has multiple proprietors. LLPs are most frequently used by regulated professionals like lawyers and accountants.

Registering as a corporation is much more complicated. It is necessary to incorporate if you want to attract investors, and it might simplify selling the business in the future. Corporations in Tennessee must submit a corporate charter via the website of the Tennessee Secretary of State or by mailing a form, and there is a $100 filing fee.

If your company is headquartered elsewhere but wishes to grow in Tennessee, you must file Tennessee's Form SS-4429 and pay the Secretary of State's office a one-time cost of $600. For $20 a year, you can keep your foreign corporation status. More information is available in the Tennessee Smart Start Small Business Guide.

File articles of organization or a corporate charter

The Tennessee Secretary of State's office offers an online business registration service. To organize your business, submitting articles of organization or a charter while registering a business in Tennessee is essential.

Unlike a charter, which formally establishes a company, articles of organization establish an LLC. In Tennessee, the cost to file articles of incorporation for a new LLC is at least $300 ($50 per member, $300 minimum, $3,000 maximum).

Basic information about your LLC must be provided, such as:

• Main business address.
• Company name.
• Number of Members.
• The fiscal year of the company.
• Duration of the LLC.
• The registered agent's (RA) name and address.
• Working management structure.

Select the registered agent

The person or company selected as your registered agent will receive and submit legal and financial paperwork on your behalf to the state. You have two options - either list yourself or another member of the company's management or deal with a seasoned, specialized registered agent that manages legal paperwork in exchange for payment. The physical address of your business's registered agent must be in Tennessee.

DOR registration

To collect a sales tax permit in Tennessee, you must register with the Department of Revenue. You may also need to register with the DOR for additional business taxes.

5. Select a formal business structure and start your own business

A corporation, limited liability company (LLC), or sole proprietorship is your new business entity's common formal business structure. Each has advantages, operational needs, and tax exposures of its own. The three structures vary in the following ways:

Sole proprietorship

Businesses run and owned by individuals are best suited for sole proprietorships. Since they are not recognized as legal organizations, there is no distinction in the law between an owner's commercial and personal expenses. These unofficial corporate formations require little in the way of legal paperwork and retain all of their earnings. Tennessee sole proprietorships might appeal to independent contractors who run small businesses in low-risk fields.

LLC

A limited liability company (LLC) is characterized as a legal corporate structure owned by LLC members. Members frequently adhere to an LLC operating agreement and manage operations without the supervision of a corporate board of directors. Because LLCs offer personal liability protection, owners' personal assets are safe if the LLC is sued. For personal asset protection without the double taxation of a corporation, many small business owners prefer LLCs. The IRS views LLCs as pass-through entities for federal taxation, meaning that LLC profits and losses are distributed to members for inclusion on their income tax returns.

Corporation

A corporation is a type of legal company that shareholders own. Corporations, unlike LLCs, do not mix business assets with their owners' personal assets. The corporate business structure based on shares makes it simpler to accept new shareholders, sell the company to new owners, and raise money for operational costs. The tax rate applied to corporations differs from the one applied to individuals. The corporate excise tax rate in Tennessee is 6.5 percent. Unlike LLCs or sole proprietorships, corporations have a more complicated legal structure and call for more organized accounting and tax filing. Corporations are required to keep their boards of directors active, elect their officials, and hold regular meetings.

Acquiring a federal employer identification number (EIN)

If you are thinking about hiring employees in your Tennessee company, you must get the federal employer identification number (EIN) from the Internal Revenue Service (IRS). An EIN serves as a company's federal tax identification number. Your EIN will be required in various business ownership situations, such as hiring staff, opening a business bank account, paying your business tax, or getting a state sales tax number. You may use your EIN to the Tennessee Taxpayer Access Point (TNTAP) and get your state sales tax number.

6. Gather business licenses and permits

Most businesses need to comply with all licensing and permitting laws under Tennessee business law. Tennessee issues a large number of business licenses at the county level. To help you get started, more details are available from the Tennessee Department of Revenue. Common Tennessee business licenses include:

Standard business license

If the gross revenue of your Tennessee company exceeds $10,000, you must get a standard business license from the county clerk in your area. The enrollment cost is $15. You can apply for a minimal activity business license if your income is less than that but still over $3,000. Don't forget to learn about your annual business tax license from the Tennessee Department of Revenue website.

Minimal activity business license

Tennessee businesses with a total revenue of over $3,000 but less than $10,000 must apply for a minimal activity license with the county clerk in their area. You don't require a business license if your business's gross receipts are less than $3,000. The enrollment cost is $15.

Sales tax certificate

Tennessee LLCs are required to collect 7% state sales tax, with cities having the option to add more. A business owner must have a sales tax certificate to carry out retail sales in the state legally. So, create an account on the Tennessee Department of Revenue website, then follow the on-screen instructions to get one.

If you work in a sector that needs it, you must apply for specific business licenses and permits. For instance, if you work in an industry subject to regulation by a federal body, you must apply for the following federal license or permit:

• Agriculture.
• Aviation.
• Broadcasting and telecommunications.
• Weaponry.
• Fish and wildlife.
• Mining.
• Nuclear energy.

