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Tennessee has emerged as a popular spot for new businesses in recent years. Its low cost of housing, major factories, and competitive corporate tax rate draws entrepreneurs from across the country. Whether you’re looking to start a business in the urban hubs of Nashville or Memphis, in smaller cities like Chattanooga or Knoxville, or one of the abundant rural regions, here are eight steps to get your new venture up and running in the Volunteer State.
Start a business in Tennessee
1. Choose a business idea
A great business idea can vault you past the competition. You may want to create a new product or service or improve an existing one. Here are two questions you can ask yourself to find your footing:
- Who is your customer? Analyze your target market, paying particular attention to customers who aren’t fully served by current offerings. You may want to survey prospective customers, investigate successful businesses in your sector, and look into industry trends. Market research can steer you in the right direction before you open your doors for business.
- What’s your projected profitability? It isn’t enough to simply make money. You have to make more than you spend over the long term. How many products or services do you need to sell to cover your costs and turn a profit? How long will this take?
2. Name your Tennessee business
Customers can glean a lot about a business’s product offerings, prices, and quality simply from its name. Consider two hypothetical florists: one called Flower Warehouse, the other called Lennie’s Desert Flora. You get an instant sense of how these two differ. Here’s how to secure a strong name for your Tennessee business:
- Get creative. Many successful businesses have unconventional names that stand out and stay lodged in people’s minds. Alliteration, rhymes, and pop culture references can do wonders. These business name guidelines can help if you need extra pointers.
- Register your original name. Before registering a business name in Tennessee, confirm that another business hasn’t already claimed it. The Tennessee Secretary of State provides a business name availability tool for this purpose. Once you have a name, file Tennessee Form SS-9425: Application for Name Reservation by mail or via the state’s online portal. The filing fee is $20.
- Include required phrases. Tennessee requires LLCs to include the term “Limited Liability Company” or its abbreviations (“LLC” or “L.L.C.”) in their official business names. Tennessee corporation names must contain the word “Corporation,” “Company,” or “Incorporated” (or an abbreviation of one of these words). Tennessee professional corporations must include the phrase “Professional Services Corporation” or the abbreviation “PSC.”
- Register a DBA. DBA stands for “doing business as.” The term applies to companies that organize under one legal business entity but interface with customers using an assumed name. For instance, Whittinghill Agricultural Ventures LLC might use Happy Chickens Grain Feed as an alias. To use a DBA, register an assumed name with the state of Tennessee for $20. Shopify offers a dive into the DBA process.
- Reserve an online domain name and social media handles. You want your customers to be able to find your business online. Secure a domain name and social media handles that align with your business name or DBA. You can use a domain name generator to create a URL for your business website.
3. Create a business plan
Many successful business owners craft and follow business plans that establish organizational objectives, plot growth, and establish benchmarks for success. Most of these also include a financial plan that balances business income with business expenses. If unsure how to start, consult a business plan template or browse business plan examples for inspiration. Comprehensive business plans include:
- An executive summary
- A mission statement and company description
- An outline of the organizational and managerial structure
- An operations and logistics plan, including forecasted business costs
- A portfolio of products or services
- Market research and analysis
- A marketing plan
- A customer segmentation report
4. Choose a business structure and get started
Your new business entity will likely take one of three business structures: a sole proprietorship, limited liability company (LLC), or corporation. Each has its benefits, operational requirements, and tax exposure. Here’s how the three structures differ:
- Sole proprietorship. Sole proprietorships suit businesses owned and operated by a single person. They’re not recognized as legal entities, meaning there’s no legal distinction between an owner’s personal and business expenses. For instance, if the company is sued, the owner could have to pay out of their personal savings. These informal business structures have few legal paperwork requirements and keep all their profits. Tennessee sole proprietorships may appeal to small business owners in low-risk industries with no employees.
- LLC. A limited liability company (LLC) is a formal business structure owned by individuals called LLC members. Members control their company’s operations without the oversight of a corporate board of directors and often abide by an LLC operating agreement. LLCs provide personal liability protection, meaning owners’ personal assets are not at risk if the LLC is sued. Many small business owners favor LLCs for their personal asset protection without the double taxation of a corporation. Regarding federal taxes, the IRS treats LLCs as pass-through organizations, meaning LLC profits and losses pass through to members, who report them on their personal income tax returns. To officially establish an LLC in Tennessee, you must file Articles of Organization with the Secretary of State.
- Corporation. A corporation is a legal business entity owned by shareholders. Like LLCs, corporations do not mingle company assets with their owners’ personal assets. The shares-based corporate business structure makes it easier to welcome new shareholders, sell the business to new owners, and raise capital for business expenses. Corporations are taxed at a corporate rate, which differs from the personal income tax rate. In Tennessee, the corporate excise tax rate is 6.5%. Corporations have a more complex legal structure and require more formalized accounting and tax filing than LLCs or sole proprietorships. Corporations must maintain corporate boards of directors, name corporate officers, and hold periodic meetings.
Incorporating in Tennessee
Tennessee requires new corporations to:
- File a corporate charter. Tennessee corporations must file a corporate charter via the Tennessee Secretary of State’s website or by mailing in a form. The filing fee is $100. If your corporation is based outside Tennessee and wants to expand into the state, file Tennessee’s Form SS-4429, and pay a one-time $600 fee to the Secretary of State’s office. You can maintain your foreign corporation status for $20 per year. The Tennessee Smart Start Small Business Guide provides further details.
