LLC or the Limited liability is the most sought-after business structure. For people who are starting their business, this structure is apt. It provides the owners limited liability protection. It means that if your LLC is in debt, then your assets will not be used to pay off those debts. The creditors can’t do that. This is not the case in a corporation. Your purchases are used to pay off every debt, even if it means that you become bankrupt. So, LLC does provide this much security. One of the most desired states to start a business is Tennessee. The state comes with various attractive features. There are many benefits of starting your company in Tennessee as the state debt is the lowest, you don’t have to pay income tax on your salaries, and many more. It’s like a cherry on top.
Let us take a look at the benefits of starting an LLC in Tennessee.
- Protection: your assets are protected if your LLC is in a financial crisis.
- Flexible tax structure: the owners have the freedom to choose whether they want to be taxed as a corporation or as an LLC. Also, the taxes are passed through the owner’s income.
- Easy to form: you don’t have to go through any hassle to start your LLC. The process is simple. Also, it does not cause a hole in your pocket. You will only need Articles of the organization to authorize your business.
- Management structure: you have the freedom to decide how you want to manage your company. Whether you want members to make a decision or you want to hire a manager. Also, there is an operating agreement that allows you to set rules for the company. With the consent of all the members, you can draft by-laws for your company.
If you are determined to start your LLC, you have to know all the steps required to form one. If you follow all the steps diligently, you will develop your company without any problem.
Step 1: Select a business name
Picking a name is not a piece of cake, as it may sound. A name holds importance. A person, a company, is known by its name; it’s the first thing that comes to mind. So, you have to give time to select one. Try to make it unique and distinct. As different and special things create curiosity. So, the customer will be interested in checking out your business or getting information about it. This will help you increase your customer base. Now, we know why it is essential, it’s time to see how to name the LLC. There are some naming requirements that you have to follow. But before that, keep in mind that a unique name does not imply that it should be challenging to pronounce. Also, make sure that the title you selected must not be similar to any other companies out there. You can confirm that at the Tennessee business entity database. If your preferred name is identical to others, you can modify the keywords and try it again. You have to be sure before mentioning the name on the formation documents. The terms Limited liability or its abbreviations must be present. Remember to do a trademark search, too, as you do not want to use a trademarked name that could get you in legal trouble. Besides, your company name should not hint that it is affiliated with the government or any of its authorities. You cannot use words like bank, university, mortgage, and trust. Avoid vulgar words; it is against the policy.
After following all the rules, you finally came up with a name. But there’s a catch. It is going to take time for your company to go on the floor. Now, you have this worry that some might use the name you have finalized with so much work and thinking. You don’t have to deal with that tension as you can hold/reserve the name. Yes, for 120 days, you can lock it. For this process, you have to fill the application form and send it via mail, or you can hand-deliver it to the following address with the payment of $20:
Department of State
312 Rosa L. Parks Avenue 6th Floor
William R. Snodgrass Tower
Nashville, TN 37243
Online submission is not available. So you have to submit the paper form. It will take around 1 to 2 business for your application to get processed. However, if you deliver the application, it gets processed the very day.
While you are reserving your company name, also secure the domain name. It will be helpful later when you create your website. If you do it now, your time will be saved later.
Step 2: Hire a registered agent
The recruitment of a company registered agent is required by law. Any LLC in Tennessee is obligated to hire a registered agent at all times. A registered agent can be an individual or an entity that handles all communications on account of a limited liability company. The registered agent receives all necessary papers, letters, reminders, and notices. The state requires someone to collect all legal and essential documents and deliver them to the appropriate authorities, which is why the government has made it compulsory. Before mentioning your agent’s name on the Articles of Organization, you have to get their permission. It’s simple to appoint a registered agent. You only have to write the name and street address on the formation documents. Also, keep in mind that the information you enter is public, so make sure anyone who may be interested is informed.
