How to start a business in Tennessee [Updated 2024]
The Volunteer State is a great place for entrepreneurs to do business. Tennessee ranks 3rd in the nation for lowest business costs, mainly due to a strong local economy, good education, and easy access to capital.
Starting a business in Tennessee requires careful consideration of several vital aspects. You'll need to hatch a comprehensive business plan, come up with a unique name, obtain funding, and establish a legal business entity. Depending on your business, you may need to register it and, if needed, acquire specific licenses. To ensure your business' success, you’ll also want to look into tax credits and find a reliable payroll solution.
Follow our step-by-step guide to learn what you need to start a successful business in Tennessee.
1. Name your business
Every great business idea deserves a great business name. Even more important, however, is to make sure the name you choose for your new business complies with Tennessee’s legal requirements. Here’s what you need to do:
- Search the Tennessee Secretary of State website for name availability.
- Check Tennessee's business name availability guidelines to ensure your chosen name meets all the criteria.
- Reserve your business name with the Secretary of State by submitting an application form and a $20 filing fee. This can be processed either in person or by mail.
- Search the US Patent and Trademark Office to confirm no one has trademarked your chosen business name.
This is an excellent opportunity to secure a domain name and social media profiles that match your business name, ensuring a consistent online presence.
In some circumstances, you may also need to file a certificate of assumed name (also known as a DBA or “doing business as”). This is only required if you conduct business under a name other than your registered business name. You can obtain and renew assumed names online.
2. Explore your funding options
If you're an entrepreneur, you have different ways to secure funding. You can start with your own money or look for investors or loans. Tennessee offers help to new businesses with grants and loans to encourage them to come to the state. Here are some places to start if you’re looking for funding:
- Tennessee Department of Economic and Community Development (ECD). The ECD has programs that provide grants, loan guarantees, equity investments, economic development initiatives, mentoring, business planning, and more.
- Small Business Administration (SBA). The SBA's Tennessee District office offers state-specific resources for Tennessee businesses, such as funding programs, lender referrals, counseling, and connections to partner organizations and community groups.
- LaunchTN. LaunchTN is a group of public and private organizations that aims to help Tennessee become the top state for startups. They aim to boost the state's economy by helping with funding, startup costs, building markets, and supporting entrepreneurs.
- Federal grants and loans. The federal government also offers grant and loan programs targeted toward small businesses.
3. Decide on your business structure
When forming a business in Tennessee, choosing the business structure that suits your needs is crucial, whether it's for a tech startup or a family-owned shop. This decision will affect tax payments, separating personal assets from business resources, and other legal aspects. Tennessee has several business entity types:
Business type
What is it?
Pros and cons
Sole Proprietorship
Unincorporated business that only has one owner
✔ This allows for more control in ownership, and you can hire employees.
✔ All income earned by the small business owner is considered personal income.
✘ The responsibility for taxes, liabilities, lawsuits, and debts rests with the owner.
Limited Liability Company (LLC)
This legal entity can be owned by a single individual or jointly by multiple people who agree to share the ownership equally
✔ Setting up is easy and helps legitimize the business for loans and investments.
✔ You can elect how to be taxed, and you can be taxed as a pass-through entity.
✔ This structure protects personal assets from liability.
✘ You’ll be subject to self-employment taxes.
✘ A judge can still link your personal assets to your business, but keeping your finances separate can help prevent this.
Limited Liability Partnership (LLP)
This entity requires a managing partner. Specific to services in the accounting, law, architecture, engineering, and land surveying industries
✔ Each partner is responsible only for their own mistakes; you’re not liable for your partner's negligence.
✘ In Tennessee, this structure is limited to certain professions.
Corporation
A legal entity separate from the business owners that’s managed by shareholders who vote for a board of directors to oversee operations
✔ Investors find it appealing as it is subject to stricter regulations compared to LLCs.
✔ Corporations own tax and legal responsibilities.
✔ Can be structured as an S-Corp or C-Corp (more common).
✘ C-Corps face double taxation, where the corporation and shareholders pay taxes on income and dividends respectively.
Limited Partnership
A legal entity managed by at least one general partner and one limited partner
✔ Liability is determined based on each partner's level of control over the business.
✔ You’re only taxed once.
✘ There are more compliance and paperwork requirements compared to General Partnerships.
✘ You have unlimited liability for any incidents if you're the general partner.
General Partnership
An entity where two or more people are jointly liable, and profits are taxed as their personal income
✔ All partners are eligible for pass-through tax treatment, which allows them to deduct business losses on their individual tax returns.
✔ It’s less costly and difficult to set up than corporations.
✘ Partners share liability for mistakes and debts, affecting investor interest.
4. Register your business in Tennessee
It's time to register your business! There's no need to register if you’re setting up a sole proprietorship or general partnership. Otherwise, you’ll need to register your legal entity with the Tennessee Secretary of State, submit formation documents, and pay a filing fee before you can start operating. Here’s what you need to know.
Business type
How to register
Costs
LLC
File your Articles of Organization (Form SS-4270) with the SOS either online or by mail
$50 per member
Minimum fee $300
Maximum fee $3,000
5. Decide on a registered agent
Every business in Tennessee must have a registered agent, an individual named on the business's statement of information authorized to receive tax and other legal documents on its behalf at a physical address.
Small business owners can serve as their own registered agents as long as they reside in the State of Tennessee. If you don't want to handle it yourself, you can use a registered agent service. The cost will depend on how long you need the service and what specific services you require. In Tennessee, several providers offer registered agent services for an annual fee between $100 to $300.
