Key Takeaways

  • Forming an LLC in Tennessee provides personal liability protection, flexible management, and favorable tax treatment.
  • Tennessee offers unique advantages such as no personal income tax, affordable filing fees, and strong asset protection laws.
  • LLCs must file Articles of Organization, appoint a registered agent, and pay franchise and excise taxes annually.
  • Membership disputes in Tennessee LLCs are determined by facts and conduct, not just documents, under court precedent.
  • A well-drafted operating agreement is critical to define ownership rights and prevent litigation.

LLC in Tennessee

An LLC in Tennessee, or a limited liability company in Tennessee, is an efficient, flexible business structure that limits your liability to business-related lawsuits or losses.

LLCs also make filing business taxes easier and enhance your operation flexibility in a partnership. If you live or want to do business in Tennessee, you must submit your LLC information to the state and submit your tax paperwork to both the Tennessee Department of Revenue and the IRS.

To form a Tennessee LLC, you must:

  • Choose a name.
    • The name must be unique and should not be easy to confuse with that of an existing company.
    • LLCs must have “Limited Liability Company” or some variation thereof in their name. Some words are restricted (like “Bank” or “Attorney”) while others are forbidden (like “FBI” or “Treasury”).
    • The Tennessee Secretary of State Business Name Database will show you if your desired name is open.
    • You should also see if your desired name has an email and web address (URL) that can be used. You may not want them now, but you may in the future.
  • Select a registered agent.
    • This is a person or a business that acts as legal representation to your LLC.
    • If you are not a Tennessee resident or wish the operations of your business to remain anonymous, a registered agent is required.
    • Registered agents must be Tennessee residents or a business authorized to conduct business in Tennessee with a physical street address in Tennessee.
    • You may be your registered agent to your LLC.
  • Decide if you should get an attorney.
    • Forming an LLC on your own is cheaper, but if done incorrectly, you could pay more in the long run.
    • An attorney will ensure correct LLC formation, but they may use standardized documents that may not be ideal for your business.
    • Attorney fees can cost between $500 and $2,000.
  • Choose your management structure.
    • You will have to choose between a member-managed or manager-managed LLC, although you can change it at any time.
    • Single-owner LLCs and small businesses are usually member managed. Larger LLCs often are manager managed.
    • If you choose member management, you must choose the number of managers. The larger the LLC, the more managers will be needed. Maintaining an odd number avoids voting ties.
  • File articles of organization.
    • These must include LLC name, LLC address, your registered agent’s address and name, type of management, and the number of members, amongst other information.
    • The filing fee ranges from $300 to $3,000, and a $50 fee applies for each LLC member.
  • Set up your operating agreement.
    • This isn’t required in Tennessee, but is recommended for multi-member LLCs.
    • This agreement sets out the responsibilities and obligations of every LLC member. It also structures the LLC’s functional and financial decisions.
    • Due to the complexity of some agreements, hiring a lawyer is recommended.
  • Get an employment identification number (EIN).
    • Multi-member LLCs need this, even if they have no employees.
    • Single-member LLCs need this if they have employees or you wish to file taxes as a corporation. 
  • Register for all state taxes.
    • Tennessee LLCs must file for taxes with the Tennessee Department of Revenue, and most must pay sales and business tax.
    • If you sell a product or have employees, you must register for your state taxes.
    • If your LLC has employees, you must register for the unemployment insurance tax.
    • You may have additional taxes in certain cities or counties.
  • File an annual report.
    • This keeps the state updated on business information, such as LLC name, address, and services provided.
    • This may be filed by an authorized officer, member, or partner. Original signatures are not necessary.
    • If this is not filed before 60 days after the deadline, the state may dissolve your LLC. 
  • File for franchise and excise taxes.
    • All Tennessee LLCs must pay taxes annually on the value of the LLC.
    • The lowest possible franchise tax payment is $100. This is calculated at a rate of .25% of the tangible property’s or corporation’s net worth.
    • Excise tax is essentially an income tax at a rate of 6.5% of the federal tax earnings of the LLC.
  • File for business permits and licenses.
    • Tennessee LLCs must abide by all local, state, and federal regulations.
    • The U.S. Small Business Administration (SBA) guide for federal business permits and licenses can help with this. 
    • Depending on the location and nature of your LLC, additional permits and licenses may apply. The local Chamber of Commerce can advise you about this.
  • Obtain employee insurance coverage.
    • Workers’ compensation insurance must be offered from LLCs with five or more employees.
    • LLCs that operate in the trade or construction business must offer this insurance regardless of employee number.
    • If you have difficulty obtaining the necessary insurance, the National Council on Compensation Insurance (NCCI) can help.

