Starting a corporation in Tennessee comes with several advantages. For instance, corporation owners did not pay tax on personal income, raw materials, pollution control equipment as well as manufacturing equipment.
Additionally, corporations that elect the S corporation status will not pay any income tax. The following step-by-step guide will show you how to start a corporation in Tennessee.
1. Select a name for your corporation
Starting a Tennessee corporation all begins with deciding on a business name. The business name must be unique and comply with the state’s naming requirements.
General corporate name guidelines
Keep the following naming requirements in mind when deciding on your Tennessee corporation name:
- Your Tennessee corporation name cannot include words that may mislead the public into believing that your corporation is affiliated with any government agency such as the FBI, State Department, Treasury, etc.
- Your Tennessee corporation name should be different from any other existing businesses in the state. It should also be different from any of the reserved names in Tennessee.
- Your Tennessee corporation name must not mislead the public into believing that your company is organized as, sponsored by, or affiliated with any fraternal, service, religious, veteran’s, charitable, or professional organization.
- The only corporations that may use the word “limited” or an abbreviation of the word “limited” are corporations that were registered before the 29th of May 1989. All corporations that are formed after the 29th of May 1989 may not use the word limited. Additionally, corporations that have amended their name may not use the word limited in their corporation name.
- Your corporation name must include the word corporation, Inc., company, or an abbreviation of these terms
- Your corporation name must not imply that it is formed for any illegal, unlawful purposes, or any purposes other than what is outlined in the Articles of Incorporation.
- For additional guidance on naming a Tennessee corporation, refer to the Tennessee state statute.
Trademarking your Tennessee corporation name will protect your brand in the event that there are any naming or branding disputes.
A trademark is basically a slogan, symbol, or word that identifies the source of the business’s services and goods and separates them from the services or goods of any other party.
However, the primary goal of a trademark is to prevent consumer confusion and ensure that your customers are always aware of who they are doing business with.
Additionally, trademarking a business name will help it stand out from the competition. There are two ways to trademark your Tennessee corporation name.
The first way is to get a federal trademark through the United States Patent and Trademark Office, which will provide your Tennessee corporation name with nationwide protection.
The next method is to trademark your Tennessee corporation name via the Tennessee Secretary of State. However, this will only protect it within the state of Tennessee.
Your Tennessee corporation’s entity name is basically its legal name. This is the name that you register when you form your corporation. Therefore, it is the name by which the state identifies with your business. Thus, the entity name must be stipulated on all formation documents as well as all correspondence with the federal and state government.
DBA (Doing-business-as) name
A DBA or (doing business as) name allows you to conduct business under another name aside from your entity name.
The DBA is also called a fictitious or assumed name. Before filing a DBA in the state of Tennessee, you should start with a Tennessee business entity name search to ensure that another business entity hasn’t already registered the name you’re considering.
Visit the Tennessee Secretary of State’s website and search for the DBA name. Once you’ve determined that the Tennessee DBA name is indeed available, go ahead and file the online application with the Tennessee Secretary of State.
2. Nominate a registered agent
Prior to officially forming your Tennessee corporation, you’ll need to decide who you’re going to designate as your Tennessee corporation’s registered agent. Registered agents often go by names such as statutory or resident agents.
However, they all fulfill the same purpose. The primary role of a resident agent is to accept government correspondence, service of process, and legal compliance from the state on your corporation’s behalf.
Therefore, you may nominate any natural person or individual to fulfill the role of your corporation’s resident agent. However, there are a few requirements that the individual must meet:
- The resident agent must be of the legal age
- The resident agent must maintain availability during normal business hours to ensure that you do not miss out on signing important legal documents
- The resident agent must consent to the appointment
- The resident agent must have a physical street address in Tennessee where business activities are concluded.
3. Appoint initial directors at the organizational meeting
One of the compulsory steps to forming a Tennessee corporation is to hold an organizational meeting.
During this meeting, a few tasks will need to be completed, such as creating and approving bylaws, selecting a Board of Directors or initial directors, executing an incorporator’s statement, and determining your Tennessee corporation’s share structure.
During this meeting, you must appoint initial directors. These directors are not named in your Articles of Incorporation, and the incorporator appoints them. Thereafter, the incorporator documents and signs this decision which is considered a part of the corporate records.
4. File Articles of Incorporation
Your Tennessee corporation is not officially or legally formed until the Articles of Incorporation have been filed with the Secretary of State’s office. In order to file the articles, you’ll need to complete Form SS-4417, also known as the Domestic For-profit Corporation Charter.
This document officially creates your Tennessee corporation. Since this is such an important step in the process, you’ll need to ensure that you cover the information required in your articles, such as:
- The names and addresses of the Tennessee corporation’s incorporators
- The number of authorized shares your Tennessee corporation plans on issuing
- The names and addresses of the Tennessee corporation’s registered agent
- The effective date and corporation duration
- The fiscal year-end month
- The name of the Tennessee corporation, as well as its physical address
The Secretary of State issues the Articles of Incorporation Form. However, this Form is only recommended if you plan on starting a corporation with one share class. Alternatively, if you need a multiple share class structure, it is suggested that you attach an additional provision or create your own articles.
Once you’ve gathered and compiled the relevant information, go ahead and file the articles online with Tennessee Business Services. Alternatively, download the relevant Articles of Incorporation Form and have it mailed to the following address:
Secretary of State Business Services Division
6th FL – Snodgrass Tower
ATTENTION: Corporate Filing
312 Rosa L. Parks Ave.
Nashville, TN 37243
Once you’ve filed the articles, you’ll receive a Certificate of Incorporation.
5. Create and approve bylaws
Your Tennessee corporation is required to keep complete and correct books and records. Essentially, this is referred to as corporate bylaws. The bylaws are essential governing documents for the corporation and clarify the priorities and rules for all corporation members.
