Tennessee is a great place to do business. In fact, Forbes ranked the state as the 4th best for ease of doing business, due to Tennessee’s business-friendly regulations and practices. Plus, the state has one of the lowest tax burdens in the nation.
Are you interested in starting your own company? This guide will show you how to start a business in Tennessee. We’ll cover the initial planning stages, all the way through to the day-to-day operations of your dream business!
Decide on a business idea
First and foremost, you’ll need to decide what kind of business you want to start. Chances are you already have something in mind, but if not, here are some things to consider:
- What are you talented or naturally skilled at? Could this talent make you well suited to a certain type of business?
- What business does your community need? Have you talked to people to find out?
- What are you interested in? Can you combine any of your passions with a business idea?
- Is this going to be a full time business, or more of a side hustle?
These are questions to ask yourself when deciding on a business idea. Once you have decided, move on to the next step.
Plan your Tennessee business
Now it’s time to start planning. This means coming up with a business plan, naming your business, researching locations, and more. There’s a lot to cover here, so let’s break it down:
Select a business name
Selecting the name for your new company is an important first step. You may already have some names in mind. If you don’t, start thinking about names that are memorable/catchy, relevant to your business/industry, and appropriate for your target audience.
Important note: You must choose a unique name that is not already in use in Tennessee. You’ll need to search the state database to confirm availability. If a name is already in use in the state, you cannot use it for your business.
The requirement to use a unique name is the main rule to consider, but there are other rules, including:
- Names for LLCs need to contain “limited liability company”, or select approved abbreviations such as “LLC” or “L.L.C.”
- Names for corporations need to contain “corporation”, “incorporated”, or select approved abbreviations such as “corp” or “inc”
- The use of certain words or phrases is restricted, and some financial terms require written permission to use
- Check out the full Tennessee LLC naming rules here and TN Corporation naming rules here.
Once you find the name you want, what’s next? You can move on with the rest of the steps on this list. Or, if you’d like some time to think about it, you can reserve the business name for 4 months. This prevents anyone else from registering the name for a period of 120 days.
Tennessee trade names
Keep in mind that Tennessee businesses are allowed to use trade names, otherwise known as fictitious names/DBAs. A DBA is essentially a secondary name that you register once your business is already formed. Once registered, you can legally use the trade name to do business. This gives you more flexibility, particularly when it comes to branding and marketing your new business.
A Tennessee DBA is registered on the county level for sole proprietorships and partnerships, and with the Secretary of State for corporations and LLCs.
Register a domain name
Once you choose a name, you should immediately register a domain name for your new business. In most cases, getting a .com domain name is ideal, but there are many other extensions (.biz, .net, etc.) that are worth considering.
You can use a tool like Namechk to search for an available domain name and find a great deal on the registration cost. You may find that your desired names are taken, so you may need to get creative.
Complete market research
Once you have an idea, you’ll want to do some market research. You want to gain a better understanding of who your customers – and competitors – are. You can achieve this by conducting online research, running focus groups, sending out surveys, and more. There are also companies that can help you complete market research, for a fee.
Select a business location
Unless you plan to run a remote/virtual business, you will need to find a physical location for your company. Research commercial property in your area, and take note of typical costs. For customer-facing businesses (retail and some services), location is very important, so take your time in selecting the right area for your business.
Create a business plan
You will now need to create a detailed business plan for your new venture. This plan is helpful for your own purposes, and will also be necessary in order to obtain funding from a bank. A good business plan should contain these elements:
- Finances: How much funding does the business need to get started? How many sales does it need each month to break even on expenses?
- Product: What do you plan to sell? Is it a product or a service? What problem does your business solve, and how is it distinct from your competitors?
- Marketing: How will you drive sales? What marketing and sales efforts do you plan to employ? How much money will you set aside to fund marketing efforts?
- Staff & partnerships: How many people will you need to hire, and what skill sets do they need to have? Will you have any partnerships or arrangements with other local businesses?
If you need help, you can find business plan templates online that will help walk you through the steps you need to take to draft a detailed business plan. If you plan to seek funding, you may also wish to call your bank to see what they require in terms of business plans.
Decide on a business structure
Before you form your business as a legal entity, you will need to decide which business structure you will use. There are a few different types of businesses, each with its own pros and cons.
Sole props are single-person operations. Examples include freelancers, gig economy workers, and consultants. A sole proprietorship business is very easy and inexpensive to form, and tax reporting is also fairly simple. As a sole proprietor, your business taxes are reported as part of your personal tax return.
