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How to start a business in Tennessee

Dreaming of starting a business but not sure how to do it? In our step-by-step 2020 guide we teach you how to launch your own business in Tennessee.
7 Şub 2020 • 10 dakikalık okuma
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Everything you need to know to start your business in Tennessee

If you are not sure about which business structure is best suited for your startup, your not alone, many entrepreneurs struggle with this decision.
In this post we will introduce you to all the business structures available in Tennessee and give you step-by-step instructions for establishing each of them. 

Startup ecosystem in Tennessee

Every successful entrepreneur has taken the time to investigate their startup ecosystem before establishing a business; in the infographic below we have aggregate some important startup stats in Tennessee:
Tennessee startup stats infographic
As you can see, Tennessee is a great place to launch your startup!

Planning your business in Tennessee

The first thing you need to do, before any other startup activities take place, is verify that there is a scalable demand for your business solution with effective market research . Once the demand for your business is verified, you will need to incorporate this information into a business plan. 
A business    
A business plan logically lays out your plan for establishing your startup, and it also makes your venture very appealing to potential investors!
A typical business plan is comprised of the following components:
Value proposition
Market opportunity
Target market
Competitor analysis
Funding required
Sales and marketing
Financial projections
Milestones
Your team
Thankfully, we've written an in-depth guide to crafting a winning business plan .

Structuring and registering your business in Tennessee. 

There are 6 main business structures in Tennessee, and all are applicable to both brick and mortar businesses and e-commerce businesses:
Sole Proprietorships
Partnerships
C-Corporation
S-Corporation 
Limited Liability Company (LLC)
Nonprofit
If you're uncertain about which structure best suits you, read our in-depth guide on structuring your business for success.

General procedures for all business types in Tennessee

The following key steps need to be completed regardless of which business structure you choose:
Get your EIN
Sole Proprietors and Partnerships that don't plan on hiring employees do not need an Employer Identification Number (EIN), but it's still wise to get one in case you do bring on employees in the future.
All other business structures must get an EIN in order to register their business.
You can apply for an EIN online , or download the form and mail it to:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Register a business name with the state of Tennessee
If you want to give your business a unique name that is different to your own full name, you will need to attain a "doing business as" registration (also known as a DBA or Assumed Name). The process is slightly different depending on which business structure you choose:
Sole Proprietors and General Partnerships need to register their Doing Business As name at their Tennessee local county office .
All other business structures can register their Assumed Business name online on the Tennessee Secretary of State website .
Get your Tennessee business licenses and zoning permits
Certain businesses in Tennessee require a special license to operate. To check if your business type requires a license, search for your business type on the Tennessee Department of Commerce website.
The location of your business may also restrict business activities. This may especially be the case if you plan to run a home-based business. Contact your local Tennessee county office to find out whether you need to apply for a zoning permit.
More details on business licenses and zoning permits can be found on the U.S Small Business Administration website .
Open business banking accounts
This isn't necessarily a requirement, but highly recommended to keep business transactions separate from personal transactions.
Submit New Hire Reports
It is both a Federal and Tennessee state requirement for all employers to report new hires to both the Tennessee New Hire Reporting Center and the IRS .
File a business annual report in Tennessee
The following business structures are required to submit an annual report to ensure the Tennessee Secretary of State holds the most up-to-date contact details of their business:
For Profit Corporations
Nonprofit Corporations
Limited Liability Companies
Domestic Limited Liability Partnerships
Limited Partnerships 

Tax details for all businesses in Tennessee

All businesses in Tennessee must register with the Tennessee Department of Revenue to file their State Tax documents and register for State taxes.
You can also find up-to-date tax information for all business structures on the Tennessee Department of Revenue website as well as on the IRS website .
It is important for you to submit all state and federal tax filings in a timely manner. Failure to submit on multiple occasions may result in the automatic dissolution of your business.

Domestic vs Foreign business in Tennessee

To make sure you are accessing the correct business setup forms, it's important to understand the distinction between a domestic and foreign business in Tennessee.
A business in Tennessee is classified as a domestic if it is headquartered within the state. Foreign businesses, on the other hand, are headquartered outside of Tennessee.
Now let's discuss the processes of establishing each individual business structure.

