Starting a Corporation in Tennessee | What You Need to Know

In Tennessee, starting a corporation can benefit entrepreneurs looking to establish a separate legal entity for their business. Incorporating your business provides liability protection for its owners and offers potential tax benefits and a professional image. This comprehensive guide will walk you through Starting a Corporation in Tennessee, from choosing a corporate name to fulfilling ongoing compliance requirements. Some people consider starting a corporation since it has advantages and benefits rather than Starting an LLC in Tennessee.

Webinarcare Editorial Team will help you gain knowledge in starting a corporation with thorough research and market study. It would be best to cross-check all the factors in this article before forming a corporation.

What is a Corporation in Tennessee?

A corporation in Tennessee is a business organization recognized as a separate legal entity from its owners, also known as shareholders. When a corporation is formed, shareholders invest capital by purchasing shares of stock and, in return, become partial company owners. The corporation is managed by a board of directors elected by the shareholders to oversee the company’s operations and make important decisions. Corporations in Tennessee are required to have at least Three directors. One of the main advantages of a corporation in Tennessee is that it provides limited liability protection to its shareholders, meaning their assets are not at risk if the corporation incurs debt or is legally sued.

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Common Types of Corporations

Before you start with a corporation, you should know what type of corporation you will form. There are several different forms of corporations you can take into consideration, depending on your corporation’s objectives and ownership structure.

C-Corporation

C-Corporation is the most known type of incorporation. They have almost all corporate distinguishing characteristics. Profits are distributed to corporate owners who are taxed at an individual level. The corporation is taxed similarly to a business unit.

S-Corporation

S-Corporation in Tennessee is set up similarly to a C-corporation but has different tax implications and owner limits. An S-Corporation has no more than 100 stockholders and is not taxed separately. These business units must also file paperwork with the Internal Revenue Service (IRS) to obtain their status.

Nonprofit Corporation

Religious, educational, and charity institutions frequently use nonprofit businesses to run their operations without making a profit. Thus, a nonprofit corporation is exempt from paying taxes. The nonprofit organization’s gifts, contributions, or cash are reinvested in the company to fund its growth, future endeavors, or operations.

It is recommended to Start a Corporation in Tennessee if you would like to provide limited liability protection to your shareholders rather than Tennessee LLC. However, you may want to consult to LegalZoom’s Business Attorney before starting a business.

– WEBINARCARE EDITORIAL TEAM

How to Start a Corporation in Tennessee

To start a corporation in Tennessee, you must follow the below steps that, include choosing a corporate name, hiring a Registered Agent, appointing directors, filing for Charter for Profit Corporation, creating corporate bylaws, holding the initial board of directors, issuing stock, obtaining required licenses and permits, registering with state tax agencies, and annual reporting and ongoing compliance. All these steps are basic ones. It can be changed depending on the type of corporation you form and the nature of your business.

Step 1: Choosing a Corporate Name

The first step in starting a corporation is choosing an available name that complies with Tennessee naming rules. Most states require that the name of a corporation be distinguishable from other registered business names and include a corporate designator such as “Corporation,” “Incorporated,” “Company,” or an abbreviation thereof.

Here are some guidelines you must follow while naming your corporation in Tennessee-

• Your business name must contain entity identifiers, such as “Incorporated,” “Limited,” “Corporation,” or “Company,” or an abbreviation, such as “Inc.,” “Co.,” or “Ltd.”
• Exclude any words in your business name, such as “Trust,” “Bank,” “Credit Union,” or “Trustee,” or words related to a government agency, such as “FBI,” “State Department,” or “Treasury.”

To check the availability of your desired corporate name, you can search the Tennessee Secretary of State‘s business name database and Business Name Search in Tennessee. If the name is available, you may choose to reserve it for a specific period of 4 months by filing a name reservation application and paying the online name reservation fee of $20 and mail name reservation fee of $20. If your corporation plans to operate under a name other than its legal name, you may also need to register a fictitious or “doing business as” (DBA) name.

The DBA filing can be done by two methods, by mail and in person., which costs around Varies by county. In addition, the DBA’s validity in Tennessee is five years, which you can file in Tennessee Secretary of State.

You can check out How to File a DBA in Tennessee for clearer understanding.

Step 2: Hire a Registered Agent

Hiring a Registered Agent is essential in starting a corporation. Registered Agent is a person or company responsible for receiving important legal documents, tax notices, and other correspondence on behalf of your corporation. They ensure that your corporation remains compliant with state regulations and requirements. There are Tennessee Registered Agent Services to check in forming Tennessee Corporation. We reviewed some of the best-registered agent services and provided features as an add-on with their packages.

