How Much Does an LLC Cost in Tennessee?

How Much Does an LLC Cost in Tennessee?

Tennessee can be a wonderful place to open and run a business. Offering a favorable economic climate (including a complete lack of income taxes), this state promises low operating costs and a wealth of resources for novice entrepreneurs. Many Tennessee business owners hope to improve their status and gain protection by opening limited liability companies (LLCs), and here, too, the state offers many advantages, including low startup costs.

Launching a Tennessee LLC is a wise choice, as this provides valuable protection from personal liability. This can also be an excellent strategy for expanding funding sources but also promises to keep personal and business expenses distinct. There is some work involved at the outset, however, and a few expenses worth considering. Upon analyzing these costs, however, most aspiring business owners will conclude that this modest investment is worth making.

General Steps and Costs When Forming a Tennessee LLC

Good news: the process of forming an LLC in Tennessee can be surprisingly straightforward. This typically begins with selecting a name but also involves appointing a registered agent and filing articles of organization. Other steps, while potentially helpful, are strictly optional.

Many aspiring business owners understand what it takes to launch an LLC but worry about the upfront costs. As we will explain below, however, these can be quite reasonable. A lot depends on what you want to accomplish as a fledgling LLC and whether you prefer to outsource certain tasks. To help with the decision-making process, we have highlighted the absolute essential LLC formation steps and expenses below:

Naming your Tennessee a LLC

There are a few basic requirements for naming a Tennessee LLC, and in many situations, this step is not only simple, but also, free of charge. In Tennessee, LLC names must include designations such as “limited liability company” or “LLC.” Similarly, designations such as “corporation” or “incorporated” are not allowed.

Another essential? An easily distinguishable name that does not look or sound too much like existing Tennessee LLCs. Thankfully, name searches are free of charge and easy to complete. The Secretary of State offers an easy-to-navigate search portal, but name search tools are also available through Tailor Brands and other LLC services.

Be mindful of the potential for “doing business as” (DBA), which, in Tennessee, is actually referred to as an “assumed name.” Once established, this assumed name remains in place for five years but can be renewed at the end of this period. In Tennessee, it costs just $20 to file an application to register an assumed name. Similarly, it costs $20 to renew, cancel, or change currently held assumed names.

Estimated Cost of Naming Your LLC: $0-$20

Filing articles of organization: ($300+)

Among the most important steps for launching an LLC in Tennessee? Filing the articles of organization. This crucial document establishes your LLC within the state of Tennessee. It should be filed with the Tennessee Secretary of State, Division of Business Services. In Tennessee, as in most states, articles of organization highlight basic details such as:

The filing fee for articles of organization in Tennessee can vary based on the number of members, but at minimum, this will cost $300 — with an additional $50 assessed for each LLC member. The maximum cost of filing articles of organization in Tennessee? $3,000.

Estimated Cost of Filing Articles of Organization: $300-$3,000

Appointing a registered agent

The registered agent plays a critical role in establishing a Tennessee LLC. This individual (or business) is expected to handle official correspondence, accepting various notices or legal mail on behalf of the LLC.

It is possible to appoint a registered agent completely free of charge. As such, it is common for business owners to designate friends or family members as registered agents. Some business owners, however, prefer to work with registered agent services, which tend to be more reliable — after all, registered agents are required to be available during regular business hours. With Tailor Brands, this costs $199 per year. Other registered agent services could cost as much as $400.

Estimated Cost for a Registered Agent: $0-$400

Creating an operating agreement

An optional, but valuable document to consider during the early phases of forming your LLC? An operating agreement. This should not be confused with the articles of organization. While the articles of organization establish the LLC from a legal perspective, the operating agreements acts as a blueprint for how your LLC will eventually be run. This internal document reveals your LLC’s basic structure, along with the rights and responsibilities of LLC members.

This step is entirely optional but absolutely worth taking, as this reduces the likelihood of misunderstandings later on. Multi-member LLCs, in particular, run the risk of conflict if details about ownership percentage and voting rights are not clearly outlined.

Keep in mind that operating agreement costs can vary considerably. Some LLCs draft their own operating agreements on their own and free of charge, but given the often high stakes attached to this document, it’s worth working with a lawyer or a dedicated operating agreement service. Depending on your preferred route, this could cost as much as $1,000 — but the added expense and effort could produce much-needed peace of mind.