Who is qualified to serve as the registered agent? The registered agent can be any person if they are 18 years old or over. You can recruit whoever you want, including your colleagues, relatives, and associates. That individual must, however, have an address in Tennessee. You have the choice of acting as your registered agent. However, this does have some disadvantages because it entails more responsibilities and obligations. You could never leave the office during office hours because the company registered agent must receive communication and mails during regular working hours. Also, your details will be public. You can also employ a company. However, there is a condition that the business should have an address and also authorization to conduct business in Tennessee. If you want a way that makes it easier is that you can use registered agent services. They will also assist you in the formation of your business and appoint a registered agent too. The LLC should not be without the agent at any time. A persistent exclusion of an agent could result in your LLC’s dissolution. So, at any point, if you need to switch your registered agent, make very sure the transfer goes smoothly.
Step 3: Submit the Articles of Organization
The LLC becomes a legal construct only after filing the Articles of Organization with the state. After fulfilling this step, you will then be ready to establish your company. The state requires that the Articles of Organization must be filed. You cannot create an LLC without this; this legal document provides your LLC authority. The registration of the Articles of Organization is the official start of your enterprise. Since this document, the most important details of your company lie, be careful while filling it. From this point forward, your adventure will begin. The following information is present in this document:
- The name and address of the company
- The name and address of the LLC’s appointed registered agent
- The names and signatures of the representatives
- Its management structure: member-managed or manager-managed
- Its founding date
After signing the document, you should then send it to the Secretary of State. You have three choices for submitting the form: Online, by postal mail, or by hand. When submitting papers, be sure to double-check that they contain all of the required documentation. All of your records must be in order because it makes your brand legal.
The fastest method is to file the Articles of Organization online. It works instantly. You have to make the payment. If you are using a credit card, there is an additional service charge of 2.35%.
You have to download the application. After downloading, carefully fill the form. After that, mail the form with the fees to the following address:
Department of State
312 Rosa L. Parks Avenue 6th Floor
William R. Snodgrass Tower
Nashville, TN 37243
If you live nearby, you can also personally submit the form to the address mentioned above. In 24 hours, your application gets processed.
Step 4: Establish an Operating agreement
An operating agreement is one of the most critical documents in the LLC; it lays out the basis for the LLC’s most important aspects. Tennessee does not necessitate an operating agreement. However, having one is necessary because it will aid in the management of the company’s domestic politics and operational activities. It will ensure that the business operates efficiently and that all conflicts are resolved civilly. After signing the operating agreement, the members are bound to it legally, so they must follow the deal. So, if any member does something against the contract, then this operating agreement acts as evidence. An operating agreement is essential for a variety of reasons. All the conditions are laid out in the agreement, proving that the company is separated from the personal assets. It safeguards you against the default rules. Suppose you do not have an operating guideline for your business and some disputes or issues occur. In any scenario, the state will decide for you. This scenario is not always in favor of the company as these rules are not designed for a specific business, so they might not work in your favor. For example, most states state that all the gains and income are equally divided among the members. But this situation always doesn’t fit, as some members made more contributions than others. So, if you have an agreement detailing this, then you are good to go. You can include the following details in your agreement. As you can see, this contract is adaptable; you can add or remove whatever you like. Try to be inclusive.
- Each member’s rights and duties
- Each member’s share of income and losses
- The method of adding or removing a member
- Provision of distribution of profits and losses
- Meeting procedures
- The process of adding or removing a member
You can also write the company’s operating agreement. You can find some online templates to use. You may also hire a solicitor or a consultant to write it for you if you want. They’re professionals, so they’re mindful of all the finer points. They can make sure that even the tiniest specifics are included in the operating agreement of your company.
Step 5: Obtain an Employer Identification Number (EIN)
When establishing an LLC, you must apply for an EIN. When filing taxes, this number is often used. This number is given by the IRS and is used to keep records of your taxes. You will use your social security number if you do not have an EIN. This circumstance can result in a privacy or security breach. So, use your EIN for business purposes. An LLC’s tax structure is flexible. The owners report their earnings and expenses on their income tax returns rather than paying them directly to the federal government. But there are some criteria, such as hiring workers, creating a company, and selling goods, where you have to pay certain taxes. In addition, the LLC will need an EIN to open a bank account, hire employees, or apply for business loans. You can get your EIN from one of the following methods: online, fax, or mail.
