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:

• C corporations. A C corporation is owned by shareholders who elect a board of directors to oversee operations. They’re taxed as a separate legal entity and provide the greatest amount of protection between business and personal assets.
• S corporations. S corp earnings are split among shareholders and are taxed at that level only, not also separately as a business entity.
• Nonprofit corporations. Nonprofits can apply with the IRS to be tax-exempt from federal taxes (employees must still pay taxes on their wages), but they require significantly more paperwork and must adhere to strict regulations.

How do I form a corporation in Tennessee?

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:

Step 1: Name your corporation

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.

Naming Requirements for Tennessee Corporations

Here are some guidelines to help you through the naming process:

• Start by brainstorming a list of potential names. Names on this list should match your business’s purpose, and the more you have, the better. The next several steps will begin to narrow down your options. 
• The final version of any name you choose must contain the word “Corporation,” “Incorporated,” “Company,” or the abbreviation “Corp.,” “Inc.,” “Co.,” or words or abbreviations of like import in another language. This is known as a designator.
• Search your prospective business names on the Tennessee Secretary of State’s Business Name Availability page to eliminate any that are too similar to existing businesses. 
• Corporation names also cannot contain language implying they are organized for a purpose other than what is stated in the corporate charter.
• The name cannot suggest it is associated with any government agency or include anything indicating it will be engaged in illegal business.
• Once you’ve narrowed down your list as described above, the next task is to search for an available domain name to help ensure you can secure a website domain that matches your business name.
• Before making the final decision on your business name, make sure it isn’t already trademarked by someone else. You can search federal and state trademark databases to see if you’re in the clear. If so, you have the option of pursuing your own trademark.
• If you would like to do business under a name different from your official business name (often called a “doing business as” or DBA name), you will need to file an Application for Registration of Assumed Corporate Name and pay a filing fee.  
• Once you’ve settled on a name for your business, you may choose to reserve the name if you’re not ready to register it. You can do this by submitting an Application for Name Reservation with the required filing fee. Name reservations are good for 120 days before you need to renew the name registration or register your business.

Step 2: Appoint directors

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:

• Incorporators are responsible for starting the business and filing the initial paperwork.
• The board of directors oversees the operation of the business.
• Shareholders finance the business by owning shares in the company; they also often have the voting power when selecting the directors.
• Officers execute the duties associated with running the business.

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.

Step 3: Choose a Tennessee registered agent

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:

• an individual who resides in Tennessee;
• a Tennessee for-profit or non-profit corporation, LLC, or registered limited liability partnership (LLP); or
• a foreign (out-of-state) for-profit or non-profit corporation, LLC, or registered LLP that is authorized to transact business in Tennessee (T.C.A. § 48-249-109(a)(2)).

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.

Step 4: File the Tennessee Corporate Charter

Filing the charter registers and establishes your business with the state. In this document, you will need to include:

• The name of your business, along with the chosen corporation designator
• If the company is a financial institution, such as a bank or trust company, this designation will need to be listed
• Name and address of the registered agent
• Fiscal year schedule
• The number of authorized shares of stock (this is often determined by the directors or the incorporators)
• The business address of the principal office or location of the business
• Name and address of all incorporators
• An indication as to whether the corporation will provide professional services and what those services are
• Signature and name of the incorporator

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).

Step 5: Create corporate bylaws

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:

• A clear statement of your business purpose
• A list of founders and the rights, responsibilities, and qualifications of each
• A list of the directors and the rights, responsibilities, and qualifications of each
• Details of your management structure and the duties of each officer
• The annual meeting scheduling and goals for directors and shareholders
• How ownership and shares are distributed and how the stock is sold or transferred
• How changes are made or voted on
• Procedures for adding and removing members of the board of directors
• Rules for amending the bylaws
• Details of any committees and their responsibilities
• How conflicts of interest are to be handled

Store your Tennessee corporation bylaws

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.

Step 6: Draft a shareholder agreement

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:

• The names of all shareholders and their contact information (address, phone number, etc.)
• Shareholder responsibilities, including any actions that shareholders are allowed to take on behalf of the business
• Shareholder voting rights, including whether a simple majority or higher percentage may be needed for certain decisions
• How changes to the original agreement may be made
• How stock can be sold or transferred
• The financial obligation and time commitment for each shareholder
• A clear outline of how dividends are distributed
• A plan for the distribution of assets should the business close

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.

Step 7: Issue shares of stock

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.

Step 8: Apply for necessary business licenses or permits

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.

Step 9: File for an EIN and review tax requirements

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.

Other Tennessee Corporation Taxes

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.

Step 10: Submit your corporation’s first annual report

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. 

How much does it cost to start a corporation in Tennessee?

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:

• Registered agent service costs
• Name reservation fee
• Assumed name fee
• Fees to reserve a domain name and create a website
• Fees for assistance with paperwork
• Licensing and permit fees
• Annual report fee
• Fees assessed for amendments or other business filings
• Costs for an accountant or tax consultant
• Costs associated with renting space

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.

What are the benefits of a Tennessee corporation?

Many benefits come with starting a corporation in Tennessee. As a business type, the benefits of a corporation include:

• Protection of personal assets
• Legal recognition as a separate entity in and outside the U.S.
• The ability to issue stock (which can help with funding)

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 is a Tennessee corporation taxed?

How your corporation is taxed in Tennessee depends on whether it is a C corporation, an S corporation, or a nonprofit.

Types of Tennessee Corporations

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.