Estimated Cost for an Operating Agreement: $0–$1,000

Other Annual and Additional Tennessee LLC Costs

While appointing a registered agent and filing articles of organization are the most important steps for starting an LLC in Tennessee, many other considerations should be taken into account. These will vary somewhat from one LLC to the next, depending on the industries in which these businesses operate and how they are structured.

Costs can add up quickly for some businesses, but others are able to navigate the complexities of running an LLC while keeping extra expenses to a minimum. As you plan for your LLC’s future, be mindful of these potential obligations:

Franchise Tax

Defined by the state of Tennessee as a “privilege tax imposed on entities for the privilege of doing business in Tennessee,” the franchise tax is necessary for entities that not only do business in Tennessee, but also, have a “substantial nexus” in the state. Tennessee imposes a franchise tax of 0.25 percent, along with a minimum of $100. This is based on net worth, which is typically determined according to the generally accepted accounting principles (GAAP).

Estimated Cost for Franchise Taxes: $100+

Business Licenses & Permits

Many Tennessee business owners need to seek specialized licenses or permits, which allow local LLCs to carry out industry-specific functions. There is no one-size-fits-all approach to securing these licenses or permits; this process will become easier to understand as you classify your LLC based on its dominant business activity.

If you struggle to determine which classification is most relevant to your business, don’t hesitate to seek assistance from the Tennessee Department of Revenue or even your local county clerk.

In Tennessee, one of the most commonly held licenses is the standard business license, which is required for all businesses with gross receipts exceeding $100,000. In-state businesses with receipts totaling between $3,000 and $100,000 may need to secure an alternative: the minimal activity license. These licenses are filed with county or municipal clerks. Each new business produces a required $15 business license registration fee, payable to the same county or municipal clerks.

Many other common licenses are issued by the Tennessee Alcoholic Beverage Commission (TABC), which provides specific licenses for wholesalers, wineries, retail package stores, and other businesses that sell, serve, or otherwise distribute alcohol. Similarly, industry-specific licenses may be required for establishments that prepare or serve food. The Tennessee Environmental Health Program handles permitting for food service establishments and many other types of businesses.

Estimated Cost for Licenses: $15 – $1,000+

Annual Report

LLC expenses do not end once a Tennessee business is up and running. Moving forward, it is necessary to file annual reports. As with the initial articles of organization, this is accompanied by a fee, which, at minimum will total $300. Annual report expenses will typically resemble the early cost of filing an LLC’s, unless the number of members changes.

Estimated Cost of Annual Report: $300-$3,000

What Expenses You Can Write Off

If there is a silver lining to the many expenses highlighted above, it is that tax write-offs are often well within reach. These can go a long way towards reducing taxable income and limiting the general tax burden of running an LLC. Many expenses qualify as startup costs, including, most notably, the fee for filing articles of organization.

Once your LLC is established, many ongoing expenses could be eligible for tax write-offs. Examples include:

Tennessee LLC Costs - Summary

We’d discussed many LLC expenses, but it may still be difficult to keep these straight. When in doubt, look to this table to provide an easy-to-understand overview of Tennessee LLC costs:

Fee/Cost

Amount

Articles of Organization Fee

$300-$3,000

Annual Report Fee

$300-$3,000

Business Permits & Licenses

$15-$1,000+

Assumed Name (Optional)

$20

Registered Agent Service (Optional)

$199-$400

Operating Agreement (Optional)

$100-$1,000

Conclusion

Running a business in Tennessee can be rewarding, but there are risks involved. These are best mitigated by starting an LLC, which provides much-needed protection against liability. While the costs of starting a Tennessee LLC can vary, this is often quite affordable — and given the enhanced protection and credibility, this effort is more than worthwhile. Think carefully about where you can benefit from extra assistance and how this will aid your LLC in the long run.

FAQ

Some businesses may eventually need to make adjustments to their original articles of organization. Known as the Articles of Amendment to Articles of Organization, the official document for making changes costs $20 to file.

A few select LLC documents can be filed free of charge in Tennessee. These include the obligated member entity addendum (which designates whether LLC members can be held personally liable), change of mailing address, and written consent to termination of an LLC.

Similar to Certificates of Good Standing issued in other states, Tennessee’s Certificate of Existence/Authorization confirms that LLCs have properly registered with the state and are in full compliance. This can be useful when conducting certain business transactions or when entering into contracts. In Tennessee, LLCs can expect to pay $20 when requesting this type of certificate.