Licensed professionals in Tennessee can form a business entity known as a professional limited liability company (PLLC), which is a variation of a traditional limited liability company (LLC). It’s not as hard as you might think. We’ll walk you through the steps below.
Who can form a PLLC in Tennessee?
In Tennessee, an individual or group of individuals who are licensed professionals can start a PLLC. Although they are easy to form, they don’t offer the same high-level liability protections as a professional corporation (PC).
To start a professional limited liability company, all members must be qualified, licensed professionals to form the PLLC. There must also be no disqualified persons listed as members or owners. Also, it’s important to note that Tennessee does allow nonprofessionals to be members of a PLLC if the licensing authority for their profession permits them. So, for some industries, nonprofessionals may or may not be acceptable members.
Choose a name for your Tennessee PLLC
Tennessee PLLC Naming Restrictions
According to the Tennessee Revised Limited Liability Company Act, professional limited liability companies must contain “professional limited liability company,” “P.L.L.C.,” or a like abbreviation. The state doesn’t care whether you use punctuation or not. For example, you could use “PLLC” or “P.L.L.C.” However, you cannot use the words “corporation” or “incorporated,” or any abbreviations of them.
The name also has to be available. Before going any further, check whether your preferred name is available by going to the business name database on the Secretary of State’s website. If your name is available, you can reserve it for 120 days by filling out the Application for Reservation of Limited Liability Company Name form and sending it to the following address along with the $20 fee.
312 Rosa L. Parks Ave.
6th Floor, William R. Snodgrass Tower
Nashville, TN 37243
Alternatively, you can use the ZenBusiness name reservation service to save yourself time. In addition to picking out a business name, you should think about your domain name. You’ll want one that aligns with your business name so that your website is easy to find. Let ZenBusiness help you with our domain registration service.
Select a Tennessee registered agent
Every PLLC in Tennessee is required to have a registered agent in TN. An entity that serves as a company’s registered agent may accept legal notices, business- or tax-related documents, and documents sent by the Secretary of State. Registered agents must be residents of Tennessee and over the age of 18. They also must be available during standard business hours.
If you’re not sure about who to elect as your PLLC’s registered agent, we’re more than capable of filling that role. Here at ZenBusiness, we partner with reputable firms that act as registered agents on behalf of your business. Having a third-party registered agent comes with several benefits. The biggest is that you don’t have to be present in your office during regular business hours, which is vital if you’re on-call or have appointments.
Complete and file Tennessee Articles of Organization
Tennessee allows any qualified individual who’s involved with your business to file Articles of Organization. Before completing this form, you’ll have to decide if your PLLC will be member-managed or manager-managed. Member-managed occurs when members oversee the day-to-day activities of your PLLC and make decisions on the PLLC’s behalf. Manager-managed occurs when you appoint a member(s) or hire an individual(s) from outside the PLLC with or without a stake in ownership to manage your PLLC.
You’ll also need contact details for your members or managers, information about your registered agent, and other details, including:
- The name of your PLLC
- Your principal address
- Your fiscal closing month
- The management structure
- The number of members
- The expected duration of the PLLC
The form can be submitted online, by mail, or in person. Tennessee charges a $50 filing fee per member with a $300 minimum and a $3,000 maximum. The Tennessee Secretary of State accepts checks, money orders, and cashier’s checks. Credit cards are accepted online with a nominal convenience fee.
Handle Tennessee tax obligations
Every business has tax obligations. As with businesses in every state, PLLCs in Tennessee have three types of tax obligations: federal, state, and local.
Every company that employs people — even just one employee — must have an Employer Identification Number. Best known as an EIN, the IRS issues this nine-digit number that’s required for many business functions. Single-member LLCs and PLLCs may use the member’s Social Security Number as an EIN, but for liability purposes, it is smarter to get a separate EIN for your business. You can obtain an EIN from the IRS yourself, or you can avoid the hassle and have ZenBusiness do it for you with our EIN service.
By default, PLLCs and LLCs are taxed as pass-through entities, meaning that the business itself isn’t taxed on profits before they’re distributed to the members, who then pay taxes on their share of the profits on their personal tax returns. This avoids the “double taxation” experienced by C corporations, which are taxed at the business level and again at the personal level when profits are distributed to shareholders. PLLC members also have the option of being taxed as a C corporation or S corporation, which can be financially advantageous to some PLLCs.