Advantages of Forming an LLC in Tennessee

Establishing an LLC in Tennessee offers numerous benefits for entrepreneurs and business owners. One of the most significant advantages is the protection of personal assets. If someone sues your company, only the assets held by the LLC are at risk — not your home, car, or savings.

Tennessee’s tax environment is also a major draw. The state does not impose a personal income tax on wages, allowing LLC members to retain more of their earnings. While LLCs must pay franchise and excise taxes, these rates remain competitive compared to other states.

Other benefits include:

  • Low startup and maintenance costs, with formation fees starting at $300.
  • Flexible management structure, allowing members or managers to oversee operations.
  • Privacy options for business owners, since registered agents can receive official correspondence.
  • Favorable business climate, with Tennessee ranking highly for economic growth and low regulatory burden.

These features make an LLC in Tennessee especially appealing for real estate investors, freelancers, and small businesses looking to protect their assets while minimizing tax exposure.

Legal Considerations and Membership Rules

Under Tennessee LLC law, determining whether an individual is a member of an LLC depends on both the operating agreement and the person’s actual involvement and conduct within the company. Courts evaluate the facts, not just signed documents, when disputes arise.

For instance, in Parigin v. Mills and Heatherly v. Off the Wagon Tours, Tennessee courts ruled that membership cannot be proven by paperwork alone — consistent participation in business operations, financial contributions, and profit sharing can indicate membership even if formal documents are lacking.

Key legal principles include:

  • Operating Agreements Control: Courts rely heavily on the company’s operating agreement to define membership rights, profit distribution, and management duties.
  • Document vs. Conduct: Both written and behavioral evidence determine whether someone is a legitimate member.
  • Dispute Resolution: Clear documentation of ownership and contributions helps prevent costly litigation.

To avoid internal disputes, every LLC in Tennessee should adopt a detailed operating agreement outlining how members are added or removed, how profits are shared, and how decisions are made.

Tax Responsibilities for Tennessee LLCs

While Tennessee offers tax-friendly conditions, LLCs must still comply with state-level taxation rules. Every Tennessee LLC must pay franchise and excise taxes annually, even if it does not earn income during the year.

  • Franchise Tax: Calculated at 0.25% of either the LLC’s net worth or real and tangible property, whichever is greater (minimum $100).
  • Excise Tax: Applied at 6.5% of net earnings from business conducted in Tennessee.

Additionally, LLCs may be responsible for sales and use tax, employment tax, and local business taxes depending on their industry and location.LLCs engaged in retail, hospitality, or manufacturing should register with the Tennessee Department of Revenue to ensure compliance with all applicable tax rules.

Why Tennessee Is a Business-Friendly State

Tennessee consistently ranks among the best states for business due to its low cost of living, strong transportation infrastructure, and pro-business regulatory environment. The state’s central location provides logistical advantages for companies shipping products nationwide, while its moderate cost of doing business allows startups to grow efficiently.

Moreover, Tennessee’s no personal income tax policy attracts entrepreneurs seeking to minimize their tax burden while benefiting from modern amenities in metropolitan areas such as Nashville, Memphis, and Knoxville.

The combination of asset protection, tax benefits, and economic opportunity makes forming an LLC in Tennessee a strategic choice for many small business owners.

Frequently Asked Questions

  1. How much does it cost to start an LLC in Tennessee?
    The filing fee is $300, plus $50 for each additional member, capped at $3,000. Additional fees apply for annual reports and business licenses.
  2. Does Tennessee tax LLC income?
    Yes, Tennessee LLCs pay franchise and excise taxes, but members do not pay personal income tax on their earnings.
  3. Is an operating agreement required for an LLC in Tennessee?
    It’s not legally required but strongly recommended to prevent disputes over ownership, profit distribution, or management rights.
  4. Can I form an LLC in Tennessee if I live in another state?
    Yes. Out-of-state individuals can register a Tennessee LLC by appointing a Tennessee registered agent with a physical in-state address.
  5. How are membership disputes resolved under Tennessee law?
    Courts consider both written agreements and member behavior when determining ownership. Detailed records and a signed operating agreement are the best protection against conflict.

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