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Corporations are a popular business type because they’re treated as independent legal entities, limiting the liabilities of the owners and allowing the corporation to enter into contracts and maintain stability over time.
Corporations fall into the following three categories:
This article will guide you through how to start a corporation in the state of Tennessee.
To start a corporation in Tennessee, you must file a charter with the Secretary of State. But several actions come both before and after doing so.
To simplify the process of forming a corporation in the state of Tennessee, we’ve put together 10 easy steps to form your business:
When it comes to naming your corporation, you need to make sure you comply with Tennessee business naming laws, but there are also many other factors to consider during the process. This includes making sure your business name is unique, suits your business well, aligns with all regulations, and includes a corporation designator.
And don’t overlook the importance of choosing a name for which you can reserve a matching website domain name that has not been taken. Additionally, you can consider any “doing business as” (DBA) names you may want.
Here are some guidelines to help you through the naming process:
A corporation’s board of directors is responsible for overseeing the operations of the business. As such, your business needs one to get started.
The initial incorporators — those filing the charter for the business — often appoint the initial board of directors. Afterward, the board is elected annually by shareholders (those who hold stock in the company; this can include the original incorporators). In Tennessee, only a single incorporator is needed, and only one member on the board is needed, although having more is generally advisable.
Incorporators may be directors and shareholders. In fact, a single person can start a corporation and hold all associated titles. But the three titles are associated with different roles within the business. To clarify, here are some of the different roles that exist in a corporation:
If your business has more than one incorporator, the initial board of directors should be appointed during an incorporators’ organizational meeting before filing the charter. The appointed directors should then meet to approve corporate bylaws, determine the share structure, and solidify other matters before filing. That way, your business starts on the right foot with plans clearly in place.
A registered agent is a person or entity that receives service of process and state correspondence on behalf of the corporation. Service of process can include legal documents, such as court summons. When filing your charter, you must list a registered agent who is an individual or entity with a physical address (not a P.O. box) in the state of Tennessee.
All corporations must maintain a registered agent with a business address at the same street address as the registered office. The registered agent must be available during normal business hours and may be:
We highly recommend going with a registered agent service for simplicity and protection. We can connect you with a registered agent service in Tennessee with one of our packages.
Filing the charter registers and establishes your business with the state. In this document, you will need to include:
This filing may be completed online on the Tennessee Secretary of State’s website or by mail, sent to:
Business Services Division
Tre Hargett, Secretary of State
State of Tennessee
312 Rosa L. Parks Avenue, 6th Floor
Nashville, TN 37243-1102
You’ll need to include the filing fee (check the Tennessee Secretary of State website for the current fee).
The next step is to have the incorporators or the directors create the corporate bylaws. The bylaws establish all of the rules and daily activities of your business. This is a good idea, but Tennessee also requires it for all corporations.
Your corporation’s bylaws may include:
While you’re not required to file your bylaws, by law you must keep them in a safe location with any other corporate records. It’s good to set up a corporate records book where you can keep all of your important papers. This corporate records book can include bylaws, minutes from meetings, and stock certificates.
Since the bylaws are a legally binding document, it’s wise to seek assistance when creating them. You can use our customizable template to get started.
Next on the list of things to tackle is the shareholder agreement. This is a document that outlines the rights and responsibilities of all shareholders and may include:
Again, this agreement can be drafted from a template, but you may want to utilize professional assistance. Your shareholder agreement should be kept with your other important corporate records.
Once your business is registered and rules are in place, it’s time to issue stock. When you filed the charter, you stated the number of stock shares authorized. The number of shares you issue should always be fewer than or equal to this number.
Stock may be issued publicly or privately. Privately issued stock is usually issued to the founders, employees, or a private group of investors. A public corporation makes a portion of its stock shares available for public purchase.
Shares of stock are how your company gets funded. The funds you use to get started are called capital. Before issuing stock, you should determine how much capital is needed. You can then divide this value among the stock shares you will issue to shareholders.
Note that when initially issuing shares, some may be issued as compensation for helping start the business. As a result, the shareholder they go to does not contribute monetary capital for them, and this should be accounted for when determining share price.