Different agencies issue various licenses and permits. Several of the most influential issuing organizations are:

• The Department of Health.
• The Department of Agriculture's Plant Industry Services.
• The Department of Environment & Conservation.
• The Alcoholic Beverage Commission.

Look out for local licensing and permit requirements on the websites of any towns or counties where you plan to start a business in Tennessee.

An occupational and professional license

These licenses are applied to professionals in a variety of areas. Many (although not all) of the regulatory boards and commissions for licensed professions and occupations are supervised by the Department of Commerce & Insurance (TDCI).

7. Assess Tennessee choices for business insurance

Despite the personal asset protection provided by corporation and LLC business forms, most small business owners nevertheless invest in insurance to protect their assets from expensive disasters. In Tennessee, some insurance coverage is mandated by state law, such as workers' compensation insurance. Still, other coverage is optional but could be required by third parties, such as landlords or lenders.

If you want to learn more about various small business insurance plans, the Tennessee Department of Commerce & Insurance has tools. Standard business insurance coverage includes:

Workers' compensation insurance

Tennessee law mandates that all companies with five or more employees acquire workers' compensation insurance to cover workplace injuries.

Commercial general liability insurance

Businesses are shielded from financial claims, including property damage, bodily injury, libel, slander, and deceptive advertising, by commercial general liability insurance, or CGL.

Professional liability insurance

A professional liability insurance policy guards your company against accusations that your services or recommendations cost a client money. For instance, a real estate agent may be held accountable for damages if mold in a basement goes unreported.

Cyber liability insurance

Insurance against cyber liability guards against financial damages brought on by data breaches and cyberattacks. This coverage can be beneficial if your company gathers consumer credit card numbers or other personal information.

Commercial automobile insurance

Whether you are running big or small businesses or using your car for personal or business purposes, Tennessee law requires that you have auto insurance.

Apart from liability protection coverage, you may also have to consider unemployment insurance if you are dealing with a big number of employees.

8. Establish a business bank account

If you own an LLC, you are not required by law or regulation to manage your finances through a company bank account. But the most straightforward approach to keep your accounting organized and ensure your personal assets are shielded from business responsibilities is to open a bank account and other financial products in your firm's name and use them for all business-related finances.

A company checking account is the most fundamental kind of account you require. As a Tennessee business owner, you might create an account at a traditional bank where you already do your personal banking for your business, or you could select an online bank with services catered to small enterprises.

Depending on your financial situation and business requirements, you can choose the finest bank for your company.

Use your business's bank account, savings account, credit cards, and loans solely for business revenue and costs when you open them. You will undoubtedly require a separate business bank account to handle these costs when you hire employees and must pay them a monthly salary. To simplify tracking and submitting taxes, you can connect your accounts straight to accounting software like QuickBooks.

9. Promote your company

Building a brand and figuring out what makes it distinctive are the first steps in marketing. Marketers take into account fonts, slogans, logos, and color palettes. You can promote your business in Tennessee offline and online once you've nailed down your brand identity. Typical techniques include:

• Business website articles, blog entries, videos, and newsletters that promote awareness.
• Retailer displays.
• Web advertising that charges per click.
• Social media profiles.
• Influencer marketing.
• Partnerships.
• Advertisements on radio and television.

10. Assess Tennessee business taxes and financial issues

Conduct market research and select a financial institution for managing the startup costs, such as business finances, business costs, and banking needs of your new business. When paying employees, paying business taxes, and receiving money, use this account to keep personal and business spending apart.

New businesses frequently require financial injections to get off the ground. The Tennessee Small Business Development Centers network and the Tennessee Department of Economic and Community Development are just two of the organizations in Tennessee that help connect business owners with funding, grants, and details regarding tax incentives. An autonomous federal organization, the US Small Business Administration, enables startups and small enterprises. It continues to have a Nashville office.

Owners of several types of businesses will not owe state tax on their business revenue because Tennessee does not have a personal income tax.

Sole proprietorships tax

In their personal federal income tax forms, sole proprietors must report their business income.

Partnerships tax

Federal taxes are paid on partnership income by general partnership partners. Participants in other types of Tennessee partnerships, such as Limited Liability Partnerships (LLPs), must also pay excise and franchise taxes. LLPs must submit an annual report as well.

LLC tax

Members must pay federal taxes on their portion of LLC revenue on federal tax returns. LLCs themselves must also pay a franchise tax and an excise tax. The Tennessee SOS must receive an annual report from Tennessee LLCs.

Corporation tax

A shareholder-employee who receives a salary must file a personal federal tax return and pay federal income tax. Tennessee corporate taxes are payable by the corporation itself. The Tennessee SOS requires annual reports from corporations as well.

There are federal income and employer taxes in addition to Tennessee taxes. Consult IRS Publications 334, Tax Guide for Small Business, and 583, Taxpayers Starting a Business, for further details.