Are you a licensed professional looking to form a business around providing a professional service? If so, a Tennessee professional corporation (PC) might be the entity type for you.
If you’re wondering how to start a professional corporation, look no further. We’ve created this guide to Tennessee professional corporations so that you know what they are, whether this is the right entity type for your business, and how to form one.
When you need help running or growing your business, ZenBusiness is ready to provide a helping hand.
Determine whether a Tennessee professional corporation structure is the right entity for you
You may be wondering, What is a professional corporation in Tennessee? In short, professional corporations are businesses that are owned and operated by licensed professionals. In fact, only those who perform professional services may form a professional corporation in Tennessee.
Specifically, the Tennessee Professional Corporation Act defines a “professional service” as one that “may be lawfully rendered only by a person licensed or otherwise authorized by a licensing authority in this state to render the service.”
One of the primary advantages of forming a Tennessee professional corporation is that owners of the business entity will generally not be held personally liable for the wrongs or malpractice of any other individual owners providing professional services. Tennessee also allows licensed professionals the option of forming a professional limited liability company (PLLC) instead of a PC. And while PLLCs are typically easier to form, it’s important to note that they don’t offer the same high-level liability protections that are afforded to owners of a Tennessee PC.
Choose a name for your Tennessee professional corporation
There are a few important things to keep in mind as you select a name for your Tennessee professional corporation.
Tennessee law requires professional corporations to satisfy the naming requirements for normal corporations. A Tennessee professional corporation also must include one of the following phrases or abbreviations in its name:
- Professional corporation
- Professional association
- Service corporation
Additionally, the name of your PC may not contain any language implying that the business was incorporated for a purpose other than to provide the professional service it’s offering.
Check whether your preferred name is available
Once you know the legal requirements, you’re ready to start thinking about your preferred business name. Sometimes, however, another Tennessee business may already be using the same name or a name similar to the one you have in mind.
Thus, you will need to check whether your preferred PC name is still available. You can do so using the Tennessee Secretary of State Business Information Search database, and if you’re having trouble with the tool, use our Tennessee name search guide to walk you through the process.
Reserve a name and domain
At ZenBusiness, we can help you verify that your preferred name is available, reserve your business name, and register a domain name. By doing so, you can see that no one else takes your business or domain name while you finish the PC formation process.
Select a Tennessee registered agent
Tennessee also requires all registered business entities to designate and maintain within the state a registered agent. The purpose of the registered agent is to ensure that you receive legal notices and documentation on behalf of your PC. Tennessee allows the registered agent to be either an individual or a corporation.
Don’t know whom to designate as a registered agent for your Tennessee professional corporation? With ZenBusiness’s registered agent services, you can rest easier knowing that you will be connected with a local agent who can help your business meet its legal obligations.
Complete your Tennessee Charter
Next, it’s time to complete your charter, sometimes referred to in other jurisdictions as the Articles of Incorporation.
The PC charter must include the:
- Corporate name
- Number of shares the corporation is authorized to issue
- Street address and zip code of the corporation’s initial registered office, the county in which the office is located, and the name of its initial registered agent at that office
- Name, address, and zip code of each incorporator
- Street address and zip code of the initial principal office of the corporation
- Statement that the corporation is operated for profit
Each of these items must be included in the PC charter. However, there are certain additional items that may be included but aren’t required. Optional information that you may include in your Tennessee PC charter include:
- The names and addresses of individuals who are to serve as the initial directors of the PC
- Provisions regarding the purpose of the corporation, outlining the management of the business, or defining the powers of the corporation, its board of directors, and shareholders, so long as such provisions aren’t inconsistent with law
- Provisions eliminating or limiting the personal liability of a director or shareholders in certain circumstances
The professional corporation’s existence formally begins with the filing of the charter by the Secretary of State. This filing serves as conclusive proof that the incorporators have satisfied conditions required by the state to incorporate a Tennessee professional corporation. Thus, it’s important that this is done correctly and that all requirements are satisfied.
Additionally, a Tennessee professional corporation may not render professional services in the state until it delivers a certified copy of its charter for filing to each licensing authority with jurisdiction over a professional service that requires it.
Establish a corporate record in Tennessee
Tennessee law also requires all corporations to establish and maintain permanent corporate records of the business, including:
- Minutes of all shareholder and board of director meetings
- Record of all actions taken by the shareholders or board of directors without a meeting
- Record of all actions taken by a committee of the board of directors in place of the board on behalf of the corporation
- Accounting records
- The charter
- Resolutions adopted by the board of directors creating one or more classes or series of shares
- All written communications to shareholders generally within the past 3 years
- Any financial statements prepared for the past 3 years
- A list of names and business addresses of the current directors and officers
- The most recent annual report delivered to the Secretary of State
Corporate records are crucial as they’re required by law. Additionally, however, keeping accurate records is vital to the successful maintenance and operation of the business moving forward.
Designate a Tennessee professional corporation board of directors
Next, you’re ready to designate a board of directors for your Tennessee professional corporation, which will be crucial to the running of your PC.
The board of directors has the authority to hold meetings, appoint officers, provide oversight, and exercise other powers as set forth in the charter.
