Once verified that the chosen business name is available, it’s necessary to determine how the business will be defined legally.
Liability and taxes are defined by the business’s legal structure, as well as the ease or difficulty for growth. Don’t worry if you’re not quite ready to form your business entity just yet, you can reserve the name by filing a Name Reservation Form with the Tennessee Secretary of State office through this link.
Sole Proprietorship
This is when the business is owned solely by the individual.
Pros:
1. Easiest and least expensive form of ownership to organize.
2. Sole proprietors receive all income generated by the business to keep or reinvest.
3. The business is easy to dissolve, if desired.
Cons:
1. Sole proprietors are responsible for the business as individuals, thus personal assets are vulnerable in a legal action.
2. May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans.
3. Difficult to establish monetary value of company for sale.
General Partnership
This is when your business is owned by the individual along with one or more other individuals.
Make sure to file the SS-4514 Form, too. Click this link to find the SS-4515 form .
Pros:
1. Simple and inexpensive to set-up and operate.
2. All of the profits go to the company partners.
Cons:
1. You're equally liable for decisions that your partners make.
2. It's more difficult to change ownership if you decide you would like to leave.
3. As an individual, you are tied to your company. Therefore, during legal action, your personal assets are also vulnerable.
Remember: If you choose either a General or Sole Proprietorship, you should consider getting a trademark of your business name. Follow this link to trademark your business name in Tennessee.
Limited Partnership
This is when the business has one or more general partners and one or more limited partner.
Pros:
1. Limited partners’ personal assets are generally less vulnerable during any legal action against the business.
2. All profits go to the partners.
Cons:
1. Contrary to Limited partners, General partners' personal assets are more vulnerable in a legal action.
2. If you decide you want to leave the business, it is more difficult to change ownership.
Limited Liability Partnership
This is a general partnership with some limited liability options.
Most new businesses do not start out as a Limited Liability Partnership. These types of businesses usually develop when a general partnership desires limited liability, but cannot organize as a limited liability company.
This is when your business is created as a separate legal entity and returns profit to its owners.
Not-For-Profit Corporations: This is when the business is created as a separate legal entity and will use surplus revenues to achieve its goals rather than distributing them as profit or dividends.
For Profit Corporations: Owners of a corporation are called shareholders. There are two general types of corporations: C and subchapter S.
Pros:
1. Shareholders have limited liability for the corporation's debts and judgments in legal actions.
Cons:
1. Corporations are a more complex type of legal entity. There is more paperwork to comply with regulations at the local, state, and federal level.
C or Standard
1. Taxed twice: Shareholders pay taxes on their earnings and the corporation also pays its own taxes.
2. May be domestic or foreign and works for large groups of investors.
Subchapter S (Small Business Corporation, files with IRS)
1. Can avoid paying taxes twice by passing items to shareholders.
2. Must be domestic and limited to no more than 100 citizen or legal resident shareholders.
Foreign-Owned (Out of State) Corporations (all types)
If you incorporated your business outside of Tennessee and you want to relocate or conduct business in Tennessee, you need to decide if you want to operate as a foreign-owned business or establish a Tennessee business. To register, a foreign-owned business must submit a Certificate of Existence/Authorization or letter of good standing from the original state.
The Secretary of State's office offers online tools to help you form or register a new business. In addition, your local county or municipal clerk can help connect you with a business license.
Identify the basic tax obligations of operating your business in Tennessee
Business Identification Number: If your business is a partnership or corporation: you must have a Federal Employer Identification Number (FEIN). You must also have an FEIN if you pay wages to anyone other than yourself. The IRS issues these. You can apply for a FEIN by following this link .
If your business is a sole proprietorship or a general partnership, your Social Security Number (SSN) will be your business entity identification number. Both of these are not liable for franchise and excise taxes.
Remember: Business information is public record, and having an FEIN gives your business an identity number that is NOT your Social Security Number.
About Tax Registration: The Tennessee Department of Revenue requires that you register your business. Register your business at the Tennessee Department of Revenue using this link.
The Department of Revenue also provides more information on all taxes your business might be subject to. You can attend a new business workshop to learn more. Follow this link to find a new business workshop near you. The Department of Revenue is responsible for collecting taxes and fees for on and off premise alcoholic beverages, bail bonds, tobacco, and professional privileges, among others. Follow this link to check out the Department of Revenue's 2017 Business Tax Guide.
Tangible Personal Property is filed by "all partnerships, corporations, other business associations not issuing stock and individuals operating for profit as a business or profession, including manufacturers, except those whose property is entirely assessable by the comptroller of the treasury" per TCA 67-5-903.
Every employer in Tennessee is required to fill out a Report to Determine Status, Application for Employer Number (LB-0441). Follow this link to find the form. Find out more about obtaining an Employer Number. Obtain an employer number by visiting the Department of Labor & Development website.
New Hire Reporting: All employers must submit their new hire reports. Follow this link to register online .
Workman's Compensation: Who is required to carry workers' Compensation insurance on their employees?
1. All employers with five or more full- or part-time employees.
2. All employers in the construction or mining industry must have coverage if they have any employees or corporate officers.
3. State and local governments and those employing farm laborers or domestic help are exempt, but may elect workers' compensation coverage.
Benefits are paid by the employer or the employer's insurance carrier.