- Designate a registered agent. Registered agents receive legal and tax correspondence on behalf of their company. Your corporation’s registered agent must have a physical address in Tennessee. A registered agent can come from your ownership ranks, or you can enlist a dedicated registered agent service.
Obtaining a federal employer identification number (EIN)
If your Tennessee business plans to hire employees, you must apply for a federal employer identification number (EIN) with the Internal Revenue Service. An EIN functions as a business’s federal tax number. You’ll need to present your EIN in various business ownership scenarios, from hiring employees to establishing a business bank account and paying business taxes. You also use your EIN to obtain a state sales tax number from the Tennessee Taxpayer Access Point (TNTAP).
5. Obtain business licenses and permits
Tennessee business law subjects most companies to licensing and permitting regulations. Many Tennessee business licenses are issued at the county level. The Tennessee Department of Revenue provides more information to get you started. Common Tennessee business licenses include:
- Standard business license. If your Tennessee business has gross receipts exceeding $10,000, you must obtain a standard business license from your local county clerk. The registration fee is $15.
- Minimal activity license. Tennessee businesses with gross receipts of more than $3,000 but less than $10,000 must obtain a minimal activity license from their local county clerk. You don’t need a license if your business income from gross receipts is less than $3,000. The registration fee is $15.
- Sales tax certificate. Tennessee LLCs must collect a 7% sales tax on goods and certain services, and localities can add additional amounts. You need a sales tax certificate to conduct retail sales in the state legally. To obtain one, create an account on the Tennessee Department of Revenue website and follow the prompts.
Many Tennessee industries require unique certification and business licenses, including medicine, architecture, accounting, insurance, home inspection, and cosmetology. Consult the Tennessee Department of Commerce & Insurance website for details.
6. Examine business insurance options in Tennessee
Even with the personal asset protection afforded by LLC and corporate business structures, most small business owners purchase insurance to shield their business assets against costly mishaps. In Tennessee, some types of insurance, like workers’ compensation insurance, are required by state law, while others are not but may be required by other entities like landlords or lenders.
The Tennessee Department of Commerce & Insurance provides resources if you want to explore different small business insurance policies. Standard business insurance policies include:
- Workers’ compensation insurance. Tennessee requires all businesses with five or more employees to purchase workers’ compensation insurance to cover on-the-job injuries.
- Commercial general liability insurance. Commercial general liability insurance, or CGL, protects businesses from financial claims involving property damage, bodily injury, libel, slander, and misleading advertising.
- Professional liability insurance. A professional liability insurance policy protects your business against claims that your advice or services caused a customer financial harm. For example, a real estate agent who fails to note mold in a basement can be liable for damages.
- Cyber liability insurance. Cyber liability insurance protects against financial losses from cyberattacks and data breaches. You may find this coverage invaluable if your business collects customers’ credit card numbers or other personal information.
- Commercial automobile insurance. If you own a vehicle in Tennessee, it must be covered by vehicle insurance, regardless if it’s for commercial or personal purposes.
7. Understand financial considerations
Choose a financial institution to handle your company’s business banking. Use this account to separate personal and business expenses when paying workers, business tax, and receiving income.
New companies often need cash infusions to get off the ground. Several Tennessee agencies connect business owners with funding, grants, and information about tax benefits, including the Tennessee Small Business Development Centers network and the Tennessee Department of Economic and Community Development. The US Small Business Administration is an independent federal agency that supports entrepreneurs and small businesses. It maintains an office in Nashville. It’s also worth exploring a merchant support service like Shopify Capital, designed to connect business owners to lenders and investors.
8. Market your business
Marketing starts with building a brand and identifying what makes it stand out. Marketers consider color schemes, fonts, logos, and slogans. Once you’ve honed in on your brand identity, you’re ready to promote your business online and in person. Popular methods include:
- Awareness content (articles, blog posts, videos, newsletters)
- Store displays
- Pay-per-click (PPC) web ads
- Social media accounts
- Influencer campaigns
- TV and radio ads
For further guidance, peruse online marketing resources like Shopify’s small business marketing guide.
Starting a business in Tennessee FAQ
How much does it cost to start a business in Tennessee?
Sole proprietorships are informal business structures and do not require any legal filings, meaning they have no startup costs concerning the Tennessee government. Tennessee charges LLCs between $300 and $3,000 to file the initial Articles of Organization, depending on the number of LLC members.. Corporations must file a corporate charter, found on the Tennessee Secretary of State’s website, for $100. To reserve a business name, file Tennessee Form SS-9425: Application for Name Reservation, either by mail or via the state’s online portal, for $20.
Is Tennessee a good state to start a business?
Tennessee has relatively low housing and labor costs and a competitive corporate tax rate of 6.5%. However, its sales tax rate, which averages 9.55% when combining state and local rates, is among the highest in the country. Tennessee’s state capital Nashville has seen pronounced growth in recent years and has a diverse economy, which, combined with a resilient manufacturing economy, has bolstered Tennessee’s status as a business hub.
What do I need to start a business in Tennessee?
To start a business in Tennessee, you must reserve a business name using Tennessee Form SS-9425: Application for Name Reservation, then file either Articles of Organization for an LLC or a corporate charter for a new corporation. To conduct retail sales, you must get a sales tax permit from the Tennessee Department of Revenue.