How to Form a Professional Corporation in Tennessee (2024 Guide)

Steve Bennett
Business Formation Expert  |   Fact Checked by Editorial Team
Last updated: 
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Forming a Professional Corporation in Tennessee

If you would like to start and learn how to form a corporation in Tennessee, there are a few things that you should do now. However, in a professional corporation, professionals must create a special organizational structure to establish a professional or service corporation. Among the appropriate professions to organize a professional corporation in Tennessee are accountants, physicians, engineers, architects, and attorneys.

Forming a professional corporation in Tennessee or any business organization needs a certain number of steps. In this article, Webinarcare Editorial Team is going to share those steps. Keep in mind that these are general procedures. Depending on local law, it may be modified. For instance, your professional corporation may be subject to city or county-based rules.

What is a Professional Corporation in Tennessee?

A professional service corporation (PSC), often known as a professional corporation (abbreviated as PC), is a particular type of organization that is permitted by state law to allow owners of specifically licensed professions to practice in the Tennessee. A professional corporation’s owner is answerable for their own negligence or wrongdoing but is not held personally liable for the actions of other owners. The abbreviation PC or P.C. is frequently used to denote professional corporations.

This structure allows professionals to enjoy some of the benefits and protections of a traditional corporation while maintaining their professional status and abiding by the regulations of their respective licensing boards.

LegalZoom is the recommended corporation formation if you are thinking of forming a professional corporation from scratch. However, you can always start an LLC in Tennessee, if you changed your mind.

WEBINARCARE EDITORIAL TEAM

How to Form a Professional Corporation in Tennessee

To form a Professional Corporation in Tennessee for the professional service you provide, you must follow a few steps that include verifying if you are qualified for a PC, naming your business, hiring a Registered Agent, filing the Charter for Profit Corporation, outlining an operating agreement, requesting for an EIN, opening a bank account, getting a business license, and filing for an Annual report and taxes.

Step 1: Verify If You Are Qualified for a Professional Corporation

In forming a professional corporation in Tennessee, you should know if you are qualified. There are specific professions that are allowed to form a professional service corporation, including-

To provide your service, you must be qualified and have a license. In most cases, you can now form a professional corporation after finishing your studies, passing the exam, and receiving your license. If you work in an industry that does not provide a license or professional certification, you should consider starting an LLC or corporation.

Step 2: Name your Professional Corporation in Tennessee

After you have decided to form a professional corporation in Tennessee, you must choose a name for your corporation. Here are some pointers to consider when naming your professional corporation.

  • The business name should have the word PC, frequently followed by the name of the principal owner in place of Inc or LLC. (Example. John Doe, MD, PC)
  • Limit of restricted words that need a license.
  • A unique name is needed with no match
  • No confusion with a government entity name.

In Tennessee, if you do not wish to file your professional corporation right away but want to hold the name that you have decided on, then you can reserve your corporation name for 4 months. You must file a name reservation application in the Tennessee Secretary of State to keep the name.

If not already present, a professional corporation, professional association, service corporation, or professional service corporation must be included in the name. You may register your business under a different legal name if your preferred legal name is unavailable. Once you’ve decided on a name, you can apply for Tennessee DBA (doing business as). This way, you can run a clinic or law firm under your name.

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Step 3: Choose the Tennessee Registered Agent

The next step in forming a professional corporation is hiring a Registered Agent, who accepts legal paperwork for your business. This person or business will receive important tax forms, legal documents, all notices of lawsuits, and other official government correspondence in Tennessee. Forming a professional corporation for your service will be easier if you have Registered Agent in Tennessee.

Alternatively, you can serve as your own Registered Agent if you have the time. Usually, in Tennessee, a Registered Agent costs is ranging from $50 – $150. To make it easier, you can hire Tennessee Registered Agent Services for your professional corporation.

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Step 4: File the Charter for Profit Corporation in Tennessee

After you hire a Registered Agent to form a professional corporation, the next step is to file the Tennessee Charter for Profit Corporation. In writing the Charter for Profit Corporation, the business name, owner’s contact information, corporation address, and Registered Agent contact information, should be written. Include the names of all co-owners as well. All owners must demonstrate that they have the necessary licenses to practice the profession in question.

Filing the Charter for Profit Corporation in Tennessee may be done with four methods that are e-filing, by email, by mail and in-person. The Charter for Profit Corporation fee may vary from different state. However, in Tennessee, it costs $100 for online and by mail 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. . For 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: Write an Operating Agreement in Tennessee

An operating agreement in Tennessee is a document that contains all of your company’s organizational details. It is optional to draft an operating agreement in most states. Yet, having one as an internal document is strongly advised. The operating agreement includes information like-

  • About Business
  • Members and management
  • Capital contribution
  • Profit Distribution
  • Change of membership
  • Dissolution

Step 6: Designate the PC Board of Directors in Tennessee

The next step is to form the first board of directors for your PC in Tennessee. All of the initial directors must provide the owner with their contact information. The owner must keep records and submit them by the Tennessee Secretary of State. As a shareholder and owner, you must ensure that a provision for appointing a new director is included in the By-laws. In Tennessee, you must have Three directors in forming your Professional Corporation.

