How to Start a Business in Tennessee
As of 2022, 652,795 small businesses were in operation in Tennessee. These businesses had 1.2 million employees, which accounted for 42.2% of the employees in the state. There were an additional 486,000 business entities operational in Tennessee. In the first quarter of 2023, 21,516 new businesses were registered with the Tennessee Secretary of State (SOS), and 199,309 business renewals were recorded. The US Bureau of Labor Statistics (BLS) report captured over 3.2 million employment in Tennessee as of June 2023. Tennessee’s real gross domestic product (GDP) increased at an annual rate of 4.3% in 2022; in that same year, personal income increased at an annual rate of 4.2%.
Here are eight (8) steps entrepreneurs are required to take to start their own business in Tennessee:
- Step 1: Performing Market Research
- Step 2: Drawing up a Business Plan
- Step 3: Acquiring a Business License or Permit
- Step 4: Securing Funding
- Step 5: Choosing a Business Structure
- Step 6: Choosing a Business Location
- Step 7: Meeting the Legal Requirements of the State
Step 1: What Kind of Business Should I Start in Tennessee?
Most new entrepreneurs in Tennessee need help deciding which kind of business to start. This could be due to the inability to guarantee the future success of the business idea. Before starting any business, individuals should consider their budget, available time and resources, scalability, passion and interest, industry expertise, market size, and demand. Generally, the top business ideas in Tennesse are campgrounds, clothing boutiques, mobile bartending services, Airbnb businesses, and inflatable bounce house businesses.
How to Do Market Research
Market research helps entrepreneurs track consumer behavior, market trends, and economic trends. It is the process used for gathering information on potential customers to evaluate and improve how customer needs are met. Here is how to conduct market research:
- Identify buyer persona: The best way to connect to target customers is by understanding who they are. Therefore, business owners need to create profiles for the buyers they want to reach to keep track of their likes, how they interact with the business products, and their buying habits. Buyer personas are based on demographics like gender, interests, age, income, locale, and needs.
- Find a sample: The next step is to find the right participant for the market research process after creating buyer personas. These participants could be people who:
- Have recently purchased the business product
- Have purchased from a competitor or abandoned cart at checkout
- Follow or interact with the business’s social media accounts
- Create research questions: Create open-ended market research questions for the participants to answer. These questions enable customers to offer accurate responses that highlight strengths and help address deficiencies.
- Analyze data: After college data, analyze the result and use the data to make company decisions.
Step 2: How to Write a Business Plan
Entrepreneurs use business plans to guide them through starting and managing their businesses. A good business plan can be a roadmap for structuring, running, and growing a new business. Some business owners use business plans to get funds or bring new partners to their businesses. The traditional or lean startup methods are the two most common ways of writing a business plan. The traditional business plan is usually very detailed and comprehensive, while the lean startup plan is a high-level, focused plan containing only key elements.
A typical traditional business plan has some combination of the following nine sections:
- Executive summary: This section provides an overview of the business idea and why it will yield a successful business. It includes the mission statement, product or service, and basic information about the company’s leadership team, employees, and location. If the business plan is to be used to source financing, the executive summary can include financial information and high-level growth plans.
- Company description: In this section, entrepreneurs can provide detailed company information. The focus should be on the problems the business solves and the consumers, organizations, or businesses the company plans to serve.
- Market analysis: Provide information on what other businesses are doing and their strengths and specific details of what they intend to do better with their own business
- Organization and management: This section should show how the company will be structured and who will run it. A description of the business structure should be included.
- Service or product line: This section should describe what the company sells or what service they offer. Talk about how the product or service benefits customers and highlight the plans for intellectual property.
- Marketing and sales: This is where the business owner will describe how they want to attract and retain customers. Provide detail of the marketing and sales strategies.
- Funding request: This section is for entrepreneurs who want to source for external funding. They have to outline their funding requirements and clearly explain the amount they will need and what the money will be used for.
- Financial projections: Here, business owners convince people about the stability and success of their businesses. Established business owners should tell the financial story of their businesses by including income statements, capital expenditure budgets, balance sheets, and cash flow statements for the last three to five years in this section.