The most practical tool is the internet. You can apply online between the hours of 7 am and 10 pm Monday to Friday, and you’ll get your number right away. Fill out the online form if you need assistance right away.
You may also submit your request to the IRS via fax. To do so, you must first obtain a copy of the Form SS-4. Fill out the form, sign it, and return it to the office by faxing it to the office (855) 641-6935. It might take a few days for your application to be approved.
As part of this process, obtain Form SS-4, fill it out, and mail it to the IRS. This approach takes a long time in contrast to the other two. Please submit it to the address below:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
Step 6: Business Taxes and Licensing
It is unethical to try to stop paying taxes, so you should pay them. You have completed all of the steps necessary to start your LLC. However, you must also be mindful of the other essential aspects, such as taxes and licensing. Let us begin by looking at the taxes. If you want to be in the government’s good books, you can never stop paying taxes. Taxes are collected on three levels: federal, state, and local. There are some other taxes also.
Income taxes by the federal government
The tax structure of a Limited Liability Company is very flexible. You have the option of filing your taxes as an LLC or as a corporation; the choice is yours. You must pay a separate corporate income tax if you want to spend your taxes as a corporation. Another tax benefit of an LLC is that it does not have to directly pay income taxes to the government. It simply means that the income tax is passed on to the recipient’s income. The business’s expenses and profits are mentioned in the owners’ income tax returns. As a result, if you pay your taxes on time, you’ll keep your good reputation with the state, which will help you attract new clients and vendors.
State and Local Taxes
You don’t need to take trouble with it, as these taxes are similar to Federal taxes. But there are three taxes that your company has to pay the state: the business, excise, and franchise tax. The business tax depends on the gross receipts; it contains city and state taxes. The excise tax depends on the total income or the earnings for a yearly period. And finally, the franchise tax is the tax levied based on the value or the worth of the property. You can visit the online page of the department of revenue and get more information. Apart from these taxes, some local governments might also have tariffs of their own.
Apart from the taxes mentioned above, there might be some additional taxes too. These are the indirect taxes. For example, if you hire personnel/employees, you have to file the unemployment tax. For that, you have to go to the department of labor and workforce and submit a form. Another example is that if your business deals in selling goods and products, you have to pay the sales and use tax.
Businesses permits and license
you will be required to obtain the necessary licenses and permits from the state to start your business. Depending on the nature of the company, different permissions and permits are needed. If you want to open a pawn shop, you will need a pawnbroker’s license. A restaurant can need a food service license, a health license, and a liquor license. Similarly, other businesses need different types of permits. It is illegal to work without legitimate paperwork. You can visit the department of commerce and insurance’s official website to get more details.
Step 7: Submit annual reports
After your LLC has been established and operations have started, you take this move. You must submit a detailed annual certificate to the Secretary of State. Many of your LLC’s key features and functions will be included in this credential. You must also disclose any significant changes to your company, such as a change of address or registered agent. With the fourth month of the accounting year, you must file an Annual Report. You have to pay $50. But remember, each member has to pay this amount if you have changed your agent and correct that in your report; you have to pay an extra $20. There are three ways to submit the report: online, mail, or hand-delivery. Suppose you couldn’t present the annual report in due time. Then also, the state provides you extra sixty days to submit it. But even after the spare time you failed to deliver it, then your company can be legally dissolved.
We have reached the end of the guide. Now, you know what you have to do to form your LLC. You are ready to do business and achieve success. But the work doesn’t stop here. There are some key points that you should remember before opening your door.
- Open a business bank account: it will ensure that your assets are separated from the business.
- Obtain a bank credit card: it will help you manage finances and get a loan specifically for the company.
- Create a website: starting a website will help you promote your business and give people a place to go if they want to know your business.
- Get insurance: Insurance will provide you protection; if anything happens to the company.
- Hire a chartered accountant: an accountant will help you to maintain your finances.
- Obtain a good standing certificate: This will help you to maintain your status. It will also prove to the clients and investors that you are a reliable party.
Even after starting your business, you have to keep these things in mind for a successful run. In no time, you will achieve your dreams.