To qualify for a worker’s compensation exemption, an applicant must be:
1. An individual who is a sole proprietor and owns 100% of the assets of the business, or
2. An officer of a corporation, or
3. A member of a limited liability with at least a 20% ownership interest, or
4. A partner in a partnership with at least 20% ownership interest.
In addition, an applicant may qualify for the exemption if the applicant and members of the same family of the applicant hold at least 95% ownership of the business. Construction services providers who meet the business ownership requirements can file an initial Workers' Compensation Exemption Registration. Follow this link to find the Workers' Compensation Exemption Registration online. You can find the Workers' Compensation Exemption Registry FAQs by following this link.
Drug-Free Workplace Program
If you use the Drug-Free Workplace Program, you can get a premium credit on your workman's compensation. Visit the Tennessee Department of Labor & Workforce Development site to learn more about the Drug-Free Workplace Program.
Register a Business as Veteran-Owned
The United State Department of Veterans Affairs (VA) helps coordinate programs for small business owners. In addition, they will work with you to locate government and corporate procurement opportunities.
The first thing to do is register the small-business as Veteran-Owned. Visit this link to learn more about registering your business as Veteran-Owned.
If you have a service-related disability, the Office of Small & Disadvantaged Business Utilization also provides resources specifically to disabled veterans. Follow this link to visit the Office of Small & Disadvantaged Business Utilization.
The Veteran Entrepreneur Portal through the United States Department of Veterans Affairs has interactive tools to help you find the resources specific to veterans, women veterans, disabled veterans, and much more.
Determine Regulations, Licensing and Permit Requirements
Alcoholic Beverage Commission
Who applies?: On and off-premises alcoholic consumption, wholesalers, winery and distillery licenses.
Department of Agriculture, Consumer and Industry Services
Who applies?: Feed, seed fertilizer, pesticides, weights and measures, food and dairy, plant and animal.
Department of Commerce and Insurance
Who applies?: Think about starting here first, this department covers a wide array of businesses including: Accountancy, architecture and engineering examiners, auctioneers, barbers, contractors/home improvement license, cosmetology, funeral directors, insurance companies, plumbers, private protective services, surveyors and appraisers, et.al.
Department of Environment and Conservation
Who applies?: Businesses that effect air (dry cleaners, gas stations), land resources (drilling, grading), natural resources, water use, work in or near water (manufacturers) Look at a guide of Permit Requirements at their website.
Department of Financial Institutions
Who applies?: Banks, check cashers, credit unions, development corporations, mortgage companies, ATM services, et. al.
Department of Health
Who applies?: Quite a few apply here, especially those related to medicine. Some include: Acupuncture, athletic trainer, body piercing, childcare, counselor, EMS, food service establishments, hotels, massage therapists, professional and facility licensing, swimming pools, tattoo artists, vet techs.
Department of Intellectual and Developmental Disabilities
Who applies?: Long-term care facilities and personal support services for those with disabilities.
Department of Labor & Workforce Development
Who applies?: In addition to handling the aspect of businesses relating to employers and employees, they also handle licensing and permitting for mine safety, and amusement parks and fairs.
Department of Mental Health and Substance Abuse Services
Who applies?: Alcohol and drug abuse, developmental disability and mental health facilities/services and personal support services.
Please note that this is not a comprehensive list of all state departments and agencies. There are also some agencies at the federal level that require licensing (for example the Environmental Protection Agency, Food & Drug Administration etc.) Additional information on laws, appointments to boards and commissions, hearings and public meetings can be found on the respective websites. Pending and effective rules and hearing notices can also be found. To access a list of state departments and agencies, follow this link.
Beyond those listed in previous steps, the following is a list of some other sites that may be able to help get the business up and running.
From the State:
BERO: Business Resources for women, minorities, veterans, rural and youth business.
Department of Revenue: Provides workshops on business taxes, sales and use tax, state unemployment tax, and issues regarding tax enforcement.
Governor's Office of Diversity Business Enterprise: For minority owned businesses including women, Hispanic, African-American, and Service-Disabled Veterans.
Launch Tennessee: Entrepreneurial assistance, regional accelerators, INCITE fund focused on the development of high-growth companies.
Office of Small Business Advocate: An informal ombudsman that assists in resolution of issues concerning small businesses and state agencies.
Tennessee Small Business Development Centers: Business Counselors offering training and workshops on subjects ranging from accounting, hiring, trade, marketing, taxes, finance, management, operations, sales and location analysis.
TN Smart Start Guide: A small business and startup guide covering a broad range of topics.
UT Procurement Technical Assistance Center: Certification and contracting assistance, specializing in federal procurement.
From the Federal Government:
Business USA: business resource portal that ranges from topics of startups, to expansion, to exporting, and more.
IRS, Small Business Center: tax information and filing resource with detailed information for small business and those who are self-employed.
Office of National Ombudsman: assists in resolution of issues concerning small businesses and federal agencies.
SCORE: Sponsored by the Small Business Administration and is a volunteer corps of mentors and business counselors offering training and workshops.
Small Business Administration-TN: Provides information on access to capital, resources and managed the 8(a) business development program, among others.
Congratulations! You've completed the basic step-by-step guide to starting your business in Tennessee.
For more information or a review of this step-by-step process, follow this link to download the free copy of the Tennessee Smart Start Guide . This document goes into more detail on the topics you've just seen as well as addresses topics from types of insurance, to finance options and much more.