You're thinking about starting a Tennessee limited liability company. It sounds official, right? Most people just jump onto the Secretary of State’s website, pay the $300 minimum, and think they’re bulletproof. They aren't.
Nashville is booming. From the Gulch to the outskirts of Memphis, the Volunteer State is basically a magnet for entrepreneurs right now. But there’s a massive gap between "having a piece of paper from the state" and actually running a protected, tax-efficient business. Tennessee has some quirks. Honestly, if you don't navigate the franchise and excise taxes correctly, your "cheap" LLC could end up costing you a fortune in April.
Let's get into the weeds of how this actually works.
The Reality of the Tennessee Limited Liability Company
Most folks realize that an LLC is a "hybrid" entity. It’s got the liability protection of a corporation but the tax flexibility of a partnership. That's the textbook definition. In Tennessee, however, we follow the Tennessee Revised Limited Liability Company Act. It’s a mouthful, but it governs everything from how you dissolve the business to who gets to see the books.
Why Tennessee? No state income tax on wages is a huge draw. But don't let that fool you into thinking the state doesn't want its cut.
The $300 (or more) Entrance Fee
In many states, you pay a flat fee. Not here. Tennessee calculates your initial filing fee based on the number of members. It’s $50 per member, with a minimum of $300 and a maximum of $3,000.
- Single-member LLC? $300.
- Two members? $300.
- Six members? $300.
- Seven members? $350.
It stays at that $50-per-head rate until you hit that $3,000 cap. You’ll pay this when you file your Articles of Organization. This document is your birth certificate. It lists your name, your registered agent, and whether you are "member-managed," "manager-managed," or "director-managed."
Most small shops are member-managed. You own it, you run it. But if you're bringing in outside investors who shouldn't be signing contracts, you probably want a manager-managed setup. Get this wrong at the start, and changing it later involves more paperwork and more fees.
The F&E Tax Trap
This is where Tennessee gets spicy. While there is no personal income tax, Tennessee imposes a Franchise and Excise (F&E) Tax on most LLCs.
The Excise Tax is 6.5% of your Tennessee net income. The Franchise Tax is 0.25% of the greater of your net worth or the book value of real and tangible personal property owned or used in Tennessee. There is a minimum $100 payment.
Wait.
There is a way out for some. It's called the FONCE exemption—Family Owned Non-Corporate Entity. To qualify, 95% of the ownership must be held by family members, and 66.67% of the income must come from passive sources like rents or dividends. If you're a freelancer or a local coffee shop owner, you probably won't qualify for FONCE. You’re going to be paying the F&E.
Budget for it. Seriously. I've seen businesses thrive all year only to get smacked by a tax bill they didn't see coming because they thought "no income tax" meant "no taxes at all."
The Registered Agent: Don't Be Your Own
You need a registered agent. This is the person who receives legal papers if you get sued. You can be your own agent if you have a physical address in Tennessee.
Don't do it.
Imagine you’re at your office, maybe you have clients there, and a process server walks in to hand you a summons in front of everyone. It’s embarrassing. It’s public. Also, if you go on vacation and miss a service of process, you could end up with a default judgment against your Tennessee limited liability company.
Hire a professional service. It’s usually about $100 to $150 a year. It keeps your home address off the public record (mostly) and ensures someone is always there to sign for the scary envelopes.
Operating Agreements: The Document You’re Ignoring
Tennessee law doesn't strictly require an Operating Agreement to be filed with the state. Because of that, a lot of people just... don't make one.
Bad move.
If you have a partner and you don't have an agreement, you are falling back on the state's "default" rules. Do you want the State of Tennessee deciding how your profits are split or how a buyout works? Probably not.
Your Operating Agreement should cover the "Three Ds": Death, Disability, and Divorce. If your partner gets a divorce, does their ex-spouse now own half of your business? Without a solid agreement with a "right of first refusal" clause, that’s a very real possibility. It’s the internal roadmap. Keep it in a drawer, but make sure it exists.
Annual Reports and Staying Legal
Every year, you have to file an Annual Report with the Secretary of State. It’s due by the first day of the fourth month following your fiscal year-end. For most, that’s April 1st.
The fee? It’s the same as the filing fee. $300 minimum.
If you forget, the state will administratively dissolve you. Your "limited liability" evaporates. If you keep doing business while dissolved, you might be personally liable for the company's debts. Tennessee is pretty efficient at dissolving companies that don't pay their dues. They want their $300.
The "Series LLC" Option
Tennessee is one of the states that allows for a Series LLC. Think of it like a hive. You have a "Master" LLC and then individual "cells" or series under it.
This is huge for real estate investors. You can put one rental property in Series A, another in Series B, and a third in Series C. If a tenant in Series A slips and falls, they can theoretically only sue Series A. The assets in the Master LLC and Series B/C are shielded.
💡 You might also like: Brian Kevin Douglas: The CEO Behind the Graham Capital Management Hedge Fund
It saves on filing fees because you only file one annual report for the whole hive. But—and this is a big "but"—the accounting is a nightmare. You have to keep completely separate books for every single series. If you commingle the money, the "corporate veil" is pierced, and the whole structure is useless.
Employment and Workers' Comp
In Tennessee, if you have five or more employees, you must carry Workers' Compensation insurance. If you’re in the construction or coal mining industry, that number drops to one. Even if you are the only "employee" of your LLC, you might need to look into exemptions or coverage depending on your specific trade.
Also, don't forget the Business Tax. This is separate from the F&E tax. It’s a tax on gross receipts and is handled by the Department of Revenue. Most businesses need a city and/or county business license. If you're within city limits, you likely need both.
Common Misconceptions
People think an LLC is a magic shield. It’s not.
If you personally guarantee a loan (which most banks will make you do for a new Tennessee limited liability company), the LLC doesn't protect your personal house if the business fails.
If you commit fraud or act negligently, the "corporate veil" can be pierced. This is a legal term where a judge says, "You treated this business like your personal piggy bank, so I'm going to let the creditors come after your personal car and savings." Keep your bank accounts separate. No, you cannot buy your groceries with the business debit card.
Actionable Steps for the Tennessee Entrepreneur
- Check the Name: Go to the Tennessee Secretary of State website and use the business name availability tool. Don't just check the name—check the URL availability too.
- Appoint a Registered Agent: Find a third-party service to keep your privacy intact.
- Draft the Articles of Organization: Choose your management structure carefully. Most stay with member-managed.
- Get an EIN: Go to the IRS website. It’s free. Don't pay a third-party site $200 to do this for you.
- Write your Operating Agreement: Even if it’s just you. It proves the entity is separate from the individual.
- Apply for Local Licenses: Contact your County Clerk. If you're in a city like Knoxville or Chattanooga, check the city business tax office too.
- Open a Business Bank Account: Take your EIN and Articles of Organization to the bank. Deposit at least $100 to get it started.
- Register for F&E Taxes: Head over to the Tennessee Department of Revenue’s "TNTAP" portal. You’ll become very familiar with this site.
Tennessee is a fantastic place to do business. The regulatory environment is generally "pro-business," but the state expects you to follow the rules and pay the minimums. Take the time to set the foundation right. It's much cheaper than paying a lawyer to fix a mess three years down the road.
✨ Don't miss: To Whom It May Concern: When to Use It and Why It Kinda Sucks
Stay on top of that April 1st deadline. If you lose your "active" status, you lose your protection. In the eyes of the law, you're just a person doing business, and that's a dangerous place to be.
Focus on the paperwork once, do it right, and then get back to actually making money. That's why you're doing this anyway.