You have big plans, but before your business can officially take off, you’ll need to make a bit of an investment.
And we’re not talking about renting office space or paying employees — before you sell a single product, there are startup costs associated with launching an LLC in Tennessee.
Make sure that you consider all the possible costs associated with starting an LLC. To help you out, we’ve compiled the most common Tennessee startup fees here.
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Overall Tennessee LLC Formation Costs
LLC Name Reservation Fee
You don’t need to reserve a business name prior to forming your LLC. This fee is completely optional. In fact, if you’re ready to start your business right off the bat, it’s better to skip the name reservation because the Articles of Organization will register your name for you. But if you aren’t prepared to file the Articles of Organization yet and you came up with a great name, consider reserving it. It costs $20 to reserve a name for 120 days, and you can renew the hold for another $20.
To clarify, most states don’t require name reservations, and they’re rarely necessary. If you’re concerned about someone else registering the name you want, you could opt to simply form your LLC instead of reserving the name.
Whether you reserve your business name or not, you should always perform a Tennessee business name search to make sure the name you want is available.
Articles of Organization Fee
This is the big one, the most important (and most expensive) form that you’ll file to start your Tennessee LLC. Filing the Articles of Organization makes your business official and authorizes it to do business in Tennessee. You can file it online or by mail, and the process is fairly simple. The filing fee, however, is a bit more complicated. It depends on how many members your LLC has.
The fee is $50 for each member active at the time of filing, with a $300 minimum and a $3,000 maximum. The cost is a bit steep, but this is a one-time filing so you won’t have to worry about paying it again.
The information required to file your Articles of Organization includes the official business name of your LLC, the name and address of your registered agent, the month in which your LLC’s fiscal year ends, the effective date of your LLC formation, an indication that your LLC will be managed by its members, a manager, or a director, the number of members in your LLC, the duration of your LLC, the address of your LLC’s principal office, the mailing address of your LLC (if different), indications that your LLC is a nonprofit entity, a professional LLC, a series LLC, an obligated member entity, or prohibited from doing business in Tennessee (if applicable), the date, and your name, title, and signature.
Business and Professional Licenses
Your Articles of Organization have been accepted, but that doesn’t necessarily mean your LLC is ready to do business. Some LLCs must obtain licensure from certain state agencies first. For example, grocery stores must apply for a Retail Food Store license and real estate firms must be licensed by the Tennessee Real Estate Commission. Plus, individual cities and/or counties have their own licensure requirements.
Your LLC might not need any licenses, or it might need a few. Search for licenses on the Department of Commerce and Insurance website and contact your local government to see which (if any) your business requires.
What are some of the most commonly required business licenses for Tennessee LLCs? If your business operates in a regulated industry, you will probably need some sort of professional license to operate in compliance with state law. On the municipal level, things like alarm permits, building permits, and zoning permits are all very common.
LLC Formation Service
Starting an LLC in Tennessee can be a complicated and time-consuming process. If you want to spend less time on paperwork and more time planning your business, you might opt for an LLC setup service. These services take care of the registration process for you, so you don’t have to spend time on research, paperwork, and filings.
Most of these services (like ZenBusiness and LegalZoom) offer basic LLC formation services like Articles of Organization filing, tax consultations, and phone/email support for a flat rate, with options to pay more for premium packages with premium services like Employer Identification Numbers, operating agreements, and expedited filing.
Registered Agent Service
Appointing a Tennessee registered agent is an important part of your LLC formation process. Your registered agent is responsible for handling sensitive legal and tax documents and keeping your business compliant with Tennessee business law. In short, you need an agent you can trust.
While you can be the registered agent for your own LLC, this puts pressure on you to keep up with business filings and potential legal disputes. Sometimes it’s better to hand off that responsibility to a professional. A registered agent service ensures that your annual reports and other forms are filed efficiently, saving you from the penalties of delinquent filings and the stress of having to do it yourself.