Step 3: Appointing Directors

Corporations in Tennessee are required to have at least Three directors, though some states may require more. Directors are responsible for overseeing the corporation’s management and making major decisions on behalf of the company. In Tennessee, directors must be at least 18 years old and do not need to be state residents.

When appointing directors, it is essential to consider individuals who are knowledgeable, trustworthy, and capable of making sound business decisions. Maintaining a record of appointed directors, including their names, addresses, and terms of service, is also a good idea.

Step 4: Preparing and Filing Charter for Profit Corporation

After you appoint the initial board of directors in your Tennessee corporation, the next step is to write and file a Charter for Profit Corporation. In writing, the Tennessee Charter for Profit Corporation, the corporation name, principal place of business, the purpose of business, Registered Agent contact information, and the names and addresses of incorporators and initial board members, should be written.

To officially form your Tennessee corporation, you must prepare and file Charter for Profit Corporation with the Tennessee Secretary of State. The Charter for Profit Corporation is a legal document that outlines essential information about your corporation, such as its name, address, purpose, and details about its stock.

The specific requirements for Charter for Profit Corporation vary by state, but generally, the document must include the following:

• The corporate name
• The purpose of the corporation
• The name and address of the registered agent
• The names and addresses of the initial directors
• The number of authorized shares and their par value
• The name and address of the incorporator(s)

Once the Charter for Profit Corporation are complete, please submit them to the Tennessee Secretary of State’s office, along with the required filing fee. Fees vary by state, but in Tennessee, the Charter for Profit Corporation filing fee costs around $100 for online and by mail filing. It is crucial to provide accurate and complete information on this document, as errors or omissions may result in delays or rejection of your filing.

• Online Filing: Create an account/Log in to the SOS site, get the e-form, fill it, and submit online. Or get the online PDF, fill it up and upload it back on the site.
• Offline filing: Send the form by mail to or drop it off in person at Corporate Filings, 312 Rosa L. Parks Avenue, 6th Floor, William R. Snodgrass Tower, Nashville, Tennessee 37243

Step 5: Creating Corporate Bylaws

Now you are done filing Charter for Profit Corporation in Tennessee, the next step is to draft corporate bylaws. While not always required by law, creating corporate bylaws is essential in establishing Tennessee corporation. Bylaws are the internal rules and regulations that govern the corporation’s operations and management. They outline the rights and responsibilities of directors, officers, and shareholders and provide guidelines for holding meetings and making decisions.

Key provisions to include in your corporate bylaws may include:

• The corporation’s purpose and principal place of business
• The roles and responsibilities of directors, officers, and shareholders
• The process for appointing and removing directors and officers
• The procedures for holding annual and special meetings
• The methods for amending the bylaws and Articles of Incorporation
• The procedures for issuing stock and maintaining shareholder records

Once the bylaws are drafted, they must be adopted by the corporation’s board of directors. Keeping a copy of the bylaws with your corporate records and updating them to reflect changes in the corporation or applicable laws is essential.

Step 6: Holding the Initial Board of Directors Meeting

The initial board of directors meeting is a crucial milestone for your Tennessee corporation. During this meeting, the directors will adopt the corporate bylaws, elect officers, and make other key decisions to set the foundation for the corporation’s operations.

The agenda for the initial board meeting may include the following:

• Adopting the corporate bylaws
• Ratifying any pre-incorporation actions taken by the incorporator(s)
• Electing corporate officers (e.g., president, vice president, secretary, treasurer)
• Designating a corporate bank account
• Authorizing the issuance of stock
• Approving necessary licenses, permits, and tax registrations

It is essential to keep detailed minutes of the initial board meeting, documenting the decisions made and actions taken. These minutes should be stored with your corporate records.

Step 7: Issuing Stock

Corporations in Tennessee are required to issue stock to their owners, also known as shareholders. When preparing to issue stock, you must determine the number of authorized shares and their par value, as outlined in your Charter for Profit Corporation. You may choose to issue different classes of stock, each with its rights and privileges, such as voting rights and dividend preferences.

The process for issuing stock typically involves the board of directors approving a stock issuance resolution, determining the price per share, and recording the issuance in the corporation’s stock ledger. Maintaining accurate and up-to-date records of all stock transactions, including transfers and cancellations, is crucial to ensure proper ownership tracking and compliance with securities laws.