The downsides to a sole prop are that you cannot hire employees, and you don’t have the legal liability shield that something like an LLC or corporation would provide. 100% of the debts and liability of a sole proprietorship go to the sole owner: you.
A general partnership is an unincorporated business structure similar to a sole proprietorship, except with two active owners/participants. Partnerships do not have liability protection.
Limited Liability Company (LLC)
A limited liability company, or LLC, is a popular choice for business owners because it provides liability protection to the owners. It separates the business from the owners, which means the personal assets of owners will not be at risk if the company gets sued or goes into bankruptcy.
LLCs are also a bit easier to form than corporations. Even so, there is definitely more work involved with an LLC than there is with a sole proprietorship.
A corporation is owned by its shareholders and is a separate entity. There are a few different types of corporations (C-corp, S-corp, etc), with the main differences being the way they are treated tax-wise.
Corporations are more regulated than LLCs, which makes them more attractive to outside investors. For this reason, most large companies are corporations. The downside is that it takes more effort, and more paperwork, to form a corporation.
A nonprofit is a legal entity that is set up with charitable status, meaning that its goal is not to make a profit, but rather to address a certain cause. Nonprofits are funded by donations, rather than investors, and are subject to many regulations. They are exempt from most forms of taxation, although tax returns must still be filed.
Register your business in Tennessee
Now is your opportunity to actually register your business as a legal entity. This process is handled by the Tennessee Secretary of State. You will need to file some paperwork with the state, either online or through the mail.
Entrepreneurs have two basic options here: Do the work yourself and file with the Secretary of State or opt to use a paid business formation service.
If you do everything on your own, the basic steps include:
- Naming your company
- Choosing a registered agent (this individual or company is tasked with receiving legal documents on behalf of the business). You can be your own registered agent, appoint an employee, or use a service
- Filing paperwork with the state
- Registering for state franchise and excise taxes
- Obtaining business licenses and permits if necessary
- Applying for an EIN from the IRS
The process can be done on your own, but it will definitely save you time and hassle if you opt to use a service. These companies specialize in forming new businesses, and they can walk you through the process from start to finish.
Keep in mind that the process of forming a new business entity depends on the type of entity you are forming. More on this below.
Form a Tennessee sole proprietorship
Follow these steps:
- Decide if you will operate under your own legal name, or use a trade name
- If you decide to use a trade name, you may need to register an assumed name/DBA
- Apply for a business license and/or other necessary permits from local governments (city/county), as needed
Form a Tennessee LLC
Follow these steps:
- Name your new LLC (see notes above)
- Choose a Tennessee Registered Agent (or use a service such as Northwest Registered Agent). Your Registered Agent will receive legal documents on behalf of the company.
- File the LLC Articles of Organization online or by mail, and pay the filing fee. The filing fee depends on the number of members your LLC has ($50 per member); the minimum is $300 (even for single-member LLCs), and the maximum is $3,000
- Draft an LLC operating agreement
- Apply for an EIN with the IRS
Form a Tennessee corporation
Follow these steps:
- Decide on your desired corporate tax structure (S corp or C corp)
- Name your new corporation
- Choose a Registered Agent for your business (or use a service)
- Hold an organizational meeting and appoint directors
- File the Tennessee Domestic For-Profit Corporation Charter online or by mail, along with the $100 filing fee
- Apply for an EIN from the IRS
Apply for business licenses and permits
Registering your business and forming an LLC or corporation is an important part of starting your business – but in order to operate legally, you will likely also need to obtain certain permits and/or business licenses.
The specifics vary depending on the type of business you are running, as well as your location. For example, restaurants will need health permits, bars will need liquor licenses, and medical service providers will need various professional licenses and federal permits. You will need to research the specifics that relate to your business type.
There are different requirements at each level of government:
- Local: Cities and counties may require certain business licenses or permits. Contact your county clerk for details.
- State: Tennessee may require additional permits and/or licenses in order to operate legally in the state. Check the Tennessee Licenses & Permits page for more information.
- Federal: Federal permits/licenses may be required for certain regulated industries, such as construction, medicine and legal services. Check the Small Business Administration (SBA) guide for more details.
At this time, you should also apply for an Employer Identification Number (EIN). An EIN is a federal tax ID that is required to hire employees. You can apply for an EIN online with the IRS – the application is free and quick.
For most businesses, some startup funding will be necessary in order to get started. In step #2, you should have calculated your funding needs while drafting a business plan. Use this information to determine how much funding you need to raise.
For bootstrapped companies, you may be able to get by with your own personal savings, or some seed investments from friends and family. If your funding needs are small, this is likely your best route.
