How to start a business in Tennessee

If you’re considering opening a small business in Tennessee, you’re not alone. In fact, Tennessee is home to over 600,000 small businesses – representing 99.5% of total Tennessee businesses. Whether you’re a current resident in the Volunteer State or you’re looking to move to Tennessee to start a business, this guide will help you get started. Here’s what you need to know about starting your own Tennessee business.

What do you need to start a Tennessee business?

To start a business in Tennessee, you’ll need to follow these steps. Along the way, you’ll need to work with local, state, and federal agencies. Follow these nine steps to get started:

Step 1: Choose your business idea & develop your business plan

Step 2: Determine the legal structure of your business

Step 3: Select a business name

Step 4: Register your Tennessee business entity

Step 5: Apply for Tennessee licenses and permits

Step 6: Pick a business location and check zoning laws

Step 7: File and report business taxes

Step 8: Obtain business insurance 

Step 9: Open a business bank account 

Step 1: Choose your business idea & develop your business plan

A business idea is crucial to starting any business and is the first step to creating a new business. There are many ways to choose a business idea. Maybe you have always dreamed of starting a particular business, or you may have noticed a need in the market for a certain product or service. Many businesses also develop as a result of a small business owner’s passion project that turns into a business. 

No matter how you end up with your business idea, you’ll need to perform research before bringing your idea to life. You should look at the target market and competition: Who are you selling to? What other types of businesses will you compete against? After you better understand these factors, it’s time to develop a business plan.

Your business plan contains a whole lot of information about your business, and potential lenders, partners, investors, and clients will use this document to forecast your company’s success. If you need help financing your business, a business plan is crucial to securing a bank or Small Business Administration (SBA) loan. You’ll need to include the following information in your business plan:

• Executive Summary: This section should include a brief company overview, mission, and vision statement. Here, you’ll describe your business idea, the goods or services you intend to sell, your leadership structure, and relevant financial information. 

• Company Description: This section outlines your company, including the problems and pain points your business solves. You’ll also describe your customer base and whether you are a B2B or B2C business. Here, you should also include your competitive advantages.

• Market Research: This section includes the current market conditions, competitors, and customer demographics. You should detail how your business will succeed in the current market here.

• Business Structure: This section explains how your business will operate, including how you decided on your business structure. You’ll also want to include your internal operating structure here.

• Products or Services: This section details your products/services and pricing. Here, you should describe the entire product or service lifecycle and detail any intellectual property. 

• Market & Sales: This section should expand on how you’ll market your products or services. Here, you should detail the sales process and payment collection and also provide projected sales numbers (which will help for outside financing).

• Funding: In this section, you’ll detail your financing requirements, including how you’ll use this capital at your business.

• Financial Projections: This section includes your financial projections and how you calculated these numbers. Break down how your business will turn a profit and how much your potential profit could be.

• Appendix: This section details all other necessary information. From product descriptions to permits and licenses to industry-specific credentials, supporting documentation can go here.

Step 2: Determine the legal structure of your business

After you have a business idea and constructed your business plan, you’ll need to determine your company’s legal structure. This decision can significantly impact personal liability, business liability, access to funding, and more. Therefore, it’s important to know the pros and cons of each structure before deciding. Contact a local attorney or accountant for additional information and guidance.

Sole Proprietorship

In a sole proprietorship, a single person owns and operates the business. As the simplest structure, it has the fewest legal or regulatory requirements. That makes it a great choice for someone just starting out, although there can be a higher personal liability and risk for sole proprietors. 

In many cases, a sole proprietorship will operate under the person’s name. However, there are some sole proprietorships that operate under a doing business as (DBA) name. For instance, a house painter named Paul may choose to operate under the fictitious name of Paul’s Painting instead of just his name. If you elect a DBA name, you’ll need to register an Assumed Name with the Tennessee Secretary of State. The filing fee is $20.

A sole proprietorship is a pass-through entity, meaning that the government taxes sole proprietorship business income through the individual’s income tax return. 

Limited Partnership (LP)

In a limited partnership, two or more people join to form a business together. This structure has at least one general partner and at least one limited partner. General partners share liability for debts and obligations, while limited partners incur limited liability based on their contributions to the partnership. 

Forming a limited partnership in Tennessee means filing a Certificate of Limited Partnership with the Tennessee Secretary of State. For limited partnerships, tax obligations pass through the partnership and fall to each of the partners based on their share of the business’s income. 

General Partnership (GP)

A general partnership is very similar to a limited partnership, except that each general partner is liable jointly and severally. Like many states, Tennessee does not require general partnerships to register at the state level. However, applying for state tax identification and registering the business name is necessary. Once again, a general partnership is a pass-through entity, so each partner assumes tax responsibility on their personal tax returns.

Limited Liability Company (LLC)

A limited liability company provides advantages and liability protections similar to a corporation while providing tax advantages similar to partnerships and sole proprietorships. To form an LLC in Tennessee, you’ll need to file Tennessee Articles of Organization with the Secretary of State. In addition, you need to pay the filing fee, which is $50 per member, with a minimum fee of $300 and a maximum fee of $3,000. 

You’ll also need to register an Assumed Name, and you’ll need to designate a registered agent. LLC members should ensure they have an operating agreement in place, as it binds how the LLC will operate between members.

Corporation

A corporation is a legal entity separate from its shareholders. As a corporation, the business is responsible for the debts and obligations of the business, which protects shareholders from personal liability for claims against the corporation. The trade-off for this liability protection is higher tax rates than other business structures.