How to start a Sole Proprietorship in Tennessee

If you are launching your business alone, the simplest and cheapest business structure you can choose is a Sole Proprietorship. You do not need to worry about irrevocably settling into any one business structure, you always have the option of changing to another structures.
Most entrepreneurs launch their startup as a Sole Proprietorship and then upgrade to a higher business structure as their business grows.
That being said, if your business solution poses any amount of financial risk to your clients, it is better for you to settle with a business structure that offers a higher level of personal asset protection, such as an LLC or Corporation.
If you've already completed all the general steps for launching a business in Tennessee there's nothing more you need to do to register your Sole Proprietorship.

How to start a Partnership in Tennessee

A Partnership is the simplest business structure that accommodates two or more cofounders.
There are four different types of partnerships structures in Tennessee

General Partnership (GP)

This is the default type of partnership. All business debts are equally shared amongst General Partners. A general partnership is considered a 'pass-through-entity' which means the business is only taxed once at each member's personal tax income level.
How to form a General Partnership in Tennessee
To register a General Partnership with the State of Tennessee, you need to submit a Statement of Partnership .
You can also complete this registration process online .

Limited Partnership (LP)

A Limited Partnership is comprised of both General and Limited members. Limited members limit their personal liability to the extent of their monetary investment in the business.
Limited partners don't have as much jurisdiction over business decisions as general partners, they function more like investors.
How to form a Limited Partnership in Tennessee 
To register a Limited Partnership, a Limited Partnership Certificate needs to be submitted to the Tennessee Secretary of State, either by mail or online .
A separate form should be submitted to register a Foreign Limited Partnership in Tennessee .

Limited Liability Partnership (LLP)

Limited Liability Partnership members are not held responsible for any financial negligence or fraud committed by other members.
How to form a Limited Liability Partnership in Tennessee
A Limited Liability Partnership can either be registered by mail or online .
Foreign Limited Liability Partnerships should register with this form .

Create Tennessee Partnership Agreement 

Regardless of which type of Partnership you register, you should create a Partnership Agreement for it
Though this isn't a State requirement, it is highly recommended to ensure all partnership members remain aligned
A Partnership Agreement as an internal document all members sign to indicate their agreement with set business procedures. To save time you can use a partnership agreement template

How to form an LLC in Tennessee

An LLC offers a superior level of personal asset protection to its members. LLCs can either be run by managed by members or a designated manager.

Naming an LLC in Tennessee

All LLCs in Tennessee need to append any one of the following entity identifiers to the end of their business name:
L.L.C
LLC
Limited LIability Company
Before registering your business name you should verify its availability

Appoint a Registered Agent in Tennessee

All LLC's in Tennessee are required to nominate a Registered Agent. A Registered Agent accepts all mail on behalf of the business so that any legal correspondence is collected in a timely manner.
All registered agents in Tennessee must meet the following criteria:
Be located in the state of Tennessee
Accept mail via a residential or business address (not via a PO BOX).
Guarantee availability during business hours.
Guarantee the timely forwarding of all accepted mail to respective business owners. 
Should you be your own Statutory Agent in Tennessee?
You can legally appoint either yourself or a cofounder as a registered agent. However, this is not recommended because, as busy business owners, you can never guarantee your availability during business hours to accept all mail.
Alternatively you could appoint a friend, relative or any of the following professional registered agents in Tennessee:
You will need to nominate your registered agent in Section 4 of the Articles of Organization (see below).

Submit Tennessee LLC Articles of Organization

The approval of your Articles of Organization officially registered your LLC with the State of Tennessee.
This document can also be filed online .

Create a Tennessee LLC operating agreement

An LLC operating agreement keeps all members aligned the goals of the business and also minimises the risk of inter-member disputes.
Since this is an internal document and not a State of Tennessee requirement, you are free to design this agreement however you like, or alternatively use a template .
All members should sign this document during the initial corporate meeting.

Host initial Corporate meeting

This is an opportunity for all members to plan the company's launch as well as complete the following procedures:
Vote for initial term directors to serve
Distribute stock certificates 
Complete settlements for high-value business purchases
Create a list of corporate laws that will govern the business (Bylaws)

Foreign LLCs in Tennessee

To establish a Foreign Tennessee LLC, you must submit an Application for Certificate of Authority either by mail or online .
A Certificate of Good Standing from the home State Secretary of the Foreign LLC must accompany this submission.