If you run a Tennessee professional limited liability company, you almost certainly won’t have to pay state business taxes. The state uses 10 classifications of businesses to determine how much tax they pay. Most professions fall under Classification 3, which are fully exempt from state business tax, including the following:
- Legal services
Although you’re exempt from business taxes, you’ll have to pay 6.5% on net earnings for franchise and excise taxes. All LLCs, corporations, and limited partnerships have to pay franchise and excise taxes in Tennessee.
You’ll also pay state unemployment insurance tax. Unlike most other taxes, this tax rate changes every year. The state uses a reserve-ratio formula where the numerator is your business’s unemployment insurance account and the denominator is your average taxable payroll across your PLLC’s three most recent years of business.
If your business sells services, not physical goods, you won’t have to remit sales and use taxes in most municipalities throughout Tennessee. However, if you sell products that are incidental to your professional services, like guides or books, you may have to collect sales or use taxes. Make sure you check with a local tax attorney or Certified Public Accountant before opening your doors, however, just to be sure.
Obtain Tennessee business licenses and permits
Other than the registration documents mentioned earlier, you will likely need either a “minimal activity license” or a “standard business license” from the county and/or municipal clerk where your business is located. If your business has $3,000 to $10,000 in gross receipts, you’ll need the minimal activity license, but gross receipts of more than $10,000 require standard business license. You’re not permitted to operate your PLLC until you have the required license posted at your place of business.
Industry-Specific Regulatory or Professional Licenses
As a licensed service provider, your trade will likely be licensed by the Tennessee Department of Commerce. However, some professions are licensed by their own regulatory agencies. For example, the Supreme Court of Tennessee’s Board of Professional Responsibility handles all attorney and law firm licenses within Tennessee.
Due to the sheer variety of licenses available, there aren’t any central databases or directories to find this information. At the end of the day, it’s your responsibility to nail this info down! However, you can use ZenBusiness’s business license report service to get started.
Acquire insurance for your Tennessee PLLC
Your PLLC may require several types of insurance. Some are required while others are optional. Tennessee requires all businesses with at least five employees to get workers’ compensation insurance or meet requirements to self-insure.
General business insurance is just as it sounds. It’s a catch-all insurance policy. Slander, bodily injury, and property damage are among several of the most common coverage areas.
Although professional malpractice insurance isn’t required, it covers you in case clients claim they were harmed by your services. This is typically only worthwhile for certain professions, including lawyers and medical professionals.
Open a business bank account
You’re almost done! Whether you choose an expensive commercial account or a no-frills small business banking option, opening a business bank account should be your next step in this order of operation. Make sure to have your EIN, Articles of Organization, and other business documents on hand.
Ready to kick-start your business?
At ZenBusiness, we are proud to support small businesses through a variety of different tools and services. Whether you need a registered agent service, want to reserve a business name, or are looking to register a domain, our goal is to help you stay on the road to success. Check out our services and contact us today to see how we can help you grow your company.
Tennessee PLLC FAQS
- What are the filing fees for a Tennessee PLLC?
Filing fees start at $300 to a max of $3,000. Tennessee charges $50 per member. Filing fees can be paid by check, cashier’s check, or money order. Credit cards are accepted online for an additional fee.
- Do I need a lawyer to form a Tennessee PLLC?
No. You can create a PLLC yourself without any professional legal advice. However, it’s a good idea to talk to an attorney if you have questions.
- Does Tennessee have a professional corporation (PC) entity?
Yes. Professional corporations are more complex than PLLCs. However, PCs can offer greater protections against financial and other legal liabilities.
- Can professionals from different fields form a Tennessee PLLC together?
Yes. In Tennessee, PLLCs can render professional services within multiple fields. However, members who participate in these areas of business should be licensed by the leading regulatory agencies in those professions. Members should not cross-practice in two or more areas of business unless they are properly licensed by all licensing entities.
- How will I be taxed as a Tennessee PLLC?
You’ll pay federal taxes as a pass-through entity, a C corporation, or an S corporation. It’s your choice. On the state level, although PLLCs sidestep most corporate taxes, you may have to pay franchise and excise tax. If you have one or more employees in Tennessee, you’ll also pay state unemployment insurance tax. Finally, since PLLCs typically sell services, not goods, you may be free of obligations to pay sales and use taxes on the local level.