En Hispanic Entrepreneurs we detail step by step how to start a business in Tennessee. With this article we summarize the procedure so that you are more clear on what to do when opening your business. In addition, we offer a number of online resources to help you find official information.
Step 1: Choose the name
Start by choosing the name for your business. If it is a sole proprietorship or a general partnership, you can use the name of the owner or the partners, as the case may be.
Registering the name is not necessary, but could avoid future confusion and possible legal problems.
Once you've decided on a name, find out if it's in use. Search the Tennessee Secretary of State's Office using the Business Name Availability tool.
If the commercial name is available, you can fill out the corresponding form to reserve it. It is convenient to do so even if you are not going to start the business immediately.
You should be aware during this step that Tennessee prohibits a corporate name that implies that a company conducts business where authorization is required, but for which the company is not licensed.
Do you need to register a DBA?
DBA stands for "Doing Business As". There are different circumstances in which you need a DBA, for example if you have a single property or a general partnership. In both cases the legal name of the company is the same as the owners. So the DBA allows the business to have its own nomination.
If you have registered a corporation or limited liability company and want to diversify the business, you can register a DBA instead of registering a new company. This means saving time and money.
Al open a business in Tennessee you may need to write employment contracts. For this you need a DBA, if it does not have the document it will not be valid.
Step 2: Select the legal structure
The second step in understanding how to open a business in Tennessee is to determine what legal structure is best for my business. This will define the taxes that must be paid, the responsibility of the owner (s) and the way in which he will register before the Secretary of State.
The most frequent options are:
Single owner
They are companies that have a single owner. Profits are taxed as personal income and you will also be responsible for debts and losses.
Pros:
- It is the easiest and least expensive form of property to organize.
- The sole proprietors receive all the income generated by the company to maintain or reinvest.
- The business is easy to dissolve if you want.
Cons:
- The owner is solely responsible for the business and his personal assets are vulnerable to legal action.
- Capital is more difficult to raise and is often limited to using personal savings funds or consumer loans.
- Hard to monetize for sale.
General Society
The general society or partnerships It is a company with two or more owners. The structure is similar to the sole owner.
Pros:
- It is simple and inexpensive to configure and operate.
- All profits go to partners.
Cons:
- All partners will be responsible for the decisions made by one of them.
- It is more difficult to change ownership if you want to leave the business.
- All partners are responsible for debts and taxes.
Limited liability company (LLC)
The limited liability company (LLC) may combine the taxation of a sole proprietorship. It partially protects the owner against financial problems and lawsuits against the company. You must also submit training documents and articles from the organization for registration.
Pros:
- It offers greater protection to entrepreneurs than individual companies.
- Avoid double taxation.
- There is more flexibility for management than in a corporation.
- It has no ownership restrictions.
Cons:
- It is mandatory to divide the earnings among the members.
- The cost of setting up an LLC is higher than that of a sole proprietorship.
Corporation
It is the most complex structure, in which the owners are not responsible for the debts or demands of the company. Initial costs may be even higher than those of the LLC. In addition, they must issue shares, write statutes and hold meetings of directors and shareholders.
From a tax point of view, there are two types of corporations:
- S Corporation: Profits and losses are divided and transferred to shareholders' income taxes.
- Corporation C: double taxation applies. That is, it pays taxes at the corporate and personal level when it is paid to shareholders.
Pros:
- They can sell shares to raise funds.
- The owners are protected from liability for debts and legal.
Contrary to:
- Taxation is more complex than the rest.
How to start a business in Tennessee: do I need a business license?
Most companies need a business license that is renewed every year. There are two types:
Standard commercial license
Businesses with earnings of more than $ 10,000 a year and that are not tax exempt must obtain a standard business license. To obtain it, you must register the business with the Secretary of State. Then you must file the gross tax return with the Revenue Department to renew it.
You may also need a license at the county and municipal levels.
Minimum Activity Business License
In case the company earns more than $ 3,000 and less than $ 10,000 a year, it needs a minimum activity license. You do not need to file an annual report on gross income and must renew it at the end of your fiscal year. Similarly, check with the municipal secretary if you need a business license to operate in your city.
Are you exempt from a license?
Some types of businesses do not need a business license. Those with earnings less than $ 3,000 a year are exempt.
Manufacturers described in Division D of the Standard Industrial Classification (SIC) are also exempt.