If you have questions or concerns about the LLC formation process or if it’s the best business structure for you, sometimes it’s best not to take chances and consult an attorney. They’re not cheap, but they can provide essential business advice, professional filing assistance, and peace of mind.
Some attorneys offer free consultations (usually 30-60 minutes) but will charge by the hour after that. On average, business attorneys charge between $150-350 per hour. Some will offer a flat rate for setting up an LLC, which can range from $500-2,000.
Cost variations depend on the experience and location of the lawyer, and there are a ton of qualified lawyers out there. So how do you choose the right one? Use a site like Avvo, which allows you to search and compare the rates, locations, and specialties of Tennessee business attorneys so you can be confident that you’re getting a good fit for your LLC.
If you don’t want to go digging for your own attorney, we compiled the following list of highly rated business lawyers in Tennessee. All of these attorneys are primarily focused on the business world, they all receive five-star ratings from clients, and they all have excellent Avvo ratings.
Foreign Qualification Fee
This only applies if your LLC was formed in another state and is now expanding into Tennessee. Is this your business? Then don’t worry about the Articles of Organization. Instead, you’ll need to file an “Application for Certificate of Authority.”
All foreign business entities are required to foreign qualify in Tennessee, or they could incur some pretty severe penalties. The Application for Certificate of Authority is available online and as a paper form and its fee is the same as the Articles of Organization: $50 per member, with a minimum of $300 and a maximum of $3,000.
LLC Annual Fees
All the fees discussed so far have been one-time startup costs. But after your business is up and running, you’ll have to pay maintenance fees as well, primarily the annual report. Each year, LLCs are required to file an annual report online by the first day of the fourth month of their fiscal year. Once again, the fee is $50 per LLC member ($300-$3,000) so if you add or lose members throughout the year, you can expect this fee to change. It’s somewhat pricey, so be sure to write it into your budget each year.
The information required to file your annual report includes your LLC’s Secretary of State control number, your LLC’s principal office address, your LLC’s mailing address, the name and address of your registered agent, and the names and addresses of your LLC’s managers (if applicable).
For more info on annual reports for Tennessee LLCs, check out our full article on this topic!
Since LLCs are considered “pass-through” entities, and because Tennessee doesn’t have an income tax, your business won’t be liable for corporate income taxes. However, there are a few different taxes that the state imposes on its LLCs:
- Franchise Tax: “Based on the greater of net worth or the book value of real or tangible personal property owned or used in Tennessee”
- Excise Tax: Based on net income for the year
- Business Tax: Required of all businesses that sell goods or services in Tennessee. Consists of a state tax and a city tax.
- Sales and Use Tax: Required of all businesses that sell merchandise
- Unemployment Insurance Tax: Required of all businesses with employees.
What if I Don’t Pay?
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Looking at all these fees, you might be thinking: how can I pay less? While you might be tempted to look for loopholes or find a way around them, this could cause you bigger problems in the future.
If you don’t file the Articles of Organization or obtain a Certificate of Authority, you won’t be allowed to do business in the state. Miss an annual report and you’ll receive a delinquency notice. Delinquent businesses cannot foreign qualify in most other states, apply for business loans, renew some professional licenses, and more. If you don’t file within 60 days of the notice, your LLC will be administratively dissolved. Administrative dissolution is also a penalty for failing to maintain a valid registered agent.
Outstanding taxes are charged a penalty of 5% of the unpaid amount per month (maximum 25%), plus 11.75% interest. Learn more about tax penalties on the Department of Revenue website.
Planning Your Expenses
By now, your budget spreadsheet might be looking a little crowded, but have no fear! Most of these are one-time fees that you won’t have to worry about again. Plus, with all these on the books, there won’t be any surprise costs when you register an LLC in Tennessee.
Soon, you’ll have these fees behind you and you’ll be forging ahead, growing your business and earning profits. As you do, make sure to keep up with the few recurring fees — like annual reports and franchise taxes — so your business doesn’t fall out of good standing.
