Spring Special: $0 Incorporation Service

How to Incorporate in Tennessee vs. How to Start a Tennessee LLC

A Guide to Choosing the Best Business Entity in Tennessee

Thinking about starting a business in Tennessee, but not sure if you should form an LLC or start a corporation? Active Filings has the guide for you! We’ll walk you through the advantages and disadvantages of incorporating or forming an LLC in Tennessee. Throughout this Tennessee-specific corporation and LLC formation guide, you’ll discover exactly how to form either an LLC or corporation in Tennessee, and learn the disadvantages and advantages of each business type.

Once you’ve decided which business structure best meets your needs, you can hire Active Filings and have our professionals streamline your incorporation process. Sure you can sign up with a more expensive company managed by hedge fund billionaires where you’ll just be a number, or you can choose Active Filings, a small company like yours. Our professional staff will ease you through the business formation process, and pretty soon you’ll see why Active Filings is America’s most reliable business incorporation service.

Hire us to form your LLC or Corporation in Tennessee!

LLCs vs. Corporations

People looking to start a business often ask whether they should set up an LLC or incorporate for their new venture. Like everything else in life, the answer depends. Below you’ll find the three factors we think will help you make an informed decision.

  • Ease of maintenance
    Corporations have to keep minutes, hold meetings, and record votes and resolutions. LLCs require none of these things, saving you time and the overall hassle. There are fewer forms required for registering, and there are generally fewer start-up costs. The knock against LLCs is that they aren’t perpetual. Unless your LLC’s operating agreement specifies exactly what happens in the event a member dies, resigns or declares bankruptcy, most states require that LLCs dissolve when these events occur. Corporations, however, can exist as their own entity, regardless of what happens to the individuals involved in the business.
  • Desired tax structure
    By default an LLC is a pass-through tax entity, meaning that the income is not taxed at the company level. The income or loss as shown on this return is ‘passed through’ the business entity to the individual members, and is reported on their individual tax returns. Less paperwork. More straightforward. A corporation is a separately taxable entity, and pays tax on the income prior to any dividend distributions to shareholders. If and when corporate earnings are distributed to shareholders in the form of dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders. Complicated. Paperwork. The Tennessee LLC wins this one.
  • Investors
    When it comes to investing in a company, most investors feel most comfortable investing their hard earned money into corporations. The biggest reason investors prefer corporations is their favorable taxation rules. Unlike LLCs, a corporation’s shareholders are not taxed on company profits unless profits are distributed, which means the dividends paid from the corporation can be structured to take advantage of the best tax scenario for the shareholders. If you plan to grow your small business into a larger entity and attract investors, forming a corporation is your best bet.

Don’t sleep on the idea of prestige either. While “The Knoxville Wing Stop, LLC” is a fine upstanding company, it just doesn’t sound as special as Nike, Inc. When you hear the word corporation, many people think of Amazon, Apple, and Walmart. While the LLC is perfect for the small to medium-sized business, it doesn’t carry the same cache as the corporation. While LLCs first came into being in the late 1970s, the corporation is the oldest recognized business entity in the US, and thus they carry with them an aura of prestige.

TN LLCs vs. TN Corporations

While we’ve already broken down the differences between an LLC and a corporation, we’re going to dig a bit deeper into the pros and cons of forming an Tennessee LLC or corporation. Take a look below to see what makes Tennessee LLCs and corporations unique

  • Excise and Franchise Taxes
    The excise tax is based on the net income of the company for the tax year. The franchise tax is an asset based tax on the greater of net worth of the company or the book value of real and tangible personal property owned or used in Tennessee at the end of the taxable period.
  • No Income Tax
    Tennessee often boasts that it doesn’t have an income tax, and while technically true, the state does tax income derived from stock dividends. The Hall Tax, a flat statewide rate on all income from interest and dividends. It  is currently being phased out thanks to HB534. Currently the tax burden is 1% until January 2021, when it will drop to zero and Tennessee will finally be counted among eight US states that levy no tax on income. Why does no income tax matter? The American Legislative Exchange Council reports that over the past decade, states without a tax on personal income have outperformed high income tax states with regards to GDP and employment growth. In short, low to no income tax states have more robust economies, which allows for a healthier and vibrant business environment.
  • High Sales Taxes
    It should be noted that Tennessee has the highest overall average sales tax in the country at 9.47% (a 7% state sales tax and a 2.47% average local sales tax). When sales tax rates are high, in this case the highest in the nation, consumers spend more money on taxes and therefore have less to spend on additional goods and services. Over time, high sales taxes can drive down consumer spending, which if your business is involved in selling goods or services, can be detrimental to your overall business health.
  • LLCs Pay More for Annual Report
    Most states require LLCs and corporations to file annual (sometimes biennial) reports. These reports can run the gamut in terms of fees. Some states charge more, some charge less, and some charge different amounts depending on whether you’re forming an LLC or a corporation. Tennessee charges a low $20 for corporations, and hits LLCs with a $300 filing fee for businesses with 1-6 members, and then tacks on an extra $50 per member. So if you have an 8 member LLC, you’ll pay $400 per year to file your annual report, whereas a giant corporation pays $20.

