How to Start a Business in Tennessee

Starting a business in Tennessee can be an exciting venture. The state offers a supportive environment for entrepreneurs looking to establish their own companies. But the idea of navigating all the legal and administrative steps can be pretty overwhelming. Don’t worry, we’ve got you covered.

Let’s break down how to open a business in Tennessee.

Benefits of starting a business in Tennessee

Starting a business is a big step, and it’s natural to have some concerns about whether Tennessee is the right place for you. Let’s look at why it’s an appealing option.

One of the biggest benefits is the favorable business tax climate. Tennessee does not impose a personal income tax, which can significantly reduce your overall tax burden. This allows you to reinvest more of your earnings back into your business, helping it grow faster.

The low cost of living and affordable real estate are also major draws. Lower living expenses mean you can allocate more resources towards business operations. Affordable real estate options make it easier to find a suitable location for your business without breaking the bank.

Access to a skilled workforce is another key advantage. Tennessee is home to several reputable universities that produce a steady stream of talented graduates. This ensures you have a pool of qualified candidates to choose from when hiring employees. The presence of these institutions also means ongoing opportunities for collaboration and innovation.

Tennessee’s central location provides easy access to major markets. Situated within a day’s drive of many significant cities, the state offers logistical advantages that can help streamline your supply chain and distribution efforts. This central positioning makes it easier to reach customers and partners, enhancing your business’s reach and efficiency.

What business structure options are available in Tennessee?

When opening a business in Tennessee, choosing the right business structure is crucial, and it’s normal to feel a bit uncertain about which one is best for you. Let’s simplify it.

Sole proprietorship

A sole proprietorship is the simplest and most common business structure. It’s owned and operated by one person. You don’t need to file any special documents with the state to start a sole proprietorship. 

This structure offers complete control but also means you’re personally liable for all business debts and obligations. Your business income is reported on your personal tax return, simplifying tax filing.

Partnership

A partnership involves two or more people who agree to share the profits and losses of a business. There are two main types of partnerships:

• General Partnership (GP): In a general partnership, all partners share equal responsibility for the business’s debts and liabilities. Each partner’s personal assets can be used to satisfy business debts.
• Limited Partnership (LP): A limited partnership includes both general and limited partners. General partners manage the business and assume liability, while limited partners invest capital and have limited liability, meaning they’re only liable up to the amount they invested.

Partnerships must file a partnership agreement and register with the state. Income is passed through to the partners and reported on their personal tax returns.

Limited Liability Company (LLC)

An LLC combines the liability protection of a corporation with the tax benefits and simplicity of a partnership. Owners, known as members, are not personally liable for business debts. Profits and losses can be passed through to members’ personal tax returns, avoiding double taxation. 

LLCs require filing Articles of Organization with the Tennessee Secretary of State and paying a filing fee. This structure is popular for its flexibility and protection. 

Corporation

Corporations are more complex and involve more regulations. They are separate legal entities from their owners, providing strong liability protection. There are two main types of corporations:

• C Corporation (C Corp): A C Corp is taxed as a separate entity. It can have unlimited shareholders and can raise capital through stock sales. However, it faces double taxation—once on corporate profits and again on dividends paid to shareholders.
• S Corporation (S Corp): An S Corp allows profits and losses to be passed through to shareholders’ personal tax returns, avoiding double taxation. There are restrictions on the number of shareholders and who can be a shareholder.

Corporations require filing Articles of Incorporation with the state, adopting bylaws, and holding regular board meetings.

Nonprofit Corporation

A nonprofit corporation is formed for charitable, educational, religious, or scientific purposes. It enjoys tax-exempt status, meaning it doesn’t pay federal or state income taxes on profits related to its mission. Nonprofits must file Articles of Incorporation with the state and apply for tax-exempt status with the IRS. 

They must adhere to specific regulations regarding their operations and finances, ensuring that profits are reinvested into the organization’s mission rather than distributed to owners or shareholders. 

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How to start a business in Tennessee

Knowing how to start a business in TN can be daunting, but we’ll help you break it down step by step.

1. Choose a business idea and structure

Start by identifying a business idea that aligns with your skills and interests. Consider market demand and competition to make sure your business can take off. 

Once you have a solid idea, decide on a business structure before starting your small business. This could be a sole proprietorship, partnership, LLC, or corporation. Each structure has its own legal and tax implications, so choose the one that best fits your business goals. 

2. Create a business plan

Draft a detailed business plan outlining your business objectives, target market, competitive analysis, marketing strategy, and financial projections. This plan will serve as your roadmap, helping you stay focused and organized. It will also be useful when seeking funding from investors or lenders.

