How to Start a Business
As the backbone of our state's economy, small businesses make up the majority of all companies in Tennessee. Some of the world’s largest and most well-known companies were started right here in the Volunteer State. For each of those businesses, success began with someone who dared to dream big and didn't shy away from hard work.
The challenges that entrepreneurs face are often intimidating. Adequate support and resources are crucial to navigating the early stages of any new venture. This website will guide you through the step-by-step process of establishing your business. The steps are: 1) choosing a name, 2) determining a legal structure, 3) taxes, 4) hiring employees, 5) licensure requirements, 6) key resources to help you, and 7) a guide. We hope you will find this helpful and informative!
What is your business name?
Is the business name you are thinking of already in use?
Search the name of your business through the Tennessee Secretary of State’s Office. The "Business Name Availability" tool allows you to determine if the proposed business name is available in Tennessee.
- Naming your Business
In Tennessee, DBAs (“doing business as” also referred to as an assumed name) are available mainly to corporations, LLCs, LPs and LLPs.
Sole proprietorships and general partnerships are expected to operate under the name of the proprietor or names of the partners. You can talk to your county clerk for your other options.
While it is not required, registering your business name could prevent confusion and possible legal problems in the future.
Tennessee prohibits a corporate name that implies that a company transacts business where authorization is required, but for which the company doesn’t have authorization so keep that in mind when you are choosing your business name.
Defining Your Business Legal Structure
What legal structure is best for my business?
Once you’ve verified that your chosen business name is available, it’s necessary to determine how your business will be defined legally. Liability and taxes are defined by your business’s legal structure, as well as the ease or difficulty for growth. Don’t worry if you’re not quite ready to form your business entity just yet, you can reserve your chosen business name by filing a Name Reservation Form with the Tennessee Secretary of State office.
Briefly, here are your options:
- Sole Proprietorship
- This is when your business is owned solely by you.
- Easiest and least expensive form of ownership to organize
- Sole proprietors receive all income generated by the business to keep or reinvest
- The business is easy to dissolve, if desired
- Sole proprietors are responsible for the business as individuals, thus personal assets are vulnerable in a legal action
- May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans
- Difficult to monetize for sale
- General Partnership
- This is when your business is owned by you along with one or more other individuals. You have to file with form SS-4514, too.
- Simple and inexpensive to set-up and operate
- All of the profits go to the partners
- You are equally liable for the decisions that your partners make
- It is more difficult to change ownership, should you want to leave the business
- You are responsible for the business as individuals, thus personal assets are vulnerable in a legal action
If you go with one of these legal structures, you may want to trademark your business name.
- Limited Partnership
- This is when your business has one or more general partners and one or more limited partner.
- Limited partners’ personal assets are generally less vulnerable in a legal action against the business.
- All profits for to the partners
- General partners’ personal assets are more vulnerable in a legal action
- It is more difficult to change ownership, should you want to leave the business
- Limited Liability Partnership
- This is a general partnership with some limited liability options. A limited liability partnership is usually formed by a general partnership that desires limited liability but finds it too difficult to organize as a limited liability company. Usually, a new business would not start out as a Limited Liability Partnership.
- Limited Liability Company (LLC)
- This is a mix of the partnership and corporation legal structure. Owners of an LLC are called members.
- Owners have limited personal liability for the debts and actions of the LLC
- Pass-through taxation
- Can be difficult to set up
- Expensive to organize
- This is when your business is created as a separate legal entity and returns profit to its owners.
For-Profit Corporation - Owners of a corporation are called shareholders. There are two general types of corporations: C and subchapter S.Pros:
- Shareholders have limited liability for the corporation’s debts and judgments in legal actions.
- Corporations are a more complex type of legal entity. There is more paperwork to comply with regulations at the local, state, and federal level.
C or Standard –
- Taxed twice: Shareholders pay taxes on their earnings and the corporation also pays its own taxes.
- May be domestic or foreign and works for large groups of investors
Subchapter S (aka Small Business Corporation, file with IRS) –
- Can avoid paying taxes twice by passing items to shareholders
- Must be domestic and limited to no more than 100 citizen or legal resident shareholders
Foreign-Owned (Out of State) Corporations (all types) – If you incorporated your business outside of Tennessee and you want to relocate or conduct business in Tennessee, you need to decide if you want to operate as a foreign-owned business or establish a Tennessee business. To register, a foreign-owned business must submit a Certificate of Existence/Authorization or letter of good standing from the original state.
Public Benefit Corporation (PBC), new in 2016 – the classification comes from the social entrepreneurship movement that combines running a profitable business with improving society. A PBC is similar to a standard for-profit corporation, but is managed in a way that considers the public benefit purpose(s) listed in its charter as well as the financial interests of its owners.
Nonprofit Corporation – This is when your business is created as a separate legal entity and will use surplus revenues to achieve its goals rather than distributing them as profit or dividends.
- Who needs a business license? Most businesses in Tennessee need an annual business license
- Standard Business License
This license is for businesses that gross more than $10,000 annually and that are not exempt. You initially file with your county clerk, and then you file a tax return of your gross receipts with the TN Department of Revenue. Keep in mind that your tax year is based on the fiscal year end of your business. You may also need to obtain a business license from your municipal clerk if your business is located within the city limits.
- Minimal Activity Business License
This license is for businesses that gross more than $3,000 and less than $10,000 annually. You initially file with your county clerk, but no annual report on gross receipts is required. Your license must be renewed at the end of the fiscal year end of your business. . You may also need to obtain a business license from your municipal clerk if your business is located within the city limits.