Key Steps for Starting a Tennessee LLC
- The first step to forming a Tennessee LLC is to come up with a good name for your business. You’ll want to make sure the name you want is still available and hasn’t already been claimed by another business, so you’ll need to search the state’s business database to verify its availability.
- Next, you’ll need to choose your registered agent. While you can legally serve as your own registered agent in Tennessee, this role can actually be more of a hassle than you might expect. That’s why we always recommend hiring a reputable registered agent service that can handle the responsibility of this position on your behalf.
- The third step involves the preparation and filing of your Articles of Organization. You’ll need to fill out the paperwork and pay a $300-3,000 fee. Once the state processes this document, your LLC will be officially open for business!
- That’s not the end of the road for the startup process though, as you’ll also need to create an operating agreement for your LLC. There is no legal requirement for Tennessee LLCs to have written operating agreements, but it’s still an extremely important element of any LLC. The operating agreement is an internal document that outlines how your LLC will operate, and there are several aspects of this document that can prevent messy ownership disputes down the line.
- You will also need to acquire a federal tax ID number (also known as an EIN, or employer identification number). This is essentially a Social Security number for your business, as it is a nine-digit code used to file taxes, hire employees, open business banking accounts, and more.
- Next, you’ll need to register for any relevant taxes with the Tennessee Department of Revenue, and also obtain all licenses and permits that apply to your business type. Keep in mind that, depending on the nature of your business, you might require licenses from the federal, state, county, and municipal governments.
Once you’ve finished all of these steps, you’re ready to operate a compliant business entity with the state of Tennessee!
Key Steps for Maintaining a Tennessee LLC
After you’ve completed all of the items in the previous section, you’ll need to focus on maintaining your LLC. The first step in this process is to open a business bank account. This will help you keep your business and personal expenses entirely separate, and it will also help immensely with your accounting and taxation responsibilities.
You should also keep detailed records of every financial transaction that takes place with your LLC. This means maintaining a file of invoices for every purchase and sale you make, along with information regarding your employees or contractors and the work they perform for your business.
As we already mentioned, annual reports are a key component of LLC maintenance in this state, and there are harsh financial penalties for delinquent reports. Additionally, you might want to hold an annual meeting to discuss goals and priorities for your LLC, although this is an optional step.
Frequently Asked Questions
Before we wrap things up, let’s take a look at some of the most common questions we hear from readers regarding the LLC formation process in Tennessee.
What are the state business tax rates in Tennessee?
Tennessee does not have personal income taxes, so LLCs taxed as sole proprietorships or general partnerships do not pay income tax in this state. There is also technically no corporate income tax in Tennessee, although the excise tax serves the same purpose. This tax has a flat rate of 6.5% of all taxable income in the state.
How quickly does Tennessee process LLC formations?
The Secretary of State should be able to process your LLC’s formation immediately if you file online. Documents submitted on paper forms will take roughly two business days to process.
How many small businesses are there in Tennessee today?
The state of Tennessee is home to more than 620,000 small businesses. Entrepreneurs of all backgrounds and business types find that Tennessee is a great place to own and operate a small business.
What are the top small business resources and websites in Tennessee?
The Tennessee chapter of the Small Business Development Center is a great place to start, as they offer a wide variety of tools and resources for Tennessee LLCs. The U.S. Small Business Administration’s Tennessee District Office is another valuable resource, and the state’s small business resource page also has plenty of good info.
Should I form my LLC in Tennessee, or choose a state like Delaware or Wyoming?
Some people like to form their LLCs in states with favorable legal settings. For instance, Delaware is often seen as the most business-friendly state, as it has an entire court system that’s dedicated solely to business matters. As for Wyoming, this state has some of the most generous anonymity laws for LLC ownership.
However, for most people, your best option is to simply form your business in your home state. Forming in a different state can be a tremendous hassle, and it can add some unnecessary complexity to tax issues as well.