3. Select and register your business name

Choose a unique and memorable name for your business. Ensure the name is not already in use by searching the Tennessee Secretary of State’s business name database. Once you’ve confirmed availability, register your business name with the state. This step is crucial for establishing your brand identity and protecting your business name legally.

4. Register your business with the state

File the necessary documents with the Tennessee Secretary of State to legally register your business. The specific forms and fees will depend on your chosen business structure. This step officially establishes your business as a legal entity, allowing you to operate within the state.

5. Obtain an EIN and business licenses

Apply for an Employer Identification Number (EIN) from the IRS. This number is required for tax purposes and is necessary if you plan to hire employees. Additionally, obtain any required business licenses and permits specific to your industry. Compliance with local, state, and federal regulations is important for legal operation.

6. Open a business bank account

Set up a business bank account to keep your personal and business finances separate. This will simplify your accounting processes and help you manage cash flow more effectively. Choose a bank that offers services tailored to small businesses, such as low fees and convenient online banking options.

7. Secure funding and explore incentives

Determine how much capital you need to start and grow your business. Explore various funding options, including personal savings, loans, grants, and investors. Tennessee offers several incentives and programs to support small businesses, so take advantage of these resources to secure the necessary funding. 

8. Set up your business location

Choose a location that suits your business needs. Consider factors such as foot traffic, accessibility, and proximity to suppliers and customers. Whether you’re leasing or purchasing commercial space, ensure the location aligns with your business plan and budget.

9. Hire employees and get insurance

If your business requires employees, start the hiring process by posting job listings and conducting interviews. Ensure you comply with Tennessee’s labor laws and regulations. Additionally, obtain the necessary insurance policies to protect your business and employees. Common types of insurance include general liability, workers’ compensation, and property insurance.

10. Market and launch your business

Develop a marketing strategy to promote your business. Utilize online and offline channels to reach your target audience. Create a website, engage on social media, and consider local advertising. 

You should also plan a launch event or promotion to generate buzz and attract customers. Once you’ve executed your marketing plan, open your doors and start serving your customers. 

Does Tennessee require a business license to be self-employed?

No, Tennessee does not require sole proprietors to acquire a general business license in order to operate. However, other business licenses and permits may be required to stay compliant, depending on your business type. 

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

When it comes to starting a business in Tennessee, understanding the costs involved can help you budget effectively and avoid surprises along the way. Let’s break it down.

Business registration fees

The first cost you’ll encounter is the business registration fee. This fee varies depending on the business structure you choose. For example, registering an LLC typically costs around $300, while forming a corporation might cost $100. These fees cover the filing of necessary documents with the Tennessee Secretary of State.

Licenses and permit fees

Depending on your business type, you may need various licenses and permits. General business licenses, professional licenses, and industry-specific permits all come with their own fees. For instance, a general business license might cost $15, while professional licenses can range from $50 to several hundred dollars. Make sure to research the specific requirements for your industry to get an accurate estimate.

Insurance premiums

Insurance is another important cost. You’ll need different types of insurance, such as general liability, workers’ compensation, and property insurance. The premiums for these policies depend on factors like the size of your business, the number of employees, and the industry you’re in. On average, small businesses might spend anywhere from $500 to $2,000 per year on insurance premiums.

Professional service fees (legal, accounting)

Hiring professionals for legal and accounting services is often necessary. Legal fees can include costs for drafting contracts, obtaining trademarks, and other legal advice. Accounting fees cover services like bookkeeping, tax preparation, and financial planning. These services can range from $1,000 to $5,000 annually, depending on the complexity of your business needs. For more financial advice, check out these finance tips for small businesses.

Inventory, equipment, and supply costs

If your business involves selling products, you’ll need to invest in inventory. The initial cost of inventory depends on your industry and the scale of your operations. Additionally, you’ll need equipment and supplies to run your business. This could include computers, machinery, office supplies, and more. These costs can vary widely but expect to spend several thousand dollars initially.

Commercial space leasing or purchase costs

Finally, if you’re starting a business with a brick-and-mortar location, consider the cost of leasing or purchasing commercial space. Leasing costs depend on the location and size of the property. In Tennessee, commercial lease rates can range from $10 to $30 per square foot annually. 

If you decide to purchase property, you’ll need a significant upfront investment, including a down payment and mortgage costs. The price of commercial real estate varies by location, with urban areas typically being more expensive.

How Homebase helps you start a business in Tennessee

Now you know the basics about how to open a business in Tennessee. Starting a business is exciting!  But as you get the ball rolling, you might realize that  managing employees, scheduling, and payroll can be a challenge. 

That’s why Homebase was designed for small business owners. Our all-in-one app helps small businesses streamline hiring, team communication, and time tracking—all in one place.

Let’s make work easier for you. Get started with Homebase today and streamline your team management tasks. Sign up now and see how we can help your business thrive.