Services (does not include sales of tangible properties) do not need a business license either. Those who are exempt include doctors, dentists, veterinarians, lawyers, accountants, insurance agents, loan companies, manufacturers, farms, among others. However, they may be subject to business sales tax.
Recommendation: Consult an attorney or CPA to determine the best structure for your business needs.
STEP 3: Identify tax obligations
The next step to start a business is to find out what are my tax obligations in Tennessee.
In this sense, the first thing is to know if you will need a commercial identification number SSN or EIN.
For sole proprietorships and general partnerships, your Social Security Number (SSN) will also be the identification number of your business entity. In both cases the individual is responsible for franchise and special taxes.
If your business is an SSL or corporation, or if you pay wages to employees you must have an Employer Identification Number (EIN). Apply for the EIN online on the website of the Internal Revenue Service (IRS).
Consider: An EIN gives your business a unique number that is not an SSN, and business information is a public record.
Register the company in the Revenue Department
To create a company in Tennessee you must register it in the revenue Department of the state. On the same website you will find information about the special taxes that your business may be subject to.
You may have to pay taxes for alcoholic beverages, bonds, tobacco and professional privileges, among others. This will depend on the type of business you are going to open.
Tangible personal property
All companies in the state are subject to tangible personal property tax. Here are included vehicles, machinery, raw materials, equipment, etc. That is, they are all assets that can be easily seen, touched, and moved. Real estate is not included in this category.
You must declare tangible ownership of the business every year. Learn more on the Tennessee Comptroller's website.
Important dates to remember:
- February 1. Personal Property Plans are mailed to each business owner by this date.
- March 20. Notifications of assessment change mailed.
- September 1. Last day to submit a modified movable property list for the previous fiscal year.
- October 1. Current year's taxes are due and due on this date.
STEP 4: Will you employ staff?
Answer this question if you are going to starting a business in Tennessee. If you are going to employ staff, you will have the following responsibilities:
- Complete the Tennessee Department of Labor and Workforce Development (LWFD) Report. This determines whether a company is responsible for unemployment insurance (IU). The UI is fully funded by employers. Check the procedures to be followed depending on whether they are for-profit or non-profit companies.
- Also, as an employer you must submit the new contract reports.
- Must use E-verify or keep a file of the authorization documents of foreign employees.
- Check to see if you must have workers' compensation insurance.
Who is required to carry Workers' Compensation insurance?
- All employers with five or more full or part time employees.
- Employers in the construction or mining industry should be covered if they have corporate employees or officers.
- State and local governments and those that employ farmworkers or domestic help are exempt. But they can choose workers' compensation coverage.
Benefits are paid by the employer or the employer's insurance company.
If you are not going to hire employees, you only need to complete the LWFD report to determine status.
STEP 5: Should the company register with other departments or agencies?
To finish this article on starting a business in Tennessee, check out what other licenses and permits your business needs. As well as other regulations that you must follow:
- Alcoholic beverage commission. Alcoholic consumption inside and outside the facilities, wholesalers, wineries and distillery licences.
- Department of Agriculture, Consumer Services and Industry. Food, seed fertilizers, pesticides, weights and measures, food and dairy products, plants and animals.
- Commerce and Insurance. Accounting, architecture and engineering consultants, auctioneers, barbers, home improvement contractors / license, cosmetology, funeral directors, insurance companies, plumbers, private protection services, surveyors and appraisers, etc.
- Department of Environment and Conservation. Companies that generate air emissions (dry cleaners, gas stations), land resources (drilling, classification), natural resources, water use, work in or near water (manufacturers).
- Financial institutions. Banks, check ATMs, credit unions, development corporations, mortgage companies, ATM services, etc.
Other departments of interest
- Health Department. Acupuncture, athletic trainer, body piercing, childcare, counselor, food service establishments, hotels, massage therapists, swimming pools, tattooists, vet technicians, among others.
- Department of Human Services. Childcare.
- Intellectual and Developmental Disabilities. Long-term care facilities and personal support services for people with disabilities.
- Work and Workforce Development. In addition to employers, they handle licenses and permits for mine and park safety and fun fairs.
- Department of Mental Health and Substance Abuse Services. Drug and alcohol abuse, developmental disability and mental health services / services and personal support services.
This list is not exhaustive, and some licensing agencies may be federal (ATF, EPA, FDA, etc.). A complete list of Tennessee departments and agencies can be found find here.
Follow these steps to understand how to start a business in Tennessee. If you need help do not hesitate to contact us.
Related Notes:
