How to Start a Business In Tennessee (Updated 2023)

If you're looking to start a business in Tennessee, then you need to be aware of the state and local laws surrounding businesses. You'll need to follow a specific procedure to get your business up and running, including registering your business with the state, applying for licenses and permits, and filing taxes.

Here are the key steps to starting your own business in Tennessee.

1. Choose a Business Idea

Before you start your business, you'll, of course, need an idea. Maybe you already have one or have the start of a great idea. You should research your idea now before you invest serious time and money into it. Think about your own interests and skills, how much time you have to put into the business, and what resources are available to you. Consider also the needs of your community and what kinds of businesses do well in your area. (Read our article for more tips on how to evaluate business ideas.)

When you have your business idea, draft a business plan around it. Your business plan should map out your strategy to make a profit. Taking time to create a business plan can help you plan for your costs at the start and as your business grows. You should also list out what employment positions you should fill, the financing options available to your business, and marketing strategies.

2. Decide on a Business Legal Structure

The next step in starting your business is deciding on a legal entity structure. There are four common types of entity structures that you might already be familiar with:

• sole proprietorships
• partnerships
• limited liability companies (LLCs), and
• corporations.

Besides these four business structures, you can also form a limited partnership or a limited liability partnership (LLP). These partnership types provide limited liability for limited partners. In Tennessee, you can also form a professional LLC if you provide professional services under a license.

Some businesses choose to be recognized as S corporations for tax purposes. Corporations, LLCs, and other qualified entities can become S corporations by electing S corporation tax status with the IRS. An S corporation is a tax entity, not a legal entity. So your legal entity might, for example, be an LLC, but its tax entity could be an S corporation.

Business structures vary in their management, taxation, and liability. For example, if you're a sole proprietor, you and your business would be one and the same. You'd be individually taxed on your business's income and you'd be personally responsible for all of your business's debts and obligations. But if your business is a corporation, then it'd be a separate entity from its owners. You'd be taxed separately from your business and wouldn't be responsible for your company's debts. Make sure you weigh the pros and cons of each business structure.

3. Choose a Name for Your Tennessee Business

The name you choose for your business is critical. The name will appear on your listings, advertisements, merchandise, signs, and letterhead. You should choose a name that's unique, marketable, and appropriate for the products or services you provide.

In Tennessee, like in many other states, your business's name must be distinguishable from any other names that are already on record with the Tennessee Secretary of State (SOS). The SOS has a business name availability search for you to use on its website.

Entity name designators: For most business entities, Tennessee law requires you to include certain words that identify your business's structure (like including a word such as "LLC" for LLCs or "incorporated" for corporations). See our articles on how to form a Tennessee LLC for more information.

Reserving your business name: You can reserve a business name for 120 days by filing an Application for Name Reservation (Form SS-9425) with the SOS. As of 2023, the filing fee is $20. You can either mail or hand deliver your application.

Filing an assumed name certificate: Sometimes a company will do business under a name that's different from its legal name—that is, the name that's included in its formation paperwork. The alias that the company uses is often called an "assumed name," "trade name," or "DBA" (short for "doing business as"). Sole proprietors and general partnerships use an assumed name when their business name doesn't include the owners' personal names. A corporation, LLC, or other incorporated entity using an assumed name must file an Application for Registration of an Assumed Name (Form SS-4402) with the SOS.

If you plan to do business online, you might want to register your business name as a domain name. Moreover, to avoid trademark infringement issues, you should do a federal and state trademark search to make sure the name you want to use isn't the same as or too similar to a name already in use.

4. Register Your Business Entity With Tennessee Secretary of State

You can register your business online on the SOS website. You can also fill out a paper copy and mail or hand deliver it to the SOS. You can find the forms you need in the business forms and fees section of the SOS website.

Here's how to form each type of business in Tennessee:

• Sole proprietorship: You can form a Tennessee sole proprietorship without submitting any organizational documents to the state.
• Partnership: You also don't need to file any paperwork to start a general partnership in Tennessee. Though not legally required, you should draft a partnership agreement to establish the rules for how your partnership will be managed and how the assets and liabilities divided among the partners. An agreement can help settle disputes among partners.
• Limited partnership: You must file a Certificate of Limited Partnership (Form SS-4470) with the SOS.
• LLP: To form an LLP, you must file an Application for Registration of Limited Liability Partnership (Form SS-4482).
• LLC: To create an LLC in Tennessee, you must file Articles of Organization (Form SS-4270) with the SOS. You should also prepare an operating agreement to establish the basic rules about how your LLC will operate.
• Professional LLC: Licensed professionals can form a professional LLC in Tennessee by filing Articles of Organization (Form SS-4270) with the SOS. You must indicate your intention to form a professional LLC in your articles. You'll need to deliver a certified copy of your articles of organization to your licensing authority.
• Corporation: To create a Tennessee corporation, you must file a Charter For-Profit Corporation (Form SS-4417) with the SOS. You should also draft bylaws for your corporation to establish your corporation's internal operating rules.