- Appendix: This is where they provide supporting documents or other materials like credit histories, letters of reference, product pictures, permits, licenses, resumes, patents, legal documents, and other contracts.
Step 3: Do I Need a Business License in Tennessee?
Very likely. Most in-state businesses must obtain a license before conducting business in Tennessee. Applications for business licenses can be obtained from the city clerk and county clerk where the company is located. However, Tennessee business license requirements vary based on gross sales thresholds like:
- No business license: Under $3,000 in gross sales
- Minimum activity license: For businesses whose gross sales are between $3,000 and $100,000
- Standard business license: For businesses whose gross sales exceed $100,000
Some specific businesses are subject to additional licenses because of what they sell or their profession. For example, businesses that sell alcohol for consumption must apply for permits with the Alcoholic Beverage Commission (ABC). Individuals who sell cigarettes or other tobacco products at the wholesale level must obtain a license to do so in Tennessee. The Tennessee Department of Commerce and Insurance (TDCI) also issues permits to various businesses and professionals in the state. The department has an online tool where individuals can look up or verify an existing license or licensee.
How Much Does a Business License Cost in Tennessee?
City and county clerks in Tennesseee charge $15 for most business licenses. However, specific business license costs vary per profession, license type, and what the business sells. For example, a tobacco license costs between $100 and $500, depending on the license type. A land surveyor license costs $200, while a temporary court reporter license costs $50.
How to Register for a Seller Permit in Tennessee
An individual can register a business for a seller’s permit tax account electronically via the Tennessee Taxpayer Access Point (TNTAP). Registration is free. A TNTAP logon is required to file a sales tax but not required to file a consumer use tax. Here is how to register a new business for a sellers permit in Tennessee:
- Go to the TNTAP home page.
- Click the View Registration Links under the Registration / Exemption section.
- Click the Register a New Business link and follow the prompts.
Upon registration, the Tennesse Department of Revenue (DOR) will issue a Certificate of Registration to be displayed at the business location. Review the Tenn. Code Ann. § 67-6-101 through 67-6-905 for information on sales and use tax laws.
Step 4: How Much Does it Cost to Start a Business in Tennessee?
The cost to start a business in Tennessee varies depending on the business type, structure, location, and operation. For example, a typical domestic limited liability company conducting business in Tennessee should expect to pay the following fees while registering with the SOS:
- Application for Registration of Assumed name – $20
- Articles of Organization – $50.00 per member
- Certificate of Formation – $20
The initial budget should include office space, labor, basic supplies, office furniture, business license and permit fees, basic technology, and advertising or promotions. Other expenses that will impact final startup costs include business insurance (including professional liability insurance, general liability insurance, and commercial property insurance), professional services and subscriptions (such as accounting software, social media management and website design)
How to Get Business Funding in Tennessee
One of the first and most crucial financial decisions most business owners make is how to fund their enterprise. The business funding decision typically affects the business structure and management. Business owners in Tennessee should consider the following business funding options:
How to Self-Fund a Business in Tennessee
Self-funding, also known as bootstrapping, is when business owners use their financial resources to support their businesses. Most people self-fund their businesses by using their savings accounts, turning to family and friends for capital, or tapping into 401(k) plans. Self-funding allows entrepreneurs to maintain total control over their businesses, but they also take on all the risk themselves.
How to Find Investors in Tennessee
To find investors in Tennessee, small business owners can do one of the following:
- Ask family and friends.
- Look for equity financing sources.
- Look for private investors in the community.
- Work with a local bank for funding.
- Seek out angel investors.
- Work with venture capitalists.
How to Get a Loan to Start a Business in Tennessee
Business owners who want to retain complete control of their businesses but need more funds to start can consider a small business loan. A business plan, expense sheet, and financial projections for the next five years can help increase one’s chances of securing a loan. These business tools give business owners an idea of the loan amount to request and help lenders know they are making an intelligent choice. Individuals can get loans from banks or credit unions. Compare offers to get the best terms for the loan.
How to Find Tennessee Business Grants
A business grant refers to money the government, philanthropists, or other companies give to businesses in need. Unlike loans, businesses are not required to pay off grants. Individuals can use the grants search tool on the Tenessee website to find grants for their businesses.
