Key Takeaways

  • Tennessee requires foreign LLCs (those registered in another state) to obtain a Certificate of Authority before doing business in the state.
  • Failure to register can lead to triple penalties on fees and taxes under Tennessee Code §48-25-102.
  • Tennessee LLCs offer benefits including flexibility in management, simple formation, and strong asset protection.
  • The Tennessee Revised Limited Liability Company Act (RLLCA) governs LLC operations but allows operating agreements to customize management and ownership terms.
  • Courts have ruled that LLC membership disputes in Tennessee are determined by facts and actions, not just written agreements.
  • Out-of-state companies can perform limited activities (like meetings or defending lawsuits) without registering in Tennessee.

Limited Liability Company (LLC)

An LLC Tennessee is a type of business structure that shields the personal assets of its members when the company is sued. In addition to operating a business, an LLC can be used to secure assets such as:

  • Aircraft
  • Boats
  • Real estate
  • Vehicles

Understanding Foreign LLC Registration in Tennessee

If your business was formed in another state but operates within Tennessee, it’s classified as a foreign LLC under Tennessee law. To legally conduct business, you must obtain a Certificate of Authority from the Tennessee Secretary of State. This certificate allows your company to enforce contracts and bring lawsuits in Tennessee courts.

Without registration, a foreign LLC loses its right to sue within the state and risks significant penalties. According to Tennessee Code §48-25-102, businesses that fail to register may face fines equal to three times the amount of all applicable fees, penalties, and taxes, plus interest. As of 2022, the filing fee for a Certificate of Authority is $600, and the total cost could become much higher with penalties.

However, not all activities qualify as “doing business” in Tennessee. The law lists several exemptions, including:

  • Holding or attending board or shareholder meetings.
  • Maintaining or defending legal actions.
  • Having a bank account in the state.
  • Selling through independent contractors.
  • Isolated transactions completed within 30 days.

If your operations fall outside these exemptions, it’s best to secure a Certificate of Authority before doing business to avoid non-compliance fines.

Steps to Start an LLC in Tennessee

The first step to forming your LLC Tennessee is choosing your name. You will need to do some research to make sure the name you've chosen fits the purpose of your business and that your name can be easily found by future customers.

Your LLC will need to follow Tennessee's naming requirements:

  • L.L.C., LLC, or Limited Liability Company must be included in your company name.
  • You will need to file extensive paperwork and may need a licensed individual as an LLC member when using restricted words such as Attorney, Bank, or University.

You cannot use a word that would confuse your LLC with a government entity such as the Secret Service or Treasury.

Check for name availability to make sure that the name you've chosen isn't being used by another business. If the name of your LLC is available, you should also reserve a domain name. Reserving a domain name will protect it from use by another business, even if you never plan to use a website for your LLC.

You should also consider choosing a professional email address. Registering an email address with Google will provide you access to useful business apps and advanced security options.

Appointing a Registered Agent is the second step to forming your LLC. Your Registered Agent is a business or a person that receives papers sent to your LLC, including documents resulting from a lawsuit and legal forms sent by the state. To be eligible, your Registered Agent must either be a resident of Tennessee or a business that is allowed to operate in the state. It is possible to appoint a person within your LLC as your Registered Agent.

Step three of forming your LLC in Tennessee is filing your Articles of Organization which can be done in person, by mail, or online. You will need to decide if your LLC will be member or manager managed when filing your Articles of Organization. 

In a member managed LLC, members are involved in the day-to-day operations of the business, and members can respond to and vote on business issues as soon as they arise. Sometimes called “decentralized management,” this type of LLC places managerial powers in the hands of the LLC's members. 

A manager managed LLC is much more common and is used when members prefer to hire managers to efficiently run the business. This structure is often referred to as "centralized management," and employs the services of one or more managers to run the business without needing to gather the LLC members for a vote.

You can file your Articles Organization online or you can download this form to file by mail or in person. When filing, you will need to pay a $50 fee per member which is non-refundable. There is a $300 minimum and a $3,000 maximum. Money orders and checks can be made out to the Tennessee Secretary of State. It should take between three and five business days for your Articles of Organization to be processed.

Creating an Operating agreement is the fourth step of forming your LLC, although it is not required by the state of Tennessee. Your Operating Agreement outlines how your LLC will be operated and lists the LLC owners.

The fifth and final step of LLC formation in Tennessee is acquiring an Employer Identification Number (EIN), which allows the government to identify your business. You can request an EIN from the IRS by mail or online.

Benefits of Forming a Tennessee LLC

Forming a Tennessee LLC provides entrepreneurs with several advantages under the Tennessee Revised Limited Liability Company Act (RLLCA):

  1. Ease of Formation and Low Cost – The process is straightforward and inexpensive compared to forming corporations. The Secretary of State’s online system simplifies setup and ongoing filings.
  2. Flexible Management Structure – The RLLCA allows owners to choose between member-managed and manager-managed structures. In addition, LLC members may customize their management rules through operating agreements, which override many of the Act’s default provisions.
  3. Asset Protection – Members generally are not personally liable for the company’s debts, offering strong protection for personal assets.
  4. Pass-Through Taxation – Tennessee LLCs typically avoid double taxation, as profits pass directly to members and are reported on individual tax returns.
  5. Business Credibility – Having an LLC designation adds credibility with customers and business partners.

While an LLC structure suits many small to medium-sized businesses, consulting a business attorney can help determine whether it’s the best fit for your specific situation and long-term goals.

Key Steps After Forming a Business

When forming your LLC, you should be sure to completely separate your personal assets from your business. You will need to open a business bank account to simplify your tax filings and accounting and to keep your personal and business assets from mixing.

You should also acquire a business credit card, which will further separate your assets and will help you build a credit history for your LLC.

If your LLC has employees that work in the State of Tennessee, you will need to register your LLC for the Unemployment Insurance Tax. You can register for the Unemployment Insurance Tax with the Department of Labor & Workforce Development.

Determining LLC Membership Under Tennessee Law

Tennessee law requires clarity about who qualifies as a member of an LLC and what their ownership interests are. The Tennessee Revised Limited Liability Company Act (RLLCA) outlines default provisions for member rights, voting power, and profit distribution, but it does not define how to determine membership if not explicitly stated in the operating agreement.

This issue has been addressed through Tennessee case law. In Parigin v. Mills (2017) and Heatherly v. Off the Wagon Tours, LLC, courts ruled that determining membership depends on the facts and conduct of the parties, not merely on formal documentation. This means that even without a written agreement, consistent participation in profits, decision-making, or capital contributions could establish membership rights.

To prevent disputes, it is essential to maintain signed operating agreements that clearly define each member’s role, voting rights, and ownership percentages. This protects all parties and reduces litigation risks regarding ownership or control of the business.

Frequently Asked Questions

  1. Do I need a Tennessee LLC if my company is registered in another state?
    Not necessarily, but you must obtain a Certificate of Authority to legally operate your foreign LLC within Tennessee.
  2. What happens if I do business in Tennessee without registering?
    Your company may face penalties equal to three times the owed fees and taxes, and you will lose the right to file lawsuits in Tennessee courts.
  3. Can one person form a Tennessee LLC?
    Yes. A single-member LLC is permitted in Tennessee and offers the same liability protections as a multi-member LLC.
  4. What is the Tennessee Revised Limited Liability Company Act (RLLCA)?
    It’s the law governing the creation, management, and operation of LLCs in Tennessee, including member rights and obligations.
  5. How can I avoid membership disputes in my LLC?
    Always have a written operating agreement that specifies ownership percentages, capital contributions, and decision-making processes.

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