To form some of these businesses, you need to appoint a registered agent in Tennessee for service of process. A registered agent agrees to accept legal papers on the company's behalf.

After you form your corporation or other applicable business with the SOS, you can file IRS Form 2553, Election by a Small Business Corporation, with the IRS to elect S corporation tax status.

5. Apply for Tennessee Licenses and Permits

Your business will probably need to apply for at least one license, permit, or registration. For more details on these requirements, check out our article on Tennessee business licenses.

Tax registration. If you'll be selling goods in Tennessee, you must register with the Tennessee Department of Revenue (DOR) to collect sales tax. You might also need to register for other business taxes.

Employer identification number (EIN). If your business has employees or is taxed separately from you, you must obtain an EIN from the IRS. Even if you're not required to get an EIN, there are often business reasons for doing so. For instance, banks often require an EIN to open an account in the business's name and other companies you do business with could require an EIN to process payments. You can get an EIN by completing an online application on the IRS website. There's no filing fee.

Regulatory licenses and permits. These licenses cover areas such as health and safety, the environment, building and construction, and specific industries or services. Different licenses and permits are issued by different agencies. Some of the most important issuing agencies are:

• the Alcoholic Beverage Commission
• the Department of Agriculture
• the Department of Environment & Conservation, and
• the Department of Health.

For information about local licenses and permits, check the websites for any cities or counties where you'll do business.

Professional and occupational licenses. The Department of Commerce & Insurance (TDCI) oversees many (but not all) of the regulatory boards and commissions for licensed professions and occupations.

6. Pick a Business Location and Check Zoning Regulations

Before you put up your "open" sign, you need somewhere to hang it. You should select a location that's zoned for your business activities. You can usually find zoning regulations for your town or city by reviewing your local ordinances and contacting your town's zoning or planning department.

Apart from being properly zoned, your location needs to be suited to your business needs. If you'll be storing a lot of inventory, make sure you have the space to house it. If your business depends on foot traffic, choose a spot that's central and walkable. Calculate the costs of running your business out of your desired location, including rent or mortgage and utilities. You can consult your business plan to see how much your company can afford now and in the future. If you lease a commercial space, make sure you negotiate terms that'll work for your business in the long term.

You might not need a separate location for your business. Instead, it could make sense to run your business out of your home. Zoning laws might be stricter in residential areas. You should also review your lease (if you rent your home) and homeowners association rules (if applicable)—either of which might ban some or all home businesses.

7. Register and Report Business Taxes

Because Tennessee doesn't have a personal income tax, owners of some forms of business will not owe state tax on their business income. See our article on Tennessee state business income tax for more details.

Sole proprietorships. Sole proprietors pay federal taxes on business income as part of their personal federal income tax returns.

Partnerships. Partners in general partnerships pay federal taxes on their share of the partnership income. Limited partnerships and LLPs must pay franchise and excise taxes. LLPs also must file an annual report.

LLCs. Members pay federal taxes on their share of LLC income on federal tax returns. The LLC itself must pay excise and franchise taxes and file an annual report with the SOS. See our article on Tennessee LLC annual report and tax requirements for more.

Corporations. A shareholder-employee with a salary must pay federal income tax on their personal federal tax return. The corporation itself is subject to Tennessee franchise and excise taxes. Corporations also must file an annual report with the SOS. Shareholders must also pay federal taxes on the dividends they receive from the corporation.

You should review the DOR's Franchise and Excise Tax Manual when evaluating how to file and pay your business taxes. You can also read IRS Publications 334, Tax Guide for Small Business, and 583, Taxpayers Starting a Business for further guidance.

8. Obtain Insurance for Your Tennessee Business

Regardless of your industry or type of business, you should look into getting insurance coverage for your business. Business insurance can protect your business and your personal assets from unexpected events, such as personal injury lawsuits and natural catastrophes. An insurance agent can help you explore the different coverage options for your business.

For more, see our article on what types of insurance your small business needs.

9. Open a Business Bank Account

No matter the type of business you form, you should consider opening a separate business account to make it easier to track your income and expenses. For some business types, including LLCs and corporations, a separate bank account is necessary to maintain your liability protection.

Additional Help With Starting Your Tennessee Business

The DOR has a six-step guide for new businesses. The guide includes:

• setting up a business
• getting your licenses and permits
• establishing your tax accounts
• exemptions
• registering for your tax accounts, and
• tax filing due dates.

The DOR also provides a checklist for new businesses.

The Tennessee state website has an assortment of resources for small business owners on its new businesses webpage. You can find information and links for online business registration, interactive guides and checklists, and registration and tax requirements, among other resources.