- Are you exempt?
Some types of businesses don’t need a business license.
- Businesses with a gross of less than $3,000 annually.
- Manufacturers as described in Division D of the SIC
- Services (but not tangible property sales) – Check the tax guide for most current list. Exempt services generally include, but are not limited to doctors, dentists, veterinarians, attorneys, accountants, insurance agents, loan companies, manufacturers and farms. They may be subject to business tax on sales. If you are unsure or your exempt status, check with your county clerk.
Recommendation: Consult an attorney or CPA to determine the best structure for your business needs.
Identify the basic tax obligations of operating your business in Tennessee.
What are my tax obligations in Tennessee?
First, a business identification number: SSN or FEIN?
If your business is a sole proprietorship or a general partnership, your Social Security number (SSN) will also be your business entity identification number. Sole proprietorships and general partnerships are not liable for franchise and excise taxes.
Consider: An FEIN gives your business a unique number that is not a SSN, and business information is public record.
Now, on to tax registration for your business…
All businesses register with the Tennessee Department of Revenue. You can use the online tax registration.
These are not the only taxes your business might be responsible for filing. For example, Revenue is also responsible for collecting taxes and fees for on and off premise alcoholic beverages, bail bond, tobacco, and professional privilege, among others.
Tangible Personal Property is filed by "(a) All partnerships, corporations, other business associations not issuing stock and individuals operating for profit as a business or profession, including manufacturers, except those whose property is entirely assessable by the comptroller of the treasury" per TCA 67-5-903. Learn more about on the Tennessee Comptroller of the Treasury Division of Property Assessments’ website.
Contact your county’s tax assessor for more specific information.
Important dates to remember:
February 1 Personal Property Schedules mailed to each business owner by this date March 20 Assessment change notices mailed September 1 Last day to file an amended Personal Property Schedule for the previous tax year. October 1 Current year’s taxes become due and payable on this date. Full calendar here.
Will your business employ additional staff?
Will you employ any staff?
Complete Tennessee Department of Labor and Workforce Development’s (LWFD) Report to Determine Status and Apply for an Employer Number. This determines whether a company is responsible for unemployment insurance (UI). UI is fully funded by employers.
New Hire Reporting - All employers must submit their new hire reports. Register online.
Workman’s Compensation – Who is required to carry Workers' Compensation insurance on their employees?
- All employers with five or more full- or part-time employees.
- All employers in the construction or mining industry must have coverage if they have any employees or corporate officers.
- State and local governments and those employing farm laborers or domestic help are exempt, but may elect workers' compensation coverage.
- Benefits are paid by the employer or the employer's insurance carrier
Complete LWFD’s Report to Determine Status and Apply for an Employer Number.
Refer to LWFD’s website for additional resources and an information dense handbook.
Is your business required to register with other departments or agencies?
Are there other regulations, licenses for permits for your business?
Alcoholic Beverage Commission -
Who: On and off-premises alcoholic consumption, wholesalers, winery and distillery licenses
Department of Agriculture, Consumer and Industry Services -
Who: Feed, seed fertilizer, pesticides, weights and measures, food and dairy, plant and animal
Department of Commerce and Insurance -
Who: (A lot! When in doubt, try here first.) Accountancy, architecture and engineering examiners, auctioneers, barbers, contractors/home improvement license, cosmetology, funeral directors, insurance companies, plumbers, private protective services, surveyors and appraisers, et.al.
Department of Environment & Conservation -
Who: businesses that effect air (dry cleaners, gas stations), land resources (drilling, grading), natural resources, water use, work in or near water (manufacturers) - Permit Requirements Guide
Department of Financial Institutions -
Who: banks, check cashers, credit unions, development corporations, mortgage companies, ATM services, et. al.
Department of Health -
Who: Acupuncture, athletic trainer, body piercing, childcare, counselor, EMS, food service establishments, hotels, massage therapists, professional and facility licensing, swimming pools, tattoo artists, vet techs (and quite a few others, especially medical related)
Department of Human Services
Who: Adult daycare, childcare
Department of Intellectual and Developmental Disabilities -
Who: Long-term care facilities and personal support services for those with disabilities
Department of Labor and Workforce Development -
Who: In addition to the employers/employee aspect, they handle licensing and permitting for mine safety and amusements parks and fairs.
Department of Mental Health and Substance Abuse Services -
Who: alcohol and drug abuse, developmental disability and mental health facilities/services and personal support services
This list is not comprehensive, and some licensing agencies may be federal (ATF, EPA , FDA, etc.). A comprehensive list of Tennessee departments and agencies can be found here.
Additional information on laws, appointments to boards and commissions, hearings and public meetings can be found on the respective websites. Pending and effective rules and hearing notices can be found here.
You’ve completed the step-by-step guide for establishing a business in Tennessee. Here is a visual recap of the process to set-up your business in Tennessee:
Download your free copy of the TN Smart Start Guide for resources that support the successful growth and expansion of DBEs, small businesses, microenterprises and aspiring entrepreneurs. The Guide covers topics such as business planning, legal structures, various types of insurance, certifications and government contracting, loan programs, exporting, among many others.
There’s no better place to start or grow a business than in Tennessee and no better time than now. We invite you to explore the opportunities!
This information is a general guideline for registering your business. Aspects of your business may require additional steps, registrations or licenses; and we recommend that you consult an attorney, CPA or business counselor. If you have questions or need additional information, please contact the Small Business Advocate in the Office of the Tennessee Comptroller of the Treasury at email@example.com. This page is administered by the Tennessee Department of Economic and Community Development.