6. Apply for an Employer Identification Number
Obtaining a federal Employer Identification Number (EIN) is necessary to hire your first employee. You’ll also need an EIN when opening a business bank account, paying taxes, or applying for a business loan. Essentially, it acts like a Social Security number for your company.
Getting your EIN is a free, straightforward process. All you have to do is fill out Form SS-4 and submit it to the Internal Revenue Service (IRS). Within a few weeks, they’ll assign your EIN.
7. Get up to speed with Business Tax Credits
The State of Tennessee Department of Economic and Community Development does a lot of work to help match small businesses with tax credits. Tennessee is known for having a low corporate tax rate—one of the lowest in the country—but it's still worth exploring other incentives and tax credits to lower your tax burden. Some options include:
- Standard Job Tax Credit. This credit offers $4,500 per job created to offset franchise and excise taxes for businesses that develop new jobs in Tennessee.
- Enhanced Job Tax Credit. This credit is available to businesses that create new jobs in economically distressed counties in Tennessee. The credit equals $4,500 per job created, in addition to the Standard Job Tax Credit.
- Industrial Machinery Tax Credit. Businesses that buy new industrial machinery can receive a credit ranging from 1% to 10% of the purchase price.
8. Stay on top of filing requirements and taxes
The state government requires all businesses to file their business tax returns by the 15th day of the fourth month following the end of their fiscal year. For instance, if your fiscal year coincides with the calendar year, you must submit your return by April 15.
The Secretary of State also requires all registered businesses to file an annual report. Companies with fiscal calendars ending December 31 must file annual reports by April 1.
A corporation's annual report filing fee is $20. If there are any changes to the registered agent or office, an extra $20 fee is required. The minimum annual report fee for a limited liability company (LLC) is $300, with a maximum of $3,000. If it has more than six members, an additional fee of $50 per member will be charged, up to a maximum of $3,000.
Businesses must stay up-to-date with state and federal tax returns, which vary depending on the chosen legal structure. The taxes may include income tax, sales tax, payroll tax, and other taxes. For more information, go to the Tennessee Department of Revenue website.
9. Find a payroll solution
There’s a lot to keep track of when hiring workers in Tennessee. First, you need to ensure you're classifying workers correctly so you don't face fines. Plus, if your Tennessee employees work over 40 hours a week, you have to pay them 1.5 times their regular hourly wage per Tennessee overtime laws.
You'll want to implement payroll software to make sure your employees and contractors are paid on time and accurately. Rippling can save you the trouble of manually entering payroll data and ensuring you comply with federal and state regulations. By using Rippling Time & Attendance, you can keep track of your employees' work hours, approve them, and pay them automatically. You'll also get alerts if someone is approaching overtime. After you're done, click "Submit." Rippling will handle the rest in seconds, including calculating net pay and taxes.
And if you’re hiring globally, Rippling has you covered, too. You can pay all your workers, even in different tax jurisdictions and currencies, in one pay run—whether they’re hourly workers, salaried employees, or contractors. Rippling enables you to manage all the tools your payroll requires within a single, integrated system.
10. Support and scale your growing business with Rippling
As your company expands nationwide, it's crucial to have a reliable Human Resource Information System (HRIS) in place. This software streamlines recruitment and welcoming new hires, payroll and benefits management, offboarding, and other business needs.
Implementing an HRIS early in your business timeline can simplify your life, especially if you're thinking of expanding beyond the Volunteer State and going global. Once you reach that stage, Rippling will help you hit the ground running.
- Hiring and payroll: Whether your employees are in Nashville, Memphis, or Europe, Rippling lets you run payroll in 90 seconds.
- Compliance: Stay ahead of local, state, and federal regulations.
- Benefits management: Consolidate your benefits and automate manual tasks, such as enrolling new hires and updating deductions.
- Recruiting: Rippling automates every step of the hiring lifecycle and keeps recruiting data updated.
- HR analytics: Have a single source of truth for all your HR data, leave policies, employment contracts, and more.
FAQs about setting up a business in Tennessee
Do I need a business license in Tennessee?
Most small businesses selling goods or services need to register with the Tennessee Department of Revenue to pay their business taxes. Your gross receipts will determine if you need a business license for your in-state location.
If your gross receipts are between $3,000 and $100,000, you need a minimal activity license from your municipal and county clerk. If your gross receipts are $100,000 or more, you need a standard business license from the same authorities.
Certain businesses, such as those selling alcohol, insurance, food, and medical services, may require specific licenses, zoning, and permits.
Do I need a business bank account when launching a business in Tennessee?
As a sole proprietor, having a separate business bank account isn’t mandatory. However, having distinct business credit cards and bank accounts is advisable to prevent mixing personal and business finances. Additionally, specific business structures require separating business and personal assets to preserve liability protection. For example, you don’t want your personal finances tangled with your LLC.
Do I need to get business insurance?
Although not mandatory, it is recommended for businesses to have professional and general liability insurance to safeguard against property damage, professional liability, personal liability, and other incidents. The type of business insurance you acquire will depend on your business structure. The cost of business insurance in Tennessee depends on different factors, such as your business location, size, and coverage needs.
What are Tennessee’s state payroll taxes?
If you have an employee in Tennessee, you'll need to pay state unemployment insurance tax—even if they only work for a short time or earn a small amount—plus federal taxes. However, Tennessee has no local payroll taxes and no state income tax.
Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.