Therefore, the corporate bylaws may contain provisions for managing the business as well as regulating the affairs of the corporation; however, these must be consistent with both the law as well as your corporation’s Articles of Incorporation.
The bylaws will be reviewed, approved, and ratified during the first organizational meeting. Some of the information that your corporate bylaws must contain include:
- The process of negotiating company contracts
- What constitutes a quorum for voting purposes
- The process for adding and amending bylaws moving forward
- The process of resolving disputes
- The process of storing and maintaining corporate records
- The process of holding meetings
- The date of the annual shareholder meeting and annual meetings
- How voting procedures will be conducted
- How corporate officers and corporate directors will be elected
- The process of governing the corporation
- The roles and responsibilities of corporate directors and corporate officers
The bylaws should preferably be drafted using the bylaws templates, which may be adjusted to suit the specific requirements of your Tennessee corporation.
6. Select a share structure
This step in the process involves deciding on the share structure for your Tennessee corporation. A share of stock is represented by a portion of possession of the corporation. Therefore, each share of stock indicates the ratio or possession of the ownership of the corporation.
So if your Tennessee corporation plans to issue stock or issue one share of stock to an individual, then that individual is now a shareholder and owns a hundred percent of the company.
Shares may be organized into classes, with each class known as a share class holding a different set of rights and benefits. Multiple classes are allowed. Furthermore, each class may carry any sum of shares.
Additionally, as we mentioned earlier, the Domestic For-profit Corporation Charter Form issued by the Secretary of State is only suitable for starting a Tennessee corporation with one share class.
It is also recommended that you start with a big sum of permitted shares. By doing so, you’ll have the freedom to issue shares when and as needed; however, you’ll avoid forking out legal costs to increase your first permitted shares amount.
7. Obtain an EIN
An EIN or Employer Identification Numbers is required by all Tennessee corporations. This is irrespective of whether you plan on hiring employees are not. The EIN is essentially a unique nine-digit code issued by the federal government or Internal Revenue Service.
The EIN works like a Social Security number for your corporation. The Internal Revenue Service assigns EINs to identify business entities in every state.
Obtaining an EIN comes with several benefits, such as allowing you to open up a business bank account, completing paperwork for tax purposes, and hiring employees.
To apply for and obtain your EIN, complete the EIN online application by using the EIN assistant on the IRS website. Alternatively, you may download the EIN application Form, also known as the IRS Form SS-4, and then have it submitted or mailed to the address below:
Internal Revenue Service
Attention: EIN Operation
Cincinnati, OH 45999
8. File Tennessee state taxes
Depending on your business type, or type of corporation, your Tennessee corporation may be liable for one or more corporate taxes:
- Corporate income tax: The state of Tennessee does have a form of corporate income tax that is worked out on a bracketed system. The tier system ultimately determines the percent of corporate income tax your corporation is liable for.
- Excise tax: Tennessee corporations are liable for excise tax at a rate of 6.5% on the net earnings of the business.
- Franchise tax: All Tennessee corporations are also liable for franchise tax which has a minimum payment of a hundred dollars. The franchise tax is worked out at a rate of 0.25% of the net worth of the corporation.
- Sales and use tax: Your Tennessee corporation may be liable for sales and use tax if you distribute, manufacture, or retails tangible personal property in Tennessee. Additionally, if you’re selling other services and goods, you are also liable for tax.
9. Tennessee business licenses and permits
While the state of Tennessee does not have a general or statewide business license, your Tennessee corporation may require other licenses and permits before legally operating in the state.
- Professional license: If you’re running a professional corporation and offering services such as nursing, teaching, engineering, etc., then you’ll need to obtain a professional license.
- Seller’s permit: The seller’s permit is the main state-level permit required in Tennessee. It’s also known as a sales tax certificate and is required if you’re engaged in business in Tennessee.
10. Annual report requirements in Tennessee
Tennessee corporations are required to file a corporate annual report with the Secretary of State every year by the first day of the month. Annual reports must be filed following the end of the corporation’s fiscal year.
11. Costs of starting a corporation in Tennessee
The filing fees below apply to all Tennessee corporations:
- Name reservation: $20
- DBA name: $20
- Articles of Incorporation: $100
- Annual report: $20
- Tennessee Certificate of Good Standing: $20
Next steps after forming a corporation
Once you’ve filed the necessary paperwork and applied for the relevant licenses and permits, your work is almost done. However, a few additional steps will help maintain your business and keep it running smoothly.
Open a business bank account and business credit card
One of the best ways to protect your personal assets and ensure that you have personal liability protection is to separate your personal and business financing. Additionally, separating your expenses will simplify your business’s tax filing and accounting processes.
Submit your Employer Identification Number along with your formation documents to open up a business bank account.
Thereafter, consider opening a business credit card that will help your corporation separate personal and professional expenses. Additionally, it will allow you to build your business’s credit score, allowing you to obtain capital, business loans, and higher credit limits as and when needed.
With a sole proprietorship, the owner is liable for debts incurred by the business. Owners of limited liability companies are not liable for debts incurred by the business. So they have more personal liability protection.
A nonprofit corporation is a traditional business structure and a very common one at that. Nonprofits have founders, not owners, and they are formed for the greater good of the public and not for profit.
When it comes to tax advantages, S corporations are more advantageous because they don’t pay tax, and company revenue is reported as personal income. A c corporation is taxed twice; once on their income and again on income received as an employee or owner. This is known as double taxation.
Individual state governments collect state taxes to pay certain state bills. The federal government collects federal income taxes to pay their bills.
Personal tax, also known as personal income tax, is levied on an individual’s salary, wages, and other types of income.