Whether you’d like to launch a business in one of these sectors or start something new, this guide will answer many questions as you learn how to start a business in Tennessee.
Benefits of Opening a Business in Tennessee
The state of Tennessee offers a variety of tax breaks and incentives to encourage businesses to call the state home. The Job Tax Credit, for example, gives companies a $4,500 tax credit for every job created, and the Industrial Machinery Tax Credit gives manufacturers a credit of up to 10% for the purchase or repair of certain equipment. Once you’re established, the state has a variety of grant programs meant to facilitate business growth.
Starting a business in Tennessee means you’ll be in good company. The state economy supports an impressive number of Fortune 500 companies including FedEx, Community Health Systems, Tractor Supply Co., AutoZone, and Dollar General Corp.Here’s one of the biggest benefits: Business owners in Tennessee don’t pay any personal income tax. Depending on how much money you earn as the company’s leader, this could save you a substantial amount of money. Research suggests you’ll save at least $2,000 a year by living in a state that doesn’t tax income. The state does, however, have sales tax and an excise tax.
Start an Entity in Tennessee
ZenBusiness offers the following formation services to our customers:
- Tennessee Limited Liability Company (LLC)
- Tennessee Professional Corporation
- Tennessee Corporation
- Tennessee Nonprofit Corporation
How to Start a Business in Tennessee Checklist
- Create a business plan
- Choose a business structure
- Determine your business costs
- Create a business name
- Register your business and open financial accounts
- Market your Tennessee business
1: Create a business plan
To launch a Tennessee company, you need a strong business plan. A business plan provides a comprehensive look at your business with a focus on its current and future financial situation. A business plan typically includes a company description, an explanation of products or services, a market analysis, a look at the company’s management team, and a financial plan that details revenue streams.
A business plan is often required when applying for a business loan. Local financial institutions like the Bank of Tennessee or First Horizon have business borrowing options worth researching. Additional investment opportunities through Launch Tennessee and TNInvestco could also aid in startup funds, but like a bank, these groups rely on a comprehensive business plan to review a company’s viability.
The Tennessee Department of Economic Development has a guide that covers how to set up a business in the state with specific details on creating a plan.
2: Choose a business structure
A business owner needs to decide how to structure the company. There are several different types of businesses to choose from, but many entrepreneurs select between a sole proprietorship, a general partnership (GP), a corporation, and a limited liability company (LLC). Each business entity has its pros and cons.
Sole proprietorships and GPs are no-fuss structures that are free to set up and allocate all profits to the Tennessee business owner(s). However, there’s no legal distinction between the business and the owner(s). That means if your company owes money or is sued, creditors can come after your personal bank accounts, your home, and even your kids’ college savings fund.
A corporation provides liability protection for your personal assets, but there’s more paperwork, a $100 filing fee, and a few negative tax considerations. With C corporations, income is taxed once at the corporate level and then again on the members’ personal tax returns. S corporations only tax the money at the personal level, but they’re harder to qualify for.
An LLC is a business entity that provides personal liability protection. That’s something a sole proprietorship or a GP doesn’t offer. With liability protection, the business owner’s personal assets are separate from the business. If the company goes into debt or is sued, the owner’s personal assets can be protected. Plus, unlike with C corporations, income is only taxed once, on the owner’s personal tax return.There’s a fee to set up an LLC, and paperwork to file with the Tennessee Secretary of State. The state’s filing fee is unlike those in other states. In Tennessee, the fee is $50 per member with a minimum payment of $300.
3: Determine your business costs
The more costs you can factor into your business plan, the better prepared you are for financing, budgeting, and spending. Here are a few types of expenses your business may need to plan for:
- Entity formation costs
- Purchase or leasing fees for property, such as office or storefront space
- Ordering office supplies or store inventory
- Payroll, contractor fees, and payroll taxes
- Company website design, development, hosting, and updating
- Technical equipment such as smartphones, tables, and/or computers
- Business insurance
Entities such as corporations pay annual taxes, including your Corporate Annual Report ( or , depending on if your company is exempt or non-exempt). Franchise tax payments for corporations range $175 to $200,000. If these taxes are over $5,000, you can pay quarterly instead of annually:
- 40% of the total amount due by June 1
- 20% due by Sept. 1
- 20% due by Dec. 1
- Remainder due March 1
If your corporation doesn’t file its annual report by March 1, it’ll be assessed a penalty of $200.
