How to Start a Business in Tennessee

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Taking into consideration the Volunteer State’s top ten cost of living, business-friendly tax climate, and high startup early survival rate, Tennessee is a great spot for entrepreneurs to launch a business venture.

In order to help Tennessee-based entrepreneurs find their footing, we’ve put together this comprehensive guide to starting a business in the state. We’ll walk you through each step of the process of turning a great idea into a full-fledged business, from drafting a business plan, to courting investors. Along the way, we’ll also point you in the direction of helpful organizations and web resources to boost your business’s growth potential.

Tennessee small business statistics at-a-glance

  • 603,310 small businesses operate in Tennessee, which is 99.4% of the state’s total businesses.
  • 1.1 Tennessee residents are employed by small businesses, which is 42.3% of the state’s total private workforce.
  • 114,441 Tennesseans are employed by minority-owned businesses in the state.
  • In 2017, the median income for a Tennessee entrepreneur self-employed at their own incorporated business was $50,611
  • Tax Foundation ranked Tennessee 18th in its 2020 Business Tax Climate Index, and its individual income tax rate was ranked 8th
  • 80.32% of Tennessee startups survive their first year, which is a rate higher than the national average.
  • 4.87 jobs are created by Tennessee startups in their first year, on average.
  • CNBC ranked Tennessee 6th in the nation in terms of the cost of living.

Sources: Tax Foundation, Kauffman, U.S. Census Bureau: Statistics of U.S. Businesses, CNBC

Starting a business in Tennessee in 12 steps

1. Develop an idea

Every successful business starts with a good idea. Ask yourself these questions:

  • Which product or service can your business provide that doesn’t already exist on the market? 
  • How does your business idea refine an existing product or service?

Determine your personal strengths and interests: developing an idea that suits your personality and positive traits will provide motivation to put in the long hours necessary in addressing the myriad challenges you’ll face in getting your business off the ground.

Figure out how to market your expertise: if your business idea is not something you totally believe in and can sell effectively, it will be much harder to succeed.

2. Do the research

Once you have an idea, it’s time to put it through the wringer and decide if it’s viable in the market. Conduct market research to arrive at answers to these key questions:

  • Is there a demand for your product/service in Tennessee? 
  • Who is your target market?
  • Do existing businesses in Tennessee offer a similar product/service?
  • What makes your business unique compared to the competition?

Coming up with satisfactory answers may require refinement, or even a total overhaul, of your original idea. Be patient: you’ll only want to proceed with the next steps after determining that a niche exists in the Tennessee market for your business idea.

3. Draft a business plan

Now it’s time to write the blueprint of your business. A great business plan should chart the path of your company from infancy to success while being able to attract investors to provide financing.

Your business plan ought to include the following sections:

  • Executive summary – An overview of your business and why it will be successful
  • Description of business – Explain the advantages of your business and the problems it solves
  • Market research – Provide research on your industry, target market, and potential competitors 
  • Organization and staff – Detail the nuts and bolts of your business; how it’s structured and who will run it
  • Product or service description – State what you are selling or offering
  • Marketing plan – Explain your strategy for attracting customers
  • Fundraising – The money you’ll need in the next five years to grow your business and how you’ll spend it
  • Financial forecast – Data and balance sheets providing a financial forecast for your business
  • Appendix – An optional section with supporting and/or requested documents like resumes, letters of reference, permits, etc.

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4. Secure funding

Every business needs money to get off the ground. In fact 82% of businesses that fail do so because of a lack of cash flow, U.S. Bank found in a recent study. Your business plan should include a detailed estimate of the funds you’ll need to cover expenses for at least a year, so now it’s time to acquire the money.

If you aren’t wealthy enough to self-fund your business, you can choose from a number of other funding options. These include a loan from the U.S. Small Business Administration, taking out a loan from a commercial bank, launching an equity crowdfunding campaign, or securing funding from an angel investor or venture capitalist group active in Tennessee.

An angel investor is a wealthy individual who invests their personal finances in a startup, typically in the beginning stages, whereas a VC is a group of investors that will fund a business throughout its existence.