Step 8: Obtaining Required Licenses and Permits

Depending on the nature of your corporation’s activities and location, you may need to obtain various licenses and permits to operate legally. These may include federal, state, and local requirements, such as:

• A Federal Employer Identification Number (EIN) for tax reporting and employee withholding purposes.
• State sales and use tax registration, if your corporation sells taxable goods or services
• Professional or occupational licenses for specific industries (e.g., healthcare, construction, food service)
• Tennessee Business Licenses, zoning permits, and health department approvals

Researching and obtaining all required Tennessee licenses and permits before commencing operations and maintaining compliance with any ongoing renewal or reporting requirements is essential.

Step 10: Registering with State Tax Agencies

In addition to obtaining licenses and permits, your Tennessee corporation may also need to register with various tax agencies. This may include registering for sales and use tax, obtaining an Employer Identification Number (EIN) in Tennessee for payroll tax purposes, and filing state income tax and franchise tax returns.

An EIN will serve as the tax ID for your Tennessee corporation. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in Tennessee can be through the following:

• Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
• Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that Form SS-4 contains all of the required information.
• Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
• Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

Each state has tax requirements, so consult a tax professional or Tennessee Department of Revenue for guidance on your specific obligations.

Step 11: Annual Reporting and Ongoing Compliance

Once your Tennessee corporation is up and running, you must fulfill ongoing reporting and compliance requirements to maintain good standing. This may include filing Annual Report with the Tennessee Secretary of State, updating your corporate records to reflect changes in directors or officers, and staying current on any required licenses or permits.

In addition, it is essential to stay informed about changes in corporate laws and regulations that may impact your business and to seek professional advice when needed.

Paying Your Taxes in Tennessee

Even if you have established your corporation in Tennessee, pay your taxes and keep everything up to date so you won’t pay any penalty. Unlike an LLC, there is a corporate tax that every corporation in Tennessee has to pay. On the other hand, they must pay income taxes based on their business income. Some other types of taxes in Tennessee are sales tax, franchise tax (not applicable to all the states), and other state taxes.

Cost of Forming a Corporation in Tennessee

In forming a corporation in Tennessee, a filing and Annual fee must be paid. Without it, your corporation won’t operate. A corporation’s initial filing fee may vary from state to state. However, in Tennessee, it costs $100 for online and by mail filing. The corporation in Tennessee also has to file an Annual Report (though it might not be mandatory, it is recommended to file one). Ensure you comply with all the necessary fees and costs so your corporation will run successfully and smoothly.

FAQs

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How to Save Money While Forming Your Tennessee Corporation

One of the first ways to save money when forming your Tennessee corporation is to do your research. Before you dive into the process, take the time to understand the requirements and regulations surrounding starting a corporation in the state. By familiarizing yourself with these guidelines, you can avoid costly mistakes or oversights that could set you back financially.

Another way to save money is to carefully consider the type of corporation you want to form. There are several different business structures to choose from, each with its own set of advantages and costs. For example, a limited liability company (LLC) may be more cost-effective for small businesses than a traditional C corporation. By choosing the right structure for your business needs, you can potentially save money in the long run.

When it comes to legal services, many entrepreneurs believe that they need to hire an expensive attorney to help with the formation process. While it’s always a good idea to seek professional guidance, there are more budget-friendly options available. Consider working with a paralegal or using online legal services to assist with the paperwork at a fraction of the cost.

In addition to legal services, it’s important to shop around for other necessary expenses, such as business insurance or accounting services. By comparing quotes from different providers, you can find the best rates and potentially save hundreds of dollars in the process.

Networking and seeking advice from other business owners can also be a valuable way to save money. By connecting with entrepreneurs who have been through the process of forming a corporation in Tennessee, you can gain insights and tips on how to streamline the process and cut costs. These individuals may also be able to recommend affordable resources or share their own cost-saving strategies.

Finally, don’t overlook the importance of maintaining good financial habits throughout the formation process and beyond. By keeping track of your expenses, setting a budget, and looking for ways to cut costs wherever possible, you can ensure that your Tennessee corporation remains financially sound for years to come.

Forming a corporation in Tennessee doesn’t have to break the bank. By being strategic, doing your research, and seeking cost-effective resources, you can save money while still creating a solid foundation for your business. In the competitive business landscape of today, every dollar saved can make a difference in the long-term success of your corporation.

Conclusion

Starting a corporation in Tennessee involves several critical steps, from choosing a corporate name to fulfilling ongoing compliance requirements. Following the steps outlined in this guide and seeking professional advice when needed, you can successfully establish your Tennessee corporation and enjoy the benefits of limited liability, potential tax savings, and a professional business image.