Each share is only issued once, but after issuance, shares can be traded and sold. All issued shares must be documented in the company’s annual report. Companies issuing public stock need to file quarterly statements with the Securities and Exchange Commission (SEC). They must also track how many shares are issued and to whom. You should also check with the Tennessee Department of Commerce and Insurance to see what might be needed at the state level.
If professional services are part of your business, you’ll need to make sure you’re licensed with the proper licensing agency.
In Tennessee, most businesses are required to have a business license from the local county clerk. Some cities have their own business license requirement, as well. Check with your local county and/or municipal clerk’s office for details and how to file. You must also register to pay a special tax for businesses.
Check at the local level for any business licenses or permits required by your city, depending on your business type and activities. You’ll also need to research whatever federal and/or state licensing is required for your corporation.
Since corporations are treated as distinct entities separate from the people involved in them, they require a federal employer identification number (EIN). This number acts like the corporation’s Social Security number for tax purposes.
To apply for an EIN, you need to visit the IRS website. The application can be completed online for free, after which you will receive your EIN. You should keep track of this number, as you will need it for future documentation and filing your business’s tax returns.
Remember that corporations must pay their own taxes separate from any taxes paid on shareholders’ earnings. This must be done at the federal as well as state levels by submitting the appropriate return each year. You can register your business for paying Tennessee state taxes here.
Corporations in Tennessee must pay franchise and excise taxes. Franchise taxes are based on net worth, while excise taxes are based on net earnings or income. You can register online for these.
Nearly all businesses selling goods or services in Tennessee will also have to pay a gross receipts tax the state simply calls a Business Tax. This is actually two taxes in one, a state tax and a city tax. The state has an extensive guide to understanding this tax here, but the minimum you have to pay is $22 per year.
In Tennessee, all corporations are required to file an annual report to update information with the state. Reports are due by the first day of the fourth month following the end of the company’s fiscal year.
Your Tennessee annual report can be filed online through the Tennessee Secretary of State’s website or printed and mailed. A filing fee is required with an additional fee if any changes are made to the registered agent information.
The cost of starting a Tennessee corporation can vary considerably, depending on the size and type of business and location. At a minimum, you will need to pay the fee for filing the charter. Additional fees may include:
We can help alleviate any stress of getting your corporation off the ground by assisting with many of the required steps for a low annual fee.
Many benefits come with starting a corporation in Tennessee. As a business type, the benefits of a corporation include:
However, there are disadvantages you should also be aware of to make an informed decision. The disadvantages are the tax structure (most corporations are taxed at both the corporate level and again at the individual shareholder’s level), and the fact that there’s a lot more red tape and paperwork involved than other structures, such as limited liability companies (LLCs).
How your corporation is taxed in Tennessee depends on whether it is a C corporation, an S corporation, or a nonprofit.
C corporations are taxed as separate entities, and most Tennessee corporations will have to pay a franchise tax, an excise tax, and the Business Tax, as stated above. Shareholders also pay taxes on their dividends.
S corporations, on the other hand, are pass-through entities. All profits are passed through to the business owner or owners, who must pay taxes on them. However, in Tennessee, this only applies to federal taxes, as the state does not recognize the S corporation status. For taxes from the state, your S corporation will basically be taxed just as a C corporation would.
Nonprofit corporations can apply to be exempt from paying federal and state taxes, provided they stay within the rules for nonprofit activity. However, anyone drawing a salary from a nonprofit corporation will pay income tax on that salary.
Visit the Tennessee Department of Revenue webpage for more information about additional taxes your corporation may be responsible for, including sales and use tax.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Because corporations are more complex in structure, they often come with more paperwork than a simpler business model, such as a limited liability company (LLC).
This includes corporate bylaws, the shareholders’ agreement, and reports.
An LLC is a pass-through entity for tax purposes, and it is useful in keeping the owners’ assets separate from business assets.
However, LLCs do not have a directors, do not issue shares, and aren’t recognized internationally.
You can change the name of your corporation in Tennessee by filing Articles of Amendment with the Secretary of State. You must also pay a filing fee for this.
A single person can form a corporation in Tennessee.
You can form your Tennessee corporation online through the Tennessee Secretary of State website.
To dissolve your corporation, you will have to file the Articles of Dissolution and pay a filing fee.