Which route you choose depends on the specifics of your business: angel investors typically invest smaller sums to help get a startup off the ground, while VCs invest larger sums of money in exchange for a greater say in the operations of a business. Smaller startups usually opt to pursue funding from angel investors. Plenty of both types of investors are operating in Tennessee.

Tennessee Angel Investors and VCs

  • Nashville Capital Network – A large network of over 100 investors that manages several investment funds and includes over 45 companies in its portfolio.
  • The TennesSeed Fund – A recently-launched seed-stage venture capital fund with no specific industry focus that is currently seeking startups to invest in.
  • The AIM Group –  An Alabama-based investment group that counts many Tennessee companies among its investment portfolio.
  • MB Venture Partners – A Memphis-based venture capital firm with a focus on life sciences companies in all stages of development. The firm provides capital, in addition to strategic direction, to its portfolio companies.

Additional Investor Resources

5. Decide on a legal business entity

The form of business entity you choose will affect many factors going forward. There are 3 main options to decide from:

  • Sole proprietorship – The name for running a business by yourself. Legally, you and your business are one and the same, with no separate legal entity for your business.
  • Partnership – It is legally identical to a sole proprietorship, except that it comprises two or more people.
  • Corporation – A complex legal structure that is a separate entity (providing legal protection to owners) from the owner and comprises directors, officers, and shareholders.
  • LLC – AKA “Limited Liability Company”, this is a hybrid entity between a sole proprietorship and a corporation that possesses advantages of both. An LLCs provides the liability protection of a corporation, yet isn’t subject to double taxation as the profits go through your personal tax return.

Nowadays, LLCs are the option of choice for small business owners as they are easy to manage and provide the benefits of a corporation while lacking their complex structure. Taxwise, they operate more like a sole proprietorship.

You may want to consult with an attorney to help decide which entity works best for your business.

6. Register your business

After settling on the entity that’s right for your business, you can register it with the state of Tennessee. This process isn’t very complicated, but the steps vary depending on whether you establish a sole proprietorship, an LLC, or a corporation.

For sole proprietorships

Sole proprietors in Tennessee are not required to register with the state government, no matter if you are using your own name, or a business name separate from your legal name.

However, it’s a wise idea to use the Business Name Availability Search hosted by the Tennessee Secretary of State to make sure that your chosen business name is distinguishable from others in the state.

While not required, registering your fictitious name with the SoS is recommended, and can be done through the Tennessee Secretary of State Website.

For LLCs and corporations

The steps in forming either of these two entities in Tennessee are quite similar.

First, you must appoint a registered agent to handle legal papers and government correspondence on your business’s behalf. The registered agent must have a physical address in the state.

Next, run a search to verify your business name is available for use in the state. If the name is free, you can file the documents to form your LLC or corporation in Tennessee.

An LLC is formed in Tennessee through filing the Articles of Organization with the Secretary of State. The articles can be filed online, or through the mail (The form is available here). The minimum fee is $300, or $50 for each member of the LLC. So, if there are 7 members of your LLC, you must pay $350. $3000 is the maximum fee that must be paid. 

A corporation is formed in Tennessee through the filing of a corporate charter with the Tennessee Department of State. This can be done online, or through the mail. The filing fee is $100.

Starting a business? Our number one pick is ZenBusiness

  • Low cost
  • Quick turnaround
  • Expert service and support
Visit ZenBusiness
northwest logo Northwest Registered Agent
  • Same day filing service
  • Affordable pricing
  • Strict ethical code
Visit Northwest
incfile logo
  • Your first year is free
  • Wide range of services
  • Technical support
Visit Incfile

Our picks for registered agent services

ZenBusiness aims to help business owners start, run, and grow their businesses. When you’re getting started, take advantage of the filing options, like setting up an LLC and business formation plans. Later on, you might want to take advantage of their registered agent services, domain name registration, or annual report filing. Start for $0 + state fees.

Northwest can help. You’ll need to file official documents to establish your business. The process is a little different in each state, but Northwest has offices all over the U.S. and helps business owners with this very thing every day. Northwest also offers registered agent services, annual report filings, and some free legal documents that pertain to starting a business.