Can I Start a Business with No Money in Tennessee?
Starting a business with no money in Tennessee might be impossible because most businesses must obtain a business license or permit and register with the SOS at a cost. The best bet would be to opt for a sole proprietorship or general partnership to reduce costs. While these businesses do not require SOS registration, the license or permit fee cannot be avoided or waived.
Step 5: Choosing a Business Structure in Tennessee
The most common business structures for a small business in Tennessee are sole proprietorship, corporation, partnership, and limited liability company. A prospective business owner may have to contact an accountant or attorney who can advise on the best business structure to adopt based on the needs of the business, considering taxes and liabilities.
How to Start a Sole Proprietorship in Tennessee
Most small businesses in Tennessee start as sole proprietorships, with one person running the day-to-day affairs of the business. This one person (called sole proprietor) owns all the business assets and profit generated by the business and is also responsible for business liabilities. Business income is usually filed on the sole proprietor’s personal income tax return. Sole proprietors do not need to register their businesses with the Tennesse Secretary of State (SOS). Still, they might need business licenses from the county and municipality where they conduct their businesses.
How to Start a Corporation in Tennessee
A corporation is a business structure with a legal existence distinct from a person. This means the company can own assets and conduct business in its name. The guidelines on how to establish a corporation in the state are highlighted in the Tennessee Business Corporation Act. A corporation shields the business owner and the stockholders from personal liabilities incurred by the business. All corporations in Tennessee must pay franchise and excise tax to the Department of Revenue. There are two types of corporations in Tennessee:
- C Corporations: This business structure is majorly used by large groups of investors. To be considered a corporation, the business must have a board of directors and corporate officers, approve corporate resolutions, have stockholders as owners, maintain board minutes, and hold regular board meetings. In corporations, the board of directors has the authority to approve certain activities, including borrowing money, signing contracts, and allocating corporate resources outside of normal business operations.
- S Corporations: Domestic corporations that want to avoid double federal taxation (paying taxes to the corporation and again to the shareholders) tend to create S Corporations. To become an S corporation, the corporation must complete Form 2553, signed by all the shareholders. In Tennessee, S Corporations are incorporated and subject to state franchise and excise taxes. This allows them to pass income, deduction, loss, and credits through to their shareholders to be included on their separate returns.
When registered or “incorporated” with the Tennessee Secretary of State (SOS), a business assumes a corporate identity. For domestic corporations, registration entails submitting a completed Charter For-Profit Corporation (Form SS-4417) to the SOS. The form can be submitted using the following methods alongside a filing fee of $100:
- Online: Use the SOS online portal to complete the form and pay the appropriate filing fee by credit or debit card. This method attracts a convenience fee.
- Mail: Requesters can use the online tool to complete the form, then print and mail the form along with the required filing fee to the SOS office.
- Paper submission: Individuals can get a blank form from the SOS website by emailing the SOS at Business.Services@tn.gov or by calling (615) 741-2286. The record seeker can hand print the form in ink or generate it from the computer and mailed along with the necessary filing fee to the SOS’s office.
- Walk-in: Interested persons can obtain a blank form in person at the SOS Business Services Division located at:
Tennessee Secretary of State
Business Services Division
6th FL – Snodgrass Tower
312 Rosa L. Parks AVE
Nashville, TN 37243
Foreign corporations can register with the SOS by completing an Application for Certificate of Authority For-Profit Corporation (Form SS-4431). The form must be submitted alongside the filing fee of $600.
How to Start an LLC in Tennessee
A Limited Liability Company (LLC) is a business structure in Tennessee that protects its owners from personal liabilities for the debts and actions of the business. Owners of LLCs are commonly called members. There is no restriction on ownership, so members may include corporations, other LLCs, individuals, and foreign entities. Businesses such as banks or insurance companies cannot be LLCs in Tennessee. LLCs are similar to partnerships in that they provide management flexibility and the benefit of pass-through taxation. All LLCs in the state comply with the Tennessee Limited Liability Company Act. Per TCA § 48-207-101, the name of a domestic and foreign LLC name must contain the words “limited liability company” or abbreviations like “LLC” or “LLC.” It must not contain the word “incorporated” or “corporation” or an abbreviation of either or both of these words. In Tennessee, LLCs are divided into two, namely:
- Single-member limited liability company (SMLLC): This type of LLC is usually formed by one individual or entity (which has one member) through a special written agreement.