Tennessee Corporation or Tennessee LLC? Our Final Answer.
Despite Tennessee LLCs getting short thrift with regards to the state’s annual report ($300, really Tennessee?) the LLC is still the perfect business entity for the average business owner. The LLC provides excellent liability protections for the small business owner, without all of the formal hoops one has to jump through to form and maintain a Tennessee corporation.

How to Incorporate in Tennessee

It costs $100 (add $2.35 for the online processing fee) to file Tennessee’s For-Profit Corporation Charter. In addition, Tennessee requires your corporation to have a registered agent and assign a designated physical street address where all legal documents will be mailed. You can act as your own or hire someone to do it for you. With so much on your plate with regards to starting a corporation, we recommend hiring Active Filings. We’ll do the heavy lifting with regards to filling out and properly filing Tennessee’s For-Profit Corporation Charter.

 

Your company name needs to include the words “Incorporated,” “Corporation,” or an abbreviation like “Inc.,” or “Corp.” Example: Nike, Inc.

A registered agent is a person or entity appointed to accept service of process and official mail on your business’ behalf. You can appoint yourself, or you can hire one. We prefer Active Filings.

This address is a matter of public record. That means anyone, including marketers, can access it. Hire Active Filings. We’ll receive all of your important legal mail, leaving you more time for working on your business.

List the month that your business year ends. Most business are calendar year filers (12 consecutive months beginning January 1st and ending December 31st). If you filed in July, your fiscal year runs from July to the end of June.

Choose “Perpetual,” if you’d like your business to continue indefinitely. Have an expiration date in mind, enter that here.

When do you want your Tennessee corporation to begin? If you want it to start right away, skip this section. If you want to start on a specific date, you can list an effective date up to 90 days in the future.

List the number of shares you wish to create. You must create at least one share.

This street address is the official address of your business and where you’ll receive mail that doesn’t get sent to your registered agent. Want to keep things simple, hire Active Filings and use one address, ours.

These are the people who sign your charter to formally file your paperwork. You must have at least one incorporator, and incorporators must include their names and addresses. Your incorporator can be a director, officer, or just someone you authorize to submit your charter. Active Filings can be your incorporator, which means our information goes here and keeps your name and address out of the public record.

A professional corporation provides a state-licensed service like doctors or lawyers. Most corporations are not professional corporations, so you can skip this section. If you are a professional corporation, you’ll need to mark the box in Section 12 and list your professional service.

How to Start an LLC in Tennessee

To start an LLC in Tennessee, you must file Articles of Organization with the Tennessee Secretary of State. You can file the document online, by mail or in person. The Articles of Organization cost $300 to file for up to six members. Beyond that there is a $50 per member charge, and add 2.35% to pay online with your credit card and $0.95 to file with an eCheck.

Your company name needs to include the words “Limited Liability Company” or an abbreviation like “LLC.” Example: “Knoxville Coffee Bar, LLC.”

Tennessee allows you to get permission to use an LLC name already in circulation, but the vast majority of companies choose an original name for their business and skip this part.

Here is where the state is asking you if your company will have a designation beyond that of the standard LLC. For example, your LLC may be a Professional LLC, Non-profit LLC, Series LLC, Bank, Insurance Company, Litigation Financier, or Trust Company. Most LLCs aren’t any of these, so you can skip this section.

A registered agent is an individual or entity that has been designated by the LLC to receive service of process notices, government correspondence and compliance-related documents on behalf of the business. Active Filings can be your registered agent. It’s what we do!

This must be a physical address within Tennessee. You’re not allowed to designate a post office box. Your registered agent is the LLC’s agent for service of process, notice, or ordinance required or permitted by law to be served on the LLC. Hire Active Filings as your registered agent, and our address goes here.