To register a corporation in the state of Tennessee, you’ll need to file a For-Profit Charter with the Secretary of State. This is similar to the Articles of Incorporation in many other states. You’ll need to appoint a registered agent for the corporation and ensure you’ve filed for an Assumed Name for the business. In addition, you should write corporation bylaws, appoint directors, and hold directors’ meetings. For more information and help to register a corporation, it’s best to contact a local professional.

Step 3: Select a business name

While you decide on a legal structure, you can also be thinking about a business name. Deciding on a name is an important step for your business, so take time to consider your options. Keep in mind, you’ll want to find a name that stands out from the rest of the market while giving customers information about your business. Use the Business Name Availability Search to check on business name availability in Tennessee.

You may choose to reserve a business name before you file the paperwork to register your business. You’ll submit an Application for Name Reservation and pay the $20 filing fee to do this. In Tennessee, name reservations are valid for 120 days.

Step 4: Register your Tennessee business entity

Next, you’ll need to register your business for tax purposes. You’ll be required to pay local, state, and federal taxes for many business structures. To start, you’ll need to apply for a federal employer identification number (EIN). This unique number helps you pay the Internal Revenue Service (IRS) and helps identify your business for any income and payroll taxes. An EIN is also crucial for opening a business bank account, applying for the right licensing and permits, and hiring and paying employees. If you are opening a sole proprietorship, you can use your social security number instead of an EIN.

Depending on if your own business meets the criteria, you’ll need to apply for an Employer Identification Number with the Tennessee Department of Labor and Workforce Development. You’ll use this number to pay unemployment insurance premiums. Your business may also need to register for certain tax types, including sales and use taxes. Consult a local professional to ensure you’ve registered for the correct taxes.

Step 5: Apply for Tennessee licenses and permits

After registering with the correct state authorities, you should determine if your business requires special licenses or permits. Because these permits vary by industry, you’ll need to confirm which licenses or permits you’ll need. To do this, you can visit the Tennessee Regulations Search.

Some counties or cities may require additional permits or licenses, so you’ll also need to research these specific requirements in the place where you’ll conduct your business. It’s best to contact local city and county officials to learn more about your specific requirements.

Step 6: Choose a business location and check zoning laws

After you’ve ensured you have the necessary business licenses and permits, you’ll then need to choose a physical business location. While you may be able to run a small business out of your home, other businesses may need a physical office, warehouse, or retail space. You should weigh the monthly business expenses, location, accessibility, and other factors when deciding on a suitable location. When reviewing your possible locations, ensure that these locations are properly zoned for business use. Because zoning laws are very specific,  you’ll need to contact your city or county clerk’s office for more pertinent information.

Step 7: File and report business taxes

As a business, you’ll need to file business taxes and report business income. While different business structures have different obligations, you can expect to pay federal, state, and local taxes. If your business is subject to business tax, you’ll need to register using the Tennessee Department of Revenue’s Tennessee Taxpayer Access Point (TNTAP). You should also contact local government authorities to determine if your business has local tax obligations. Ensure your business pays its tax obligations on time, as missing tax payments or paying them late could mean paying extra fines or penalties. For more specific information, contact a professional in your area who can guide you.

Step 8: Obtain business insurance 

While many businesses will not need business insurance, it’s important to have an understanding of the various types, so you can decide on what’s right for your business. Here are the most important types of insurance for businesses:

• General liability insurance: This insurance type covers losses your business causes to other companies, vendors, or clients. While many businesses never have to worry about utilizing general liability, it’s a good idea to consider this type of insurance for your peace of mind.

• Workers’ compensation insurance: In Tennessee, businesses with more than five employees are required to carry workers’ compensation insurance. This insurance type covers any claims that result from work-related injuries or accidents.

• Professional liability insurance: Businesses that provide professional advice, consulting, or accounting services should consider professional liability insurance. This insurance type covers financial losses due to business malpractice or negligence.

Step 9: Opening a business bank account (and credit card)

Keeping your business finances and personal assets separate is crucial when you’re opening a startup business. Therefore, it’s a good idea to open a business bank account. Business bank accounts can help simplify your bookkeeping, payroll, and bill pay.

Opening a business bank account is a straightforward process. You’ll first compare local and national credit unions and banks, choosing the best option for your business needs. Then, visit your choice in person or online to open an account. Keep in mind that most banks require an EIN to open a business bank account. Therefore, you should have an EIN before trying to open a business bank account.

In addition to a business bank account, a business credit card can also be helpful as you’re beginning to build your business. They help you keep track of business-related expenses while providing a line of credit that can help you get off the ground. Like a personal credit card, business credit card applications can be found online.

Frequently Asked Questions (FAQs)

How much is it to start a business in Tennessee?

Startup costs can vary per business based on business type and industry. For example, starting your LLC could cost between $300 and $3000, depending on the number of members.

What do you have to do to start a business in Tennessee?

Starting a business in Tennessee can be a rewarding experience. To get started, read this step-by-step guide. 

Is it hard to start a business in Tennessee?

Starting a Tennessee business is relatively straightforward. In fact, many of the steps are the same as if you were starting a business in another state. 

Do you need a business license to start a business in Tennessee?

This will depend on the amount of annual gross receipts from your business. You do not need a business license if your business makes under $3,000. If it makes between $3,000 and $100,000 in gross sales, you need a minimum activity license. Any business that makes over $100,000 in gross sales will need to register for a standard business license.

What does a business license cost in Tennessee?

Business license fees vary based on the local jurisdictions, but most business licenses cost between $15-$50.

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