LLC Formation in Tennessee — Member-Based Fees and the Franchise and Excise Tax

Tennessee has no personal income tax, which attracts many business owners. However, unlike many states, Tennessee taxes most LLCs directly through its franchise and excise tax. This guide to LLC formation in Tennessee explains the filing, the fees and the taxes.

Tennessee also charges LLC fees based on the number of members. Therefore, larger LLCs pay more. Consequently, understanding the costs helps you plan.

Our attorneys form Tennessee LLCs and draft operating agreements at fixed prices.

Filing your Tennessee LLC

Tennessee LLCs are formed by filing Articles of Organization with the Tennessee Secretary of State, usually online. State fees change from time to time, so confirm the current amount when you file. Tennessee's filing fee is based on the number of members, with a minimum and a maximum.

The articles list the LLC's name, registered agent and principal office. Our LLC Formation service, from $99, handles the filing.

Tennessee annual reports

Tennessee LLCs file an annual report, generally due by the first day of the fourth month after the end of the LLC's fiscal year. The fee is also based on the number of members.

Missing the report can lead to administrative dissolution. Our annual report filing service handles it.

The Tennessee franchise and excise tax

Tennessee has no personal income tax on wages. However, most LLCs are subject to the franchise tax, based on net worth or real property, and the excise tax, based on net earnings. As a result, Tennessee LLCs usually pay state tax at the entity level.

Some entities, such as certain family-owned or passive investment entities, may qualify for exemptions. Therefore, talk to an accountant about your situation.

Your Tennessee operating agreement

Filing creates the LLC, but the operating agreement decides how it works. Without one, Tennessee's default rules apply, and they may not match your deal.

A strong agreement sets ownership percentages, capital contributions, profit allocations and distributions. Moreover, it sets voting rules and whether members or managers run the company. In addition, it plans for exits: death, divorce, disability or a member who simply wants out. A buy-sell agreement can add detail on valuation and payment.

Tennessee does not require you to file the operating agreement with the state. However, banks, investors and courts often ask for it. Our LLC Operating Agreement service drafts a Tennessee-ready agreement, starting at $79.

LLC or corporation in Tennessee?

Most small businesses in Tennessee choose an LLC for its flexibility and simple taxes. By default, a single-member LLC is taxed like a sole proprietorship, and a multi-member LLC like a partnership. Moreover, an LLC can elect S corporation tax treatment if it qualifies, which can reduce self-employment tax for profitable businesses.

However, a corporation is sometimes better. For example, startups seeking venture capital usually need a C corporation, often formed in Delaware and registered in Tennessee. In addition, Tennessee taxes both LLCs and corporations under the franchise and excise tax, so the state tax difference is smaller than in many states.

Consequently, compare both before you file. Our business formation consultation walks through the trade-offs, and our corporation formation service sets up corporations when needed.

Your first month after forming a Tennessee LLC

Forming the LLC is only the first step. Next, obtain an Employer Identification Number from the IRS. It is free and usually issued online the same day. Then open a business bank account in the LLC's name, so business and personal money stay separate.

After that, register with the Tennessee Department of Revenue for franchise and excise tax and any business tax, and obtain your county and city business licenses. Moreover, if you will hire employees, register for unemployment insurance and set up payroll withholding.

Finally, sign your operating agreement and store it with your formation documents. In addition, calendar recurring deadlines, such as annual reports and tax filings. Consequently, your LLC starts life organized and compliant.

Protecting your liability shield in Tennessee

An LLC protects your personal assets only if you treat it as a separate business. Courts in Tennessee, like courts elsewhere, can disregard the LLC in serious cases of abuse, often called piercing the veil.

Therefore, sign contracts in the LLC's name, keep business money in a business account and keep the LLC adequately funded. In addition, carry appropriate insurance, because an LLC does not protect you from your own personal negligence. Consequently, good habits from day one keep your protection strong.

If you operate in other states too, you may need to register there. Our foreign qualification service handles those filings. For the national picture, read our national guide to LLC formation and corporate structuring.

