Limited Liability Companies (LLCs) are the easiest and most inexpensive business structures that provide owners with protections against personal liability. The members of an LLC are not personally liable for the actions of the company and their personal assets are protected from the business’s creditors. They are the also simplest and most inexpensive business structure in the United States. Below are the steps necessary to forming an LLC in Tennessee.
1. Choose and Register a Name
Tennessee law requires that an LLC name must contain the words “Limited Liability Company” or the abbreviations “L.L.C.” or “LLC.” After choosing a name for your LLC, you will need to register is with the Secretary of State in the state where you plan to conduct business. Your name must be unique and distinguishable from the names of other business entities already registered with the Tennessee Secretary of State. To ensure someone else is not already using your name, you can check for availability at the Tennessee Secretary of State business name database.
For a filing fee of $20, you may reserve a name of an LLC for up to four months and prior to filing articles of origination by filing an Application for Reservation of Limited Liability Company Name (Form ss-4228) and paying the required $20 fee.
2. Choose a Registered Agent
Tennessee law requires that every LLC must have an agent for service of process in the state. Your registered agent will be the person you designate to receive all official correspondence and legal papers including a lawsuit against the LLC. The registered agent may be a Tennessee resident or a business entity authorized to do business in Tennessee, and must have a physical street address in Tennessee. The registered agent must be chosen prior to filing articles of organization because most state require the registered agent’s name and address to be listed on the form.
3. File Articles of Organization
In Tennessee, an LLC is created by filing Articles of Organization (Form ss-4270) with the Secretary of State which officially brings your LLC into existence. The articles require basic information about your LLC such as the name, principal place of business, management type, name and address of the registered agent and the duration of the LLC if not perpetual.
The articles may be filed online, with an additional convenience fee, or by postal mail. The filing fee is $50 per LLC member. The minimum fee is $300 and the maximum fee is $3,000.
4. Obtain an Employer Identification Number; Business Licenses and Register with the Dept. Rev.
Any business that has employees or operates as a corporation or partnership is required by the IRS to have an EIN, a nine-digit number assigned to businesses for tax purposes. This rule is applicable because since LLCs are creatures of state law, they are classified for federal tax purposes as either a corporation partnership. An EIN may be obtained by completing an online EIN application on the IRS website. There is no filing fee.
Additionally, depending on its type of business and where it is located, an LLC may need to obtain other local and state business licenses.
Finally, in some instances, for example if the LLC will be selling goods and collecting sales tax, you will need to register with the Tennessee Department of Revenue. This can be done online or by completing a paper form.
5. Draft an Operating Agreement
Tennessee, like many states, does not require an operating agreement. Nevertheless, it is highly advisable and useful document to have. An LLC’s operating agreement should include detailed information about its management structure, including an ownership breakdown, by percentage member voting rights, powers and duties of members and managers, and how profits and losses are to be distributed.
6. Set Up a Business Checking Account
One of the most important things you can do to ensure that limited liability remains in place is to ensure you keep your business and personal finances separate. One of the most critical things you can do is t set up a small business checking account in the name of the LLC. Having a separate checking account for your LLC draws a bright line between business and personal affairs.
7. File Annual Returns and Pay Franchise and Excise Taxes
To administer you LLC each year you must file a annual report. All Tennessee LLCs and foreign LLCs authorized to do business in the state must file an annual report with the Tennessee Secretary of State. There is a $50 filing fee per member (minimum of $300 and maximum of $3,000). Annual reports are due on or before the first day of the fourth month following the LLC’s fiscal year closing. Finally, Tennessee also imposes a franchise tax and an excise tax on most LLCs.
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