How to form a Corporation in Tennessee

A Corporation is the most sophisticated business structure available in Tennessee. This structure offers the most superior level of personal asset protection to its members.
A Corporation can be very complicated to set up on your own, so you might want to get help from an attorney.
There are two different types of corporate structures in Tennessee:

C-Corporation

This is the default corporate structure. There's no limit to the number of members a C-Corporation can have and they can issue all classes of stock.
The primary downside of C-Corporations is the double taxation process that takes place at both the corporate and personal income level of their members.

S-Corporation

An S-Corporation is classified as "pass-through-entity," so they're only taxed once at the personal income level of their members.
To elect to be an S-Corporation, you need to submit Form 2553 with the IRS.
S-Corporation can only distribute one class of stock and are limited to 100 members.

Naming your Corporation in Tennessee

All Corporations in Tennessee must append any of the following entity identifiers to the end of their business name:
Corporation 
Incorporated
Company
Inc
Corp
Co
Be sure to check the availability of your prospective business name.

Appoint a Registered Agent for your Corporation in Tennessee

The process of appointing a statutory agent for Corporations is the same as the process for LLCs.

Submit Tennessee a Charter For-Profit Corporation

To register a Corporation in Tennessee you must submit a For-Profit Corporation charter.
This can either be done online or by mail

Host a Corporate organizational meeting

The following procedures should be completed during this organizational meeting:
Initial directors that will serve during the first term should be appointed
All members should agree upon a set of bylaws that will govern the Corporation 
Stock certificates should be distributed to members
Finalization of important business purchases
Meeting minutes should be recorded and stored in a Corporate Records Book alongside all other important business documentation

Foreign Corporation registration in Tennessee

A foreign Corporation is established in Tennessee upon the approval of its Application for a Certificate of authority , which can also be filed online .
A certificate of Good Standing issued by the home Secretary of State of the business should accompany this submission.

How to form a Nonprofit in Tennessee

If your business solution is focused on improving the wellbeing of others, you should consider choosing a nonprofit structure. 

Naming your Nonprofit in Tennessee

Nonprofits in Tennessee are not required to append their business name with a special entity identifier (such as Corp, Company, Incorporated etc)

Appoint a Registered agent in Tennessee

The process of appointing a registered agent for nonprofits is the same as the process for LLCs.

Submit a Tennessee Nonprofit Charter

The approval of your Non Profit Corporation Charter submission officially registered your nonprofit with the State of Tennessee. 
If you prefer to speed up the submission process you can complete it online
If you also plan to also apply for Federal tax exempt 501(c)(3) status, you must include specific IRS standard statements in your Nonprofit Articles of Incorporation. For guidance, refer to the section "Articles of Organization" on page 25 of this IRS document .

Host initial Corporate Meeting

All members should collaboratively create the bylaws that will govern the nonprofit, finalise any business transactions and settle any matters that require attention prior to officially launching the business.

Apply for nonprofit tax exemption in Tennessee

To obtain a 501(c) federal tax exemption with the IRS, nonprofits in Tennessee need to file Form 1023 with the IRS. Smaller nonprofits may be eligible to submit the simpler Form 1023-EZ .
For more details on applying for Tennessee sales and use tax exemption. Refer to the Tennessee Department of Revenue
Protecting your business in Tennessee
Some recommended insurance policies for your startup in Tennessee are:

Business owners policy (BOP)

This type of insurance policy combines both business property insurance and business liability insurance.
This policy can protect business owners from theft, fire, loss of income, lawsuits and data breaches.

Commercial property insurance 

This policy protects your business furniture and inventory in the event of a fire and theft

General liability insurance 

A general liability insurance policy protects your business against reputational damage, property damage, personal injury and copyright infringement claims from any advertising.

Business income insurance 

This insurance policy supplements any lost income you sustain while your business recovers from any damage to its processes.

Workers compensation insurance

This will ensure your employees get compensated in a timely manner in the event of any work related injuries.

Helpful resources for businesses in Tennessee 

Register your new business in Tennessee online here.
Online tax return filings
This is a great resource for small business news, tips and advice, market research and industry-specific links.
The US Small Business Administration offers advice, advocacy and instruction for small businesses across the country.
Our own guide to launching your startup will walk you through every step of starting a business, from concept to execution.

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