- Multi-member limited liability company (MMLLC): This type of LLC is created by one or more individuals or entities through a special written agreement.
Anyone who wants to set up an LLC in Tennessee must register with the Secretary of State and file annual reports. Domestic LLCs must file Articles of Organization online, by mail, or in person with the SOS Business Services Division. Alternatively, prospective LLC owners can print a blank form, fill it out and mail it to the SOS alongside the required filing fee. Foreign LLCs can transact business in Tennessee by filing an Application for Certificate of Authority. Fees and procedures are the same as for domestic LLCs. In Tennessee, the filing fee for articles of organization is $50 per member in the business as of the filing date, with a minimum and maximum fee of $300 and 3,000, respectively. Payments can be made via made cashier’s check, check, or money order payable to the Tennessee Secretary of State. In-person filing fees can be paid in cash. Per TCA § 48-249-913(d), foreign LLCs may pay additional filing fees if they commence doing business in Tennessee prior to obtaining a Certificate of Authority.
How to Start a Business Partnership in Tennessee
Per TCA § 61-1-101(7), a business partnership is an association of two (2) or more individuals to carry on as co-owners of a business for profit. All partnerships in the state are created based on the provisions of the Tennessee Revised Uniform Partnership Act. Tennessee has two types of business partnerships: general and limited.
How to Form a General Partnership in Tennessee
A general partnership is a business structure composed of two or more persons who jointly contribute money, labor, and/or skill to a business. Each partner is held liable for the debts of the business. Additionally, they share the profits, losses, and management of the partnership. The SOS does not mandate general partnerships to file formal documentation before conducting business in Tennessee. However, general partnerships can voluntarily file a Statement of Partnership Authority, which is not to form or maintain their businesses in the state. This filing is to provide public notice of basic information about the company. The form should be submitted online or in person to the SOS, along with a filing fee of $20.
How to Start a Limited Partnership in Tennessee
A limited partnership (LP) or limited liability partnership (LLP) is a business structure consisting of one or more general partners and one or more limited partners. The general partners have complete management and control of the business and are personally liable for all business debts and liabilities. The limited partners have personal responsibilities for debts and liabilities limited to their investment interests, and they do participate in managing daily operations.
Per TCA § 61-3-112, the name of a limited partnership in Tennessee must contain the phrase “Limited Partnership” or the abbreviation “LP” or “LP.” It can also contain a partner’s name but not contain words like “corporation,” “incorporated” “limited liability company,” or their abbreviations. Partners must file a Certificate of Limited Partnership with the SOS to create a domestic limited partnership in Tennessee. This form can be submitted online, by mail, or in person. In contrast, foreign LPs must file an Application for Registration of Foreign Limited Partnership using the same methods as domestic LLCs except electronically. The filing fee for a Certificate of Limited Partnership is $100, while the application for Registration of Foreign LPs is $600.
Per TCA § 61-1-1003, the name of a limited liability partnership must contain the phrase “registered limited liability partnership” or the abbreviation “LLP” or “LLP.” To create a domestic LLP, an Application For Registration Limited Liability Partnership must be filed online or in person at the SOS office. A foreign LLP can be formed by filing a Notice Of Registration of Foreign Limited Liability Partnership with the SOS. The filing fees for both domestic and foreign LLPs are $50 per member, subject to a minimum of $250) and a maximum of $2,500.
How to Start a Nonprofit in Tennessee
A nonprofit business is an entity that has been granted tax-exempt status by the Internal Revenue Service (IRS). All Nonprofit companies in the state operate according to the provisions outlined in the Tennessee Nonprofit Corporation Act. The SOS requires individuals to file appropriate forms before starting a nonprofit organization in Tennessee. These forms vary depending on if it is a foreign or domestic nonprofit corporation. Domestic nonprofit corporations must submit a Charter Nonprofit Corporation (Form SS-4418) alongside a filing fee of $100. At the same time, a foreign nonprofit corporation must file an Application for a Certificate of Authority for a Nonprofit Corporation (Form SS-4432) alongside a filing fee of $600. Form SS-4418 can be submitted online, by mail, in person, or by paper submission, while the Form SS-4432 can be submitted by similar methods except online. Filing fees can be paid by check, cashier’s check, money order, or cash (for walk-in filings).