Incfile offers a great library of material to help first-time business owners figure out what kind of business they should set up. From there, Incfile will aid with documentation and filing procedures and demystify terms like registered agent, articles of organization, and EIN. The company has a strong reputation and great reviews online too.

7. Acquire federal and state tax IDs

Now you should obtain a Federal Employer Identification Number (EIN), which is like a social security number for a business and allows you to open bank accounts, handle payroll, and file taxes.

For sole proprietorships, an EIN is optional, although it is required for corporations and LLC’s. You can apply online for your EIN through the IRS website, or fill out and mail this form

Each state has its own laws and taxes regarding businesses. With few exceptions, Tennessee businesses that sell a product or service are required to pay the state business tax. Visit the Tennessee Department of Revenue page on Business Tax for more information. Business owners can register to pay the tax with the Tennessee Taxpayer Access Point (TNTAP) online application.

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8. Open business banking and credit accounts

Opening a bank account for your business is crucial because it allows you to separate company assets from your personal assets, and makes filing taxes a lot easier. This is a recommended step, even if you are operating a sole proprietorship.

It’s also a wise idea to obtain a credit card for your business because it will help you isolate business expenses and build up credit for your company, which may help in securing investment in later stages.

Banks operating in Tennessee good for small businesses

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9. Get the necessary licenses and permits

Depending on the type of business you are opening, you may need to apply for a number of permits and licenses to operate legally. For example, a restaurant will need a liquor license, and a pawn shop will need a reseller’s license. The paperwork may prove a hassle, but it’s a necessary ordeal that will protect you from fines, lawsuits, and other legal hazards.

Businesses in Tennessee with taxable receipts over $3,000 are required by law to get a business license. If your business has taxable receipts between $3,000 and $9,999 you need a minimal activity license, and those whose taxable receipts are $10K or above must get a standard business license.

Both licenses cost $15 a year and must be renewed annually. Licenses can be acquired through the county clerk or city official of the county or city where the business is located.

Certain businesses may need additional licenses and/or permits to operate legally in the state. The following are some of the most commonly used license issuing agencies:

10. Choose a location

Whether you are running an online business or opening a restaurant, location is everything. Be aware of the demographics of the neighborhood or town that you are considering: Are the local residents likely to visit your business? Will nearby competitors take a share of your potential profits?

Many Tennessee cities have experienced significant growth in recent decades that make them great places to start a business, but Nashville, the state’s largest city, offers the best overall conditions for aspiring entrepreneurs.

The city has been recognized by several publications in recent years as one of the best in the nation to start a business due to its high wage and population growth, relatively low cost of living, and excellent job creation numbers.

11. Get insured

No matter what type of business you form, buying insurance coverage to protect yourself in the case of property damage or legal action is a good idea. In fact, businesses with employees are required by the federal government to have two types of insurance, while others are strongly encouraged, or required at the state level, depending on your business type. Consult with a licensed insurance agent to find out which types of insurance you should get.

Required forms of insurance:

  • Workers’ compensation: Covers medical costs and disability benefits if an employee is injured or becomes ill on the job.
  • Unemployment insurance: Provides benefits to workers after a loss of job through no personal fault.

Recommended forms of insurance:

  • Professional liability insurance: Covers losses as a result of property damage, medical expenses, libel, slander, and negligence claims.
  • Commercial property insurance: Covers property damage to business owned properties and possessions as a result of fire, theft, or storm.
  • Disability insurance: Provides short-term benefits for employees suffering an illness or injury. Required in certain states such as California, New York, and Hawaii.

12. Develop an internet presence

Establishing an identity on the web is an important investment in a business’s future development. Here are some key steps in the process:

  • Register a domain name for a company website (You can use, Bluehost,, Design the website and fill it with content. 
  • Create profiles on the popular social media services (Twitter, Facebook, Instagram)
  • Register a Google profile for your business
  • Create accounts on review sites such as Yelp, Google Reviews, and TripAdvisor

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Tennessee small business resources

Tennessee SCORE chapters

The nation’s leading business mentoring network as a number of chapters throughout the Volunteer State:

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