How to start a business in Tennessee in 8 steps
As many Tennesseans know, Tennessee is home to much more than country music, mountains, and whiskey. The Volunteer State is also home to a robust economy with a burgeoning downtown scene slowly becoming a new hub for entrepreneurial innovation.
If you’re looking to start a new business in Tennessee, the following 8 touchpoints will provide a step-by-step guide to transforming a business idea into a money-making reality.
1) Think about the type of business you want to start
Do you have a particular skill set you’ve always thought you could monetize? Are you proficient at what others may consider a “hobby,” but has always been a gift and a passion for you? When thinking about what type of business to start, reviewing the types of activities you can’t live without can provide you with the necessary framework from which you can launch a company that’s most aligned with who you are at your core. The more aligned your business is with your values, passions, and skills, the more motivated you’ll be to put in the required energy for your company to be successful.
We’ve all worked jobs that have left us drained and devoid of happiness. When choosing the type of business you want to start, it’s vital to remember those feelings of displeasure and what caused them. If you hate working with electronics, it’s probably not a great idea to start the next laptop brand. If you feel worn out from continuous batches of outgoing emails and phone calls, forming a small B2B marketing company that helps businesses scale is also probably not your best move. When you start your own company, the only person you need to appease is yourself, which is why it’s imperative to be honest with yourself about your likes, dislikes, skills, and what ultimately makes you feel happy.
After taking a “happiness” inventory and reviewing the interests that inspire you, you’ll want to see if you can monetize any of those passions. From there, you’ll want to narrow your company idea targets to those that could potentially turn a profit and draft a business plan for each. Then, select the idea that offers the highest potential profitability and the highest potential for daily happiness.
2) Set up your legal structure
With your business idea selected, you’ll then need to bring it one step close to actualization by choosing a business structure—or legal structure. The legal structure for your business denotes how your company’s taxes will be assessed, which differs depending on the business entity you select. In the state of Tennessee, there are 4 main types of legal structures you can choose from:
- Sole Proprietorship: Being a sole proprietor means you, as a business owner, are responsible for any profit or loss incurred by your operation. The sole proprietorship is run through your Social Security Number and is not considered separate from you, the business owner. There’s no paperwork to file when creating a sole proprietorship, which is why it’s typically viewed as the most simplistic Tennessee business entity to set up.
- General Partnership: A general partnership consists of two or more sole proprietors merging to form one company. General partnerships are easy to set up and are best suited for those running more causal ventures since they are “pass-through” entities and do not provide any tax benefits or liability protections associated with corporations.
- Corporation: Corporations, on the other hand, are their own separate entities. While they tend to be more complex and are subject to more formal regulations than proprietorships and partnerships, they offer small business owners both legal and liability protections that shield business owners’ personal assets in the event of a lawsuit. In Tennessee, there are three main types of corporations: The C corporation, the S corporation, and the PC corporation, each subject to a different form of taxation. To set up a Tennessee corporation, you’ll need to submit your Corporate Charter to the Tennessee Secretary of State along with a $100 filing fee.
- Limited Liability Company (LLC): Limited Liability Company (LLC): The Limited Liability Company combines the simplicity of a sole proprietorship with the legal protections of a corporation but without the tax complexities. To set up a Tennessee LLC, you’ll need to file Articles of Organization with the Tennessee Secretary of State along with a sliding scale filing fee that starts at $50 per LLC member, with a $300 minimum and a $3,000 max.
There’s no universal business structure that’s best for all small businesses. Instead, it comes down to the unique operating design of your company, your business’s needs, and what you feel positions your startup for the best chances of longevity and success.
3) Name and register your business
Once you choose your business structure, you’ll want to put your creative cap back on and select a name for your company. However, before you can move forward with name registration, you’ll need to make sure the name you desire is available for use in the state of Tennessee. You can confirm business name availability by using the name search function on the Tennessee Secretary of State website. If your name is available, you can move forward with registration. Otherwise, you can put the name on hold by filing an Application for Reservation of Name—also with the Tennessee Secretary of State—which will reserve the name for 4 months and costs a $20 filing fee.
If you’re choosing to conduct business under a different name than the name you’re selecting for your company, you’ll need to file a Registration of Assumed Name for a “Doing Business As” (DBA) and pay a $20 filing fee. If you’re a sole proprietorship or general partnership, your trade name form can be acquired from and filed with the Register of Deeds where your business is located. If you’re a corporation or LLC, you’ll need to complete your paperwork with the Tennessee Secretary of State.