Create Tennessee corporate bylaws
The initial incorporators or the board of directors must adopt bylaws for the professional corporation. These bylaws may contain virtually any provision regarding the management of the business and regulation of affairs of the corporation, so long as the drafted bylaws aren’t inconsistent with the charter or Tennessee law.
Bylaws for a Tennessee professional corporation will typically address topics such as:
- How often the board of directors will meet
- Management structure details
- Responsibilities of the board of directors
- Increasing quorum or voting requirements for the board
- Shareholder voting procedures
- The number of directors that will be elected
- Dispute resolution procedures
The bylaws for your Tennessee professional corporation fill in a lot of the gaps that aren’t addressed by Tennessee law or your company charter. Take the time to see that these bylaws are well-drafted and will support the successful running of your business.
Hold your first board meeting
Now you can hold your first board meeting. Agenda items for this first meeting of the board will typically include:
- Reviewing and ratifying the bylaws
- Issuing shares of stock
- Designating officers to manage day-to-day operations
- Selecting desired tax status for the corporation
- Discussing and electing a permanent board of directors
As always, don’t forget to keep detailed minutes for this first board meeting and all those thereafter.
Handle your Tennessee tax obligations
It’s also imperative to review and understand your business’s tax obligations. Failure to do so can result in serious legal ramifications.
At the federal level, your PC will be taxed either as a C corporation or an S corporation. By default, your Tennessee PC will be taxed as a C corporation. C corporations are taxed twice — once at the corporate level and again at the individual level on the shareholders’ personal tax returns.
By contrast, you can instead elect to be taxed as an S corporation. S corporations do have more restrictions. However, if you qualify, your PC will benefit from pass-through taxation. This means that income won’t be taxed at the business level. Rather, income will only be taxed at the individual shareholder level.
Regardless of which type of tax status you choose, don’t forget that your Tennessee PC will also be subject to state and local tax obligations. Thus, it’s a good idea to speak with a qualified tax professional to better understand all these requirements.
Let ZenBusiness help you get started on complying with your tax obligations by securing your employer identification number (EIN) from the IRS. This number acts as an identifier for your business when you file your taxes.
Obtain Tennessee business licenses and permits
To reiterate, Tennessee professional corporations may only be formed by licensed professionals providing professional services within the state. Accordingly, it’s imperative that you obtain all requisite business licenses and permits before providing any services. This will include any general state and local business licenses as well as any industry-specific regulatory or professional licenses needed for your particular profession.
While there is no central authority where you can verify all licenses or permits you need for your Tennessee PC, ZenBusiness can provide you with a report listing the licenses and permits your business will need to operate based on your activities, industry, and location. However, remember that many requirements vary by industry and even at the federal, state, and local levels. Accordingly, it’s ultimately your responsibility to obtain all licenses and permits needed to operate your Tennessee professional corporation.
Acquire insurance for your Tennessee professional corporation
Most businesses with employees must carry workers’ compensation insurance in Tennessee.
Aside from that, however, the State of Tennessee doesn’t require any specific liability insurance coverage for professional corporations. Nevertheless, it’s almost always recommended to obtain insurance for your Tennessee PC.
Examples of insurance you might consider for your Tennessee professional corporation include:
- General business insurance
- Professional malpractice insurance
- Any other industry-specific insurance that may be applicable
Obtaining insurance is an important step to take to better protect your business from potential legal liability and financial losses.
Open a business bank account
Now you’re ready to open a business bank account. This business account will need to be opened in the name of the PC and completely separate from any personal accounts you may have.
You might not think this is necessary. However, doing so is imperative. Failure to keep separate accounts can result in the commingling of personal and business funds, which can raise serious issues and potential legal disputes for your business in the future.
Need help with legal requirements for your Tennessee business?
At ZenBusiness, we pride ourselves on taking complicated business processes and making them more simple and manageable.
Managing and growing your business can be complicated and time-consuming, but we want to help. Take a look at the many services we provide at ZenBusiness and see how we can help you get started today and avoid future complications.
Tennessee PC FAQS
What are the filing fees for a Tennessee professional corporation?
There are a number of fees that you may have to pay for a Tennessee professional corporation. However, these fees vary and are subject to change. You can stay up to date by checking in periodically with the Tennessee Secretary of State For Profit Corporation Fee Schedule.
Do I need a lawyer to form a Tennessee professional corporation?
There is no legal requirement stating that you must have a lawyer to form a Tennessee professional corporation. Nevertheless, having an attorney for your business can be extremely helpful if you ever need to seek legal advice or consultation.
Does Tennessee have other professional entity types?
Tennessee allows the formation of professional limited liability companies (PLLCs). However, PLLCs don’t offer the same high-level liability protections that are afforded to owners of a Tennessee PC.
Can professionals from different fields form a Tennessee professional corporation together?
No, professionals from different professional fields may not form a Tennessee PC together. According to Tennessee law, a PC may not render any professional service other than the professional service authorized by its charter.
Will I be taxed as an S-corp or C-corp in Tennessee?
The short answer is that it depends. The default for Tennessee corporations is incorporation as a C corporation. However, you may elect to be taxed as an S corporation instead if you meet certain IRS requirements.