This is where you’ll put the date your LLC’s fiscal year ends. Most businesses choose to operate on a normal calendar year, so their fiscal year ends in December.

Most people choose to start their LLC right away, but you can enter a future date (anytime within the next 90 days) if you’d like to delay your start date.

How will your LLC be managed? Will the member or members be operating it on a day-to-day basis? Then it will be member managed. If you hire someone to manage your LLC, it will be managed by a manager. Tennessee also allows for “director-managed” LLCs, which are similar in structure to corporations, and pretty uncommon.

How many members does your LLC have? If the number of members is not indicated, Tennessee’s Division of Business Services will list the number of members as one member. Have more than six members? Add $50 per member to your filing fee.

Tennessee wants to know how long your plan to operate your LLC. If the duration of the LLC is perpetual or has a specific end date, simply check the appropriate box. If “other” is checked, indicate the specific date on which the duration of the LLC’s existence will end.

This street address is the official address of your business and where you’ll receive mail that doesn’t get sent to your registered agent. Want to keep things simple, hire Active Filings and use one address, ours.

 

Most people generally form their LLC to protect themselves and other members from lawsuits and debts. However, if you want to forgo asset protection and have members held liable for the debts and obligations of the company, you can mark these boxes and register your LLC as an Obligated Member Entity. Most businesses don’t mark these boxes.

Are you running a business that is being formed under state law, but not allowed to operate in Tennessee? Probably not. Just leave this box blank.

The organizer of an LLC is simply the person or company that signs and submits your Tennessee Articles of Organization. They don’t have to be someone in your LLC. When you hire Active Filings we’ll act as your organizer and do the heavy lifting for you.

TN Annual Report Requirements

The purpose of the Tennessee’s report is to make sure your business records with the state are current. This allows creditors and other interested parties to look up your business address in case they need to contact you. The IRS uses this information to track the payment of your company’s state taxes.

What information do I need when I’m filling out the annual report?
Your business’s name and address.
Names and addresses of officers and directors (if a corporation).
Names and addresses of managers or members (if an LLC).
Name and address of your registered agent.

How do I file my Tennessee Annual report?
Head over to Tennessee’s Annual Report page.

  1. Enter your business Secretary of State Control Number then click “Begin.” If you don’t know your number, you can find it by doing a Business Information Search.
  2. You can complete your Annual Report online and either submit it and pay online or you can print out a copy and mail a check and your report to:

Division of Business Services
312 Rosa L. Parks Avenue
Snodgrass Tower, 3rd Floor
Nashville, TN 37243

 

How much does it cost to file the Annual Report? 
Tennessee gives a little break to corporations by charging a $20 filing fee, whereas LLCs must pay $50 per member (you must pay a minimum of $300 even if your LLC has 1 member) up to a maximum of $3,000. Non-profits pay $5 to file.

When are Tennessee Annual reports due?
Your company’s Annual Report is due on the 15th day of the 4th month following the close of your books and records. Most businesses roll with a January to December fiscal year, which means their report would be due on April 15th of the following year. It should be noted that Tennessee corporations and LLCs must file annual reports. If you fail to file, your LLC may be dissolved or your corporate charter revoked. When you hire Active Filings, we’ll take this stress off your plate and do the heavy lifting for you by filing all of your important documents in a timely manner.

Tennessee Business Taxes

All Tennessee businesses (except for non-profits) are subject to a 6.5% corporate excise tax on the net earnings from business done in Tennessee for the fiscal year. On top of that they are subject to a franchise tax.

  • Excise Tax = 6.5% excise tax on the net earnings of the entity.
  • Franchise Tax = $0.25 per $100 based on either the fixed asset or equity of the entity, whichever is greater.
  • Business Tax = rates vary, depending on a business’ classification and whether it is a retailer or a wholesaler. However, every taxpayer must pay at least a minimum tax of $22.

What forms do you file for your Tennessee taxes?
Corporations file Form FAE 170
Partnerships file Form FAE 170
LLCs file Form INC 250

When are my taxes due?
Business tax returns are due by April 15th. Tennessee’s individual income tax applies to individuals who receive interest (from bonds and notes) and dividends (from stock). TN individual income tax returns are due by April 15th.

What if I need an extension?
Like most states, Tennessee offers a 6-month extension to file (October 15th). To request a Tennessee extension, file Form FAE-173 by the original deadline of your return. Form FAE-173 must be used if you file a Federal consolidated return and you owe Tennessee tax.

Hire us to form your LLC or Corporation in Tennessee!