Step 6: What Kind of Business Can I Run From Home in Tennessee?
Tennessee law permits individuals to run businesses from residential complexes. The following businesses can be run from home per state law:
- Cooking and preserving
- Telephone answering service
- Artist, sculptor, author, craftsperson
- Computer programming and word processing
- Dressmaker, seamstress, milliner, tailor, interior decorator.
- Barbershop and beauty shop, limited to one barber’s or beautician’s station.
- Office of an engineer, accountant, lawyer, architect, broker, or manufacturer’s representative.
- Teaching, including tutoring, musical instruction, or dancing ( limited to one pupil per teacher).
Most cities/counties in Tennessee do not permit the following as home occupations: restaurant, clinic, hospital, veterinarian, taxi service, and automotive repair shops.
How Do I Start A Small Business From Home in Tennessee
A home-based business in Tennessee is any occupation conducted on residential premises and only engaged in by the residents of the building. Anyone who wants to use a residential structure for a home occupation must obtain a permit from the Planning Department per the provisions of the city/county zoning ordinances. Tennessee’s legal requirements for starting home occupations differ slightly from one city/county to another. However, home occupations are subject to the following generic standards:
- No business signs are permitted at the dwelling unit.
- The floor area of the dwelling unit of the home occupation should not exceed 25% or 500/1,000 square feet, whichever is less.
- Business products or materials should not be visible from the outdoors.
- Parking associated with the home occupation should occur on the premises.
- Individuals cannot conduct more than two home occupations in their dwelling unit.
- Only the permanent resident of the dwelling unit can be employed at the site of the home occupation. Some counties permit the business to hire a maximum of two people on the premises who are part-time occupants of the residence.
- No equipment or process used in the home occupation should generate smoke or fumes, noise, vibration, odors, or glare or create a nuisance that would affect the residential character of the residence.
Starting a Business Online in Tennessee
An online business is an enterprise where products and services are negotiated and paid for online. Starting a business online varies depending on the type of business and location. For example, business owners whose online business is home-based must obtain a permit from the Planning Department in the city or county where the dwelling unit is located. Also, some online businesses may be required to get business or professional licenses from different licensing agencies in Tennesseee. Remote businesses that are limited liability companies (LLCs), partnerships, and corporations must be registered with the Tennessee Secretary of State. Some businesses may apply for taxes from the Tennessee Department of Revenue (TDOR).
Step 7: Legal Requirements for Starting a Business in Tennessee
The legal requirements for starting a business in Tennessee are as follows:
- All businesses except sole proprietorships and general partnerships must register a name with the Tennessee Secretary of State
- All businesses (except sole proprietorships and public partnerships) must maintain registered agents and offices
- Some businesses must obtain necessary licenses and permits from the appropriate agency before operating in Tennessee.
- Some businesses may be required to apply for specific taxes from the Tennessee Department of Revenue (DOR)
How to Get an EIN Number in Tennessee
The Internal Revenue Service (IRS) issues Employer Identification Numbers (EIN) for free to Tennessee businesses. Applications can be made via the following methods:
This is the most preferred method of applying for EIN. Go to the Apply for an Employer Identification Number (EIN) Online page and click on the Apply Online Now button. The EIN will be issued upon the application’s completion and information validity determination.
To obtain an EIN via fax, businesses must complete Form SS-4 and fax it to (855) 641-6935. Individuals with no principal place of business, office, or agency in the US can fax their forms to (855-215-1627 (within the US) or (304) 707-9471 (outside the US). The IRS will fax an EIN to the business after four (4) business days of application if a fax number is provided.
The processing time for mail applications is four weeks. Requesters would have to mail Form SS-4 to the appropriate mailing address:
(For US applications)
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
(For applicants with no legal residence or place of business in the US)
Internal Revenue Service
Attn: EIN International Operation
Cincinnati, OH 45999
International applicants are required to call (267) 941-1099 between 6 a.m. and 11 p.m. (Eastern Time) Monday through Friday to apply for their EIN. The applicant must be able to provide answers to the questions concerning Form SS-4. It is worth noting that an EIN is usually required for a business bank account.