If your business plan indicates that substantial funding is needed, you will likely need to apply for a loan and/or a grant.
- Small business loans are offered by banks, credit unions and other lenders. They can range from as little as a few thousand to hundreds of thousands. Specifics will depend on your business, as well as your personal creditworthiness. Most small business loans are issued in a lump sum, and paid back on a monthly basis, with interest.
- Small business grants are offered by government agencies and some nonprofits. They are essentially business loans that don’t need to be paid back – but they usually have substantial fine print. It’s worth looking into, however, as there may be grants available, particularly for businesses serving an important social need, or for underprivileged entrepreneurs starting their first business.
Set up your business finances
Beyond securing funding, there are other routine tasks that you need to take care of to get your business’ finances in order. This includes:
- Opening a business checking account. You should have a separate business bank account that you use solely for business purposes. You can open this account at most banks, credit unions and financial institutions. Call ahead to see what documents will be required to open this account.
- Open a business credit card or line of credit. This is not strictly necessary, but most businesses can benefit from having a business credit card, and/or a business line of credit. This can be used for day-to-day expenses and purchases, and may also earn you some rewards.
- Set up your accounting system. As a business owner, you will need to keep very detailed records about all revenue and expenses. To do this, you’ll want to set up the proper foundation from day one. This could be investing in an account software such as QuickBooks or Xero, hiring a bookkeeper, or at the very least establishing a spreadsheet to track everything. If you do not have any accounting experience, it’s wise to hire a professional to help.
- Purchase business insurance. Most businesses should have some form of liability insurance, and potentially other forms of business insurance as well. Insurance policies can help protect your equipment and buildings from costly damage, and help shield your company from liability if a worker or customer is injured or otherwise harmed. Speak with a local business insurance provider to get started.
Create a business website
In this day and age, having a solid web presence for your business is very important. And social media profiles, while important, are no replacement for an actual website. You will want to build a professional business website that you can use to drum up business, inform your customers, and stay connected with your clientele.
The simplest way to build a website is to use a website builder from a web hosting provider. When you register a new domain name, look for a provider that also offers web hosting and a site builder, so that you can purchase everything at once and get your site set up quickly.
Unless you plan to operate a solo business (with you as the only worker), you will likely need to hire employees. To do this, you will need a federal employer identification number (EIN), which is a free tax ID number issued by the Internal Revenue Service (IRS).
Employers also have various state-level requirements when it comes to hiring employees. For instance, employers are required to report new hires to the state within 20 days of the date they are hired. And firms with employees must register for and pay unemployment insurance tax.
Finally, this is the time to set up a payroll system to ensure that federal and state payroll taxes are collected accurately (and your employees are paid on time). You can do this yourself, but it’s much easier to use a payroll service.
Run and grow your business
Now it’s time to get down to business and engage with the day-to-day activities that are sure to bring your business success. This means marketing your products and services, maintaining good relationships with your return customers, and setting yourself apart from the competition.
Tennessee business FAQs
Still have questions about running a business in Tennessee? Here are some answers to frequently asked questions.
What are some business resources in Tennessee?
One of the best resources for Tennessee entrepreneurs is the Tennessee Small Business Development Center (SBDC). The SBDC helps business owners through free business consultation, coaching, and many other useful resources. Tennessee SmartStart is another good option to explore. It’s an interactive portal that helps you evaluate the needs of your business, and connects you with various resources across the state of Tennessee.
What is the minimum wage in Tennessee?
The Tennessee minimum wage is $7.25 per hour, which is the same as the federal minimum wage. Tennessee has no specific state-level minimum wage legislation, so they defer to the federal Fair Labor Standards Act.
There are a few exceptions to this rule. Employees who earn tips may be paid less, as long as their total earnings (wages + tips) exceed the $7.25 minimum wage. And youths can be paid a reduced minimum wage for the first 90 days of employment.
What business taxes does Tennessee have?
Any business selling taxable goods or services will need to collect and pay Tennessee sales tax. Employers will need to pay unemployment insurance tax. Most firms will be subject to Franchise & Excise tax. And there are several other tax types, depending on your business activities and industry. Check with the Tennessee Department of Revenue for details.
How do I dissolve an LLC or Corporation in Tennessee?
To close a Tennessee business, you need to “dissolve” it. This process will involve filing dissolution paperwork with the state, shutting down tax accounts, filing any outstanding tax returns, and more. See this guide for details.
This can be a complex process, and it’s important to do everything correctly. For this reason, it’s beneficial to work with a CPA or tax attorney.
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