Step 7: Write the Corporate Bylaws

Now that you are done forming the team of the board of directors, the next step is to draft corporate bylaws. Corporate bylaws are the basic rules that control a corporation. It includes the organization’s structure, processes, laws, and rules. As a result, all personnel, managers, and corporation members must obey the firm’s rules.

Creating comprehensive corporate bylaws requires specific knowledge about the company, its structure, and operations. However, I can provide you with a general outline of what corporate bylaws usually include. It is crucial to consult with Tennessee Business Attorney or a legal expert to ensure that your bylaws comply with the laws and regulations governing your jurisdiction and industry.

  • Name and Purpose of the Corporation
  • Registered Office and Agent
  • Shareholders
  • Board of Directors
  • Officers
  • Committees
  • Indemnification and Insurance
  • Conflict of Interest
  • Records and Reports
  • Amendments
  • Miscellaneous

Step 8: Hold the First Board of Directors’ Meeting

Gather the board of directors for the first meeting after drafting the corporate bylaws. This meeting will conclude with the appointment of directors to manage the company’s daily operations, approval of the bylaws, selection of the corporation’s financial reporting year, and approval of the stock issue. Minutes should be taken at all board meetings and kept with the company’s records.

Step 9: Request an EIN in Tennessee.

After the operating agreement’s documentation, you should get or request an Employer Identification Number (EIN) in Tennessee. The tax ID for your professional corporation will be an EIN. The Internal Revenue Service can provide an EIN (IRS). It has nine digits and is comparable to a social security number. Nevertheless, EIN is different from SSN. Only business-related tasks, primarily filing general taxes, are performed using it. The form needs to be filled out and submitted online to the IRS.

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 the 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.

After you have your EIN number, you can benefit in several ways. It will give your professional corporation the absolute advantage necessary to operate at full capacity without encountering legal or judicial issues.

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Step 10: Open a Bank Account and Prepare for Taxes.

You should open a business bank account as soon as you have applied for and received your Employer Identity Number because you will use this account for yourself, your clients, and your staff. Check out the Best Banks in Tennessee for you to decide on which bank you are going to open an account.

Due to your organization’s increased legality and liquidity, having a US business bank account may make conducting business in Tennessee easier. Most banks require an EIN for businesses other than sole proprietorships to open a business bank account. Also, keeping your accounts separate will prevent you from merging your personal and business finances. Also, filing taxes is simpler when you have an EIN. You can expect to pay employee and corporate taxes when you form a professional corporation.

Step 11: Get a Business License in Tennessee

Before your professional corporation operates in Tennessee, you must have Tennessee Business License first. A business license is a formal document issued by a state government agency that allows you to conduct business in the geographic area governed by that agency. The cost of business licenses and permits in Tennessee ranges from $50 – $300. You must check with the local authorities to see if any special licenses or permits are required.

Step 12: File Your Taxes in Tennessee

Finally, you’ve arrived at the final process. Remember to file your taxes when you have obtained a business license and are ready to begin operations. To avoid a large tax bill, you should begin paying taxes quarterly as soon as possible. Each state has different tax requirements. Start examining the Tennessee tax classification for the taxes that an LLC in Tennessee must pay.

Main Characteristics of a Professional Corporation

In forming a Professional Corporation, the main characteristics must be distinguished before forming it. These are the general characteristics of forming a Professional Corporation in Tennessee.

  • Limited Liability Protection: A professional corporation provides its owners, shareholders, or members limited liability protection like a regular corporation. This means the shareholders’ personal assets are generally protected from business debts, obligations, and lawsuits, except in malpractice or professional negligence cases.
  • Tennessee Licensing Requirements: All shareholders must typically be licensed professionals in the same field in a professional corporation. The corporation must also comply with specific state regulations and licensing requirements that govern the profession.
  • Governance and Management: A professional corporation is governed by a board of directors, who the shareholders elect. The board appoints officers to manage the day-to-day operations of the corporation. All directors and officers must be licensed professionals in the same field as the corporation.
  • Taxation: Professional corporations are taxed as C corporations, where the corporation pays taxes on its income, and shareholders pay taxes on dividends received from the corporation. However, some professional corporations may be eligible for S corporation status, allowing pass-through taxation. Income, losses, deductions, and credits flow to the shareholders, who report this information on their income tax returns.
  • Restrictions on Ownership and Transfer of Shares: Professional corporations often restrict the ownership and transfer of shares to ensure that only licensed professionals in the same field can become shareholders. This helps maintain the professional nature of the corporation and adheres to state licensing requirements.
  • Malpractice Liability: While a professional corporation provides limited liability protection for general business debts and obligations, it does not shield shareholders from liability for their own malpractice or professional negligence. Shareholders can still be personally liable for their actions in providing professional services.

In summary, a professional corporation is a specialized corporate structure designed for licensed professionals, offering limited liability protection and a formal governance structure while adhering to state licensing requirements and regulations.

Maintain Professional and Business License in Tennessee

You must maintain or renew your professional license regularly now that you have established your professional corporation. Even if your company is well-established, it is only meaningful if you have a valid operating license. And it makes no difference if your professional license is still valid for a year or two, but your business license has already expired.