How to Get a Tennessee Registered Agent
Tennessee requires all business entities, except sole proprietorships and general partnerships (GP), to maintain a registered agent in the state. A registered agent is an individual or entity who agrees to accept legal mail on behalf of a company. Information on registered agents is available on the following Tennessee Code:
- TCA § 48-15-101 to 105 (profit corporation)
- TCA § 48-55-101 to 105 (no profit corporation)
- TCA § 48-208-101 to 105 (limited liability company)
- TCA § 61-3-115 to 121 (limited partnership)
Patents, Trademarks, and Copyrights in Tennessee
In Tennessee, patents, trademarks, and copyrights are intellectual properties that provide a legal shield to works launched in the market. A trademark is a symbol, word, name, device, or combination thereof used by an individual to designate goods made or sold and which is intended to distinguish it from the goods produced or sold by others. The Secretary of State’s office registers and maintains trademark records under the Tennessee Model Trademark Act. To register a trademark, individuals must download an Application for Registration of Trademark or Service Mark (Form SS-4264). This form must be submitted online or in person alongside a filing fee of $20.00 per Class entered in number 10 of the application. Upon registration, the trademark protection will last for five years from the filing date. The Tennessee SOS has a Trademark/Servicemark Search tool that can be used to access information on trademarks in the state.
Patents are exclusive rights granted for new and unique technical inventions like chemical compositions, mechanical processes, and machine designs. Patent applications can be made online on the United States Patent and Trademark Office (USPTO) website. Alternatively, applicants can submit the appropriate patent application forms by mail to the USPTO. All applications must be made with the necessary filing fees payable by checks, credit/debit cards, or electronic fund transfers.
A copyright is an intellectual property that protects a person’s original works of authorship, like photographs, illustrations, paintings, sound recordings, movies, computer programs, musical compositions, books, poems, blog posts, and architectural works. Registrations for copyrights can be done online or by mailing the required forms to the US Copyright Office:
Library of Congress
101 Independence Avenue SE
Washington, DC 20559-6000
Tennessee Business Tax
The Tennessee Department of Revenue mandates business owners to establish tax accounts to be able to conduct business in the state unless specifically exempt by law. Some types of businesses may be subject to other taxes. However, below are the common taxes most businesses are liable for:
- Business taxes: Individuals conducting businesses within any county or municipality in Tennessee with business grosses are $100,000 or more must register for and remit business tax. The Tennessee business tax is divided into the state business tax and the city business tax. Registration for business tax can be done online via the Tennessee Taxpayer Access Point (TNTAP). Business taxes are usually due on the 15th day of the fourth month after the fiscal year. Generally, business tax rates differ based on classification and whether it is a retail or wholesale business. However, every business must pay at least a minimum tax of $22.
- Sales and use tax: Sales tax applies to tangible personal property and certain services sold on retail. It is divided into state and local sales tax. The general state tax rate is 7%, while the local tax rate varies by county/city. Businesses operating in Tennessee must pay use tax when the sales tax was not collected by the seller on otherwise taxable products brought or shipped into the state.
- Franchise and excise taxes: The franchise tax rate is 0.25% of the company’s greater net worth or real tangible property, while the excise tax is 6.5% of taxable income. The minimum tariff is $100.
- Alcohol taxes: Individuals who manufacture, sell, or distribute alcoholic beverages in Tennessee must pay taxes.
- Additional taxes:
Are Business Records Public in Tennessee?
Per TCA § 10-7-503, anyone can inspect or request copies of business records from the appropriate government agency. However, some portions of a business record may be exempt from public disclosure. Confidential business information like social security numbers, banking information, driver’s license numbers, telephone numbers, and credit card information are not available for public perusal. Additionally, trade secrets are excluded from public business records according to T. C. A. § 10-7-504. The Tennessee Secretary of State has a Search tool that can be used to find business information for free. The search criteria are by business name or Secretary of State Control Number.