Common Tennessee LLC mistakes

The most common mistake is missing a state deadline. In Tennessee, that means the annual report due by the first day of the fourth month after fiscal year end. Consequently, set a recurring reminder or use a compliance service.

Another frequent problem is assuming no state tax applies, when most LLCs owe franchise and excise tax. As a result, owners face penalties they did not expect. Therefore, confirm state and local tax registrations in the first month.

Similarly, many owners skip the operating agreement, mix personal and business money, or sign contracts in their own name. Each of these weakens liability protection. Finally, some owners forget to update the Secretary of State when addresses or managers change. Consequently, important notices can go astray.

Choosing a name and registered agent in Tennessee

Your LLC name must be distinguishable from other names on file with the Secretary of State. Therefore, search the state database before filing. In addition, check that a matching domain name and social media handles are available.

A name search is not a trademark search. Even if Tennessee accepts your name, another business may hold trademark rights to it. Consequently, consider a trademark search before investing in branding.

Next, choose a registered agent. The agent must have a physical address in Tennessee and be available during business hours to receive legal papers. Many owners use a professional agent service for privacy, because the agent's address appears in public records instead of their home address.

Single-member vs. multi-member LLCs in Tennessee

A single-member LLC has one owner. It is simple to run, and for federal tax it is usually treated as a disregarded entity. However, a written operating agreement still helps prove the LLC is separate from you.

A multi-member LLC has two or more owners. By default, it files a federal partnership return, and each member receives a Schedule K-1. Moreover, its operating agreement must cover voting, profit sharing and exits in detail. Consequently, Tennessee owners with partners should invest more care in the agreement from the start.

Our LLC Formation services in Tennessee

Every service below has a fixed price, is prepared by a qualified attorney and is delivered online — wherever you are in Tennessee. Additionally, you can upload evidence, message your attorney and track progress from your secure client dashboard.

LLC Formation across Tennessee — cities we serve

We work with clients in every part of Tennessee, entirely online. Therefore, it does not matter whether you live downtown or hours from the nearest courthouse. Your documents follow Tennessee law and your county's local practice. Choose your city below to see local details and prices.

• Nashville: LLC Formation Documents in Nashville · LLC Operating Agreement in Nashville · Corporation Formation (C-Corp / S-Corp) in Nashville
• Memphis: LLC Formation Documents in Memphis · LLC Operating Agreement in Memphis · Corporation Formation (C-Corp / S-Corp) in Memphis
• Knoxville: LLC Formation Documents in Knoxville · LLC Operating Agreement in Knoxville · Corporation Formation (C-Corp / S-Corp) in Knoxville
• Chattanooga: LLC Formation Documents in Chattanooga · LLC Operating Agreement in Chattanooga · Corporation Formation (C-Corp / S-Corp) in Chattanooga
• Clarksville: LLC Formation Documents in Clarksville · LLC Operating Agreement in Clarksville · Corporation Formation (C-Corp / S-Corp) in Clarksville
• Murfreesboro: LLC Formation Documents in Murfreesboro · LLC Operating Agreement in Murfreesboro · Corporation Formation (C-Corp / S-Corp) in Murfreesboro
• Franklin: LLC Formation Documents in Franklin · LLC Operating Agreement in Franklin · Corporation Formation (C-Corp / S-Corp) in Franklin

More Tennessee services

LLC Operating Agreement in Tennessee · Corporation Formation (C-Corp / S-Corp) in Tennessee · Business formation consultation in Tennessee · Annual Report Filing in Tennessee · Foreign Qualification Filing (per state) in Tennessee · Buy-Sell Agreement in Tennessee. See all legal services in Tennessee.

Nearby states

Moving between states, or is the other party elsewhere? We also cover LLC Formation Documents in Kentucky, LLC Formation Documents in Georgia, LLC Formation Documents in Alabama, LLC Formation Documents in Mississippi, LLC Formation Documents in North Carolina. See every location we cover.

Frequently asked questions

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Related guides

This guide is general information, not legal advice for your situation. Every case is different — speak to a qualified attorney before you act.