To assist with all of your company’s tax and legal paperwork, you’ll need to appoint a registered agent, which is a requirement in Tennessee. If the registered agent is an individual, they must have a physical street address in Tennessee. If the registered agent is a company like a registered agent service, it must legally be able to conduct business in Tennessee.Your registered agent can help you file the required paperwork to formalize your business entity with the state of Tennessee and assist you at the federal level by submitting an application for your company’s Employer Identification Number—or tax ID—with the Internal Revenue Service (IRS). Depending on what type of business structure you’ve selected, you may need to file different forms, so you must carefully review your registration requirements. If information slips through the cracks, it can delay your business’s approval process—or worse—cause you to re-submit your paperwork.
4) Apply for business licenses and permits
Even though there’s no mandatory general business license required in the state of Tennessee, there are several licenses and permits you may be required to obtain—depending on the nature of your work—to operate your startup.
Most businesses in Tennessee must obtain an annual business tax license, the most popular of which are the Minimal Activity Business License and the Standard Business License. If your company sells goods or products, you’ll most likely need to secure a Sales Tax Permit from the Tennessee Department of Revenue. If your company provides certain professional services, you may need to apply for a professional service license.
To ensure your business complies with all federal and state laws and to better understand which permits and licenses apply to your specific industry, check the Small Business Administration (SBA) website, the license and permits page on the Tennessee State Government website (tn.gov), and the county clerk’s office.
5) Choose a location
Some businesses—like fisheries—are location-dependent. If you’re in the business of cultivating fish for commercial purposes, you’ll need to be close to water. If you’re operating a brewery, you’ll need to be in an area where people frequently come and go. For other startup ventures like 2 to 3 person tech teams who work behind laptops, shared office space in Nashville or Memphis might suffice. When choosing a location for your business, you should think about what your business requires to operate since its needs will make specific areas more favorable than others.
The other factor to consider when choosing a location for your company is if you actually need a physical storefront or office. Today’s remote workforce continues to grow exponentially, so not having a physical location is no longer seen as a detriment to business since teams spread across the globe can communicate in real-time despite being in separate geographic areas. While not all business ventures will be able to forgo a physical office or storefront, you should add “home office” to your list of potential location options if your industry allows for it.
6) Open a bank account and prepare for future taxes
An important element to being a successful entrepreneur is learning to keep your work and personal expenses separate. The easiest way to do this is to open a business bank account and a business credit card, which will ensure you’re not mixing work and pleasure.
To open a business bank account in Tennessee, you’ll first want to choose a financial institution you trust, which in many cases is the bank that already handles your personal assets. The documents you’ll then need to provide are: Your driver’s license, your Social Security Number for your sole proprietorship or general partnership, your Articles of Incorporation for your corporation, or your Articles of Organization for your LLC.
Opening a business bank account is also a necessary step along your entrepreneurial journey for when you’re planning to hire employees and pay your taxes. In Tennessee, all businesses must pay a 6.5% excise tax, a state tax imposed on your company’s net income for the year. LLC’s and corporations must also pay for the state’s franchise tax. When it comes to hiring employees, you’re also responsible for handling tax withholdings, unemployment insurance, unemployment taxes, and payroll withholding taxes. Hiring a business accountant is a fantastic way to make sure your business complies with all federal tax and state tax laws, which alleviates the need for you to understand your income tax return and allows you to focus more on growing your business.
7) Purchase business insurance
Just like how a business accountant helps remove unnecessary stress from your day by handling the bookkeeping for your business, a business insurance company can remove unnecessary anxiety from your mind by protecting your business in the event of unforeseen or unexpected life circumstances. In Tennessee, there are 3 main small business insurance options that might be relevant to your venture:
- General Liability Insurance: A basic insurance policy that helps protect your company in the event of a lawsuit.
- Professional Liability Insurance: This insurance policy is primarily used by those who sell or provide a service to others and helps protect them against any malpractice lawsuits.
- Workers’ Compensation Insurance: A policy designed for employees that protects them if they’re injured while working for you. The state of Tennessee requires you to purchase workers’ compensation insurance if you have 5 or more employees, which includes LLC officers and members.
Figuring out your company’s business insurance needs can be an overwhelming process, which is why it’s pivotal you choose a reputable business insurance company that will know what types of business insurance are most beneficial to the health and longevity of your company.
8) Create a marketing plan, hire employees, and more
Congratulations! You’ve now successfully made it through the formation process for starting your own business in Tennessee, which is a huge milestone. But now, the real work of growing your business begins. For many small business owners, that work entails drafting a marketing plan, securing a domain name and creating a website, hiring employees, compiling business resources, and figuring out how to publicize and advertise their companies to their customers. In Tennessee, your growth and expansion efforts can be helped by free social media tools that can tap you into the state’s robust entrepreneurial network.
The journey of growing your startup will involve highs, lows, ups, and downs, but you can move forward with confidence knowing Huckleberry has your back each step of the way. Whether it's providing insurance quotes within 5 minutes or less or helping you find the right types of insurance for your organization, you can rest easy knowing your small business insurance needs are always taken care of now and in the future.