On the flip side, Delaware-based LLCs don’t have to file an annual report. Instead, they pay a $300 annual tax, due each year by June 1.
4: Create a business name
Picking a business name is one of the most important decisions an owner will make. Many company names are straightforward and descriptive. For example, you may not know two of Tennessee’s biggest companies — International Paper and Brookdale Senior Living — but their names instantly tell you what they do.
As you consider names for your own business, you also need to check availability on the Tennessee Secretary of State website. State law prohibits two companies from having the same name. If it’s already in use, you need to pick a different one. If you want to reserve a name until you’re ready to officially launch your business, you can do so on the same site for $20.
It’s also a good idea to check the availability of a domain name before registering a company with the state. You can run a name check with this search tool. The domain name you want may already be taken, but if it’s not, you can register yours today.
Be warned that sole proprietorships and general partnerships must use the name(s) of owner(s) as the name of the company unless they register for a DBA name. That stands for “doing business as,” and can provide a more suitable company name for your sole proprietorship or general partnership. LLCs and corporations sometimes use DBA names as well, for different branding efforts and different lines of business. For instance, a company might have one name as a restaurant and another as a wedding cake bakery.
5: Register your business and open financial accounts
Next, you may need to register your business entity with the state. If you decide to create an LLC, you need to file Articles of Organization with the Tennessee Secretary of State and pay a filing fee. Approval takes 24 hours if the papers are filed online or 3-5 business days if they’re sent in by mail. Corporations will instead need to file a Tennessee corporate charter. A business formation company can assist you with this chore, as well.
Doing business in any state usually requires a federal employer identification number (EIN). To acquire this number, which is used to pay federal taxes and required to hire employees, visit IRS.gov. Owners should also visit the Tennessee Department of Revenue to obtain an ID number, and look into business licenses and permits you may need.
As you set up a new company, it’s also a good time to join local business associations like Nashville Area Chamber of Commerce or the Tennessee Manufacturing Association to network with other area business leaders.
6: Market your Tennessee business
When you’re ready to bring in customers, it’s time to deploy marketing tactics. Your methods will depend on whom you’re trying to attract. If you’re launching a young, hipster bar in Nashville, use social media accounts that appeal to this demographic, like Instagram and Snapchat. If you’re launching an outdoor adventure company in Pigeon Forge, you may opt for compelling testimonials and videos showcased on Facebook.
Consider buying Facebook ads to target specific geographic areas in Tennessee and add your business name to online directories like YellowPages.
Don’t forget more traditional advertising ideas like newspaper ads. Eighty-two percent of Tennessee adults still read the paper, so a well-placed ad could reach many potential customers.
The Nashville Business Journal has some tips to help small businesses attract and retain customers.
Examples of Good Businesses to Start in Tennessee
With a growing population, a pro-business climate, and a number of successful businesses scattered across the state, there are many great business opportunities to consider in Tennessee. Here are a few ideas:
Starting a corporation in Tennessee has a lot of perks. The state offers several tax breaks and grant programs, commercial real estate is affordable, and the state’s tourism and music history keep a steady stream of people coming in. As a result, learning how to start a business in Tennessee could be a wise choice.
Tennessee Business FAQs
How much does it cost to start a business in Tennessee?
The average cost to start a business in any state is $30,000, but some companies have started with less. Dell and Nike, for example, were started with an investment of less than $10,000. Tennessee’s favorable business tax laws and the lack of personal income taxes can also curb expenses.
What is a good city to start a business in Tennessee?
Tennessee is full of vibrant cities waiting for new business owners. Usually the type of business that you want to start suggests a location. An adventure business, for example, might choose Pigeon Forge, a recording company would lean towards Nashville, and a southern-style restaurant could be ideal in Memphis near Beale Street.
How much does it cost to open an LLC in Tennessee?
The cost to set up an LLC in Tennessee is $50 per member, with a minimum of $300 and a maximum of $3,000. The fee needs to accompany forms known as Articles of Organization, which can be filed online through the Tennessee Secretary of State, or it can be handled by a business formation company.