Make time at least once a year to check the status of your licenses. You won’t miss anything important this way. You can address any issues that arise.

Filing Annual Report in Tennessee

In Tennessee, you must submit a report. The owners’ and Registered Agent’s names and contact details are listed in the Annual Report. Also, it should include all of your yearly financial activity. You must submit the report every 1 year in the Tennessee Secretary of State.

FAQs

What is a professional corporation (PC) in Tennessee?
A PC is a type of corporation that is specifically designed to provide services in certain professional disciplines.
Who can own a PC in Tennessee?
Only individuals who are licensed by the state to practice the profession that is the focus of the PC can own a PC in Tennessee.
How many shareholders can a PC in Tennessee have?
Tennessee law allows for a PC to have no more than 35 shareholders.
Can a PC in Tennessee be formed for any profession?
No, Tennessee law sets forth specific professions that are eligible to form a PC, including medical doctors, dentists, optometrists, and attorneys.
What is the process for forming a PC in Tennessee?
The process for forming a PC in Tennessee involves registering with the Tennessee Secretary of State and meeting other requirements specific to the chosen profession.
Can a PC in Tennessee choose to be taxed as an S Corporation?
Yes, a PC in Tennessee can elect to be taxed as an S Corporation for federal tax purposes.
Do all shareholders in a PC in Tennessee need to be licensed in the chosen profession?
No, a PC in Tennessee can have non-licensed shareholders, but they cannot have a controlling interest in the company.
Is there a minimum number of shareholders required to form a PC in Tennessee?
No, Tennessee law does not require a specific minimum number of shareholders to form a PC.
How long does it typically take to form a PC in Tennessee?
The timeframe for forming a PC in Tennessee varies depending on the complexity of the individual situation but normally takes a couple of weeks.
Can a PC in Tennessee be sued for the malpractice of its shareholders?
Yes, a PC in Tennessee can also be held liable for the malpractice of its shareholders.
Is a PC in Tennessee required to carry malpractice insurance?
Yes, some professions in Tennessee, such as doctors and lawyers, are required to carry malpractice insurance, including those who operate as PCs.
Can a PC in Tennessee have shareholders from other states?
Yes, a PC in Tennessee can have shareholders from other states.
Is a PC in Tennessee required to have a board of directors?
No, a PC in Tennessee is not required to have a board of directors, but it is optional.
Who is responsible for managing the day-to-day operations of a PC in Tennessee?
The shareholders of the PC are typically responsible for managing the day-to-day operations.
What documents need to be filed with the state of Tennessee to form a PC?
Articles of incorporation need to be filed with the state of Tennessee to form a PC.
Can a PC in Tennessee offer stock options or compensation to its employees?
Yes, a PC in Tennessee can offer stock options or compensation to its employees.
Can a PC in Tennessee be formed and held by a trust?
Yes, a PC in Tennessee can be formed and held by a trust.
Can a PC in Tennessee issue non-voting stock?
Yes, a PC in Tennessee can issue non-voting stock.
Is there a residency requirement to form a PC in Tennessee?
No, there is no residency requirement to form a PC in Tennessee.
Can a PC in Tennessee merge with another corporation?
Yes, a PC in Tennessee can merge or consolidate with another corporation.
What is the advantage of forming a PC versus operating as a sole proprietorship or partnership in Tennessee?
A PC offers limited liability protection to its shareholders, whereas sole proprietorships and partnerships do not.
What is the filing fee to form a PC in Tennessee?
The filing fee to form a PC in Tennessee is currently $100.
Does a PC in Tennessee need to have a registered agent?
Yes, a PC in Tennessee is required to have a registered agent.
How do I dissolve a PC in Tennessee?
To dissolve a PC in Tennessee, you would need to file articles of dissolution with the state and follow the proper procedures for winding down the business.
Is there a deadline for filing my annual report for my PC in Tennessee?
Yes, the annual report for a PC in Tennessee is due on the first day of the fourth month after the close of the corporation’s fiscal year.
Can a PC in Tennessee change its registered agent?
Yes, a PC in Tennessee can change its registered agent by filing the proper paperwork with the state.
What happens if I fail to pay the annual report fee for my PC in Tennessee?
If the annual report fee for a PC in Tennessee is not paid on time, the corporation may fall out of good standing with the state.
Do I need an attorney to form a PC in Tennessee?
You do not need an attorney to form a PC in Tennessee, but it is highly recommended to consult with one as the process for certain professions may be complex.
Can a PC in Tennessee be a nonprofit organization?
No, a PC cannot be a nonprofit organization.
What is a professional corporation in Tennessee?
A professional corporation in Tennessee is a corporation that is organized primarily for the purpose of rendering a professional service.
What are the benefits of forming a professional corporation in Tennessee?
Some of the benefits of forming a professional corporation in Tennessee include limited liability protection and potential tax advantages.
How do I form a professional corporation in Tennessee?
To form a professional corporation in Tennessee, you must file Articles of Incorporation with the Tennessee Department of State.
Do I need to be licensed in Tennessee to form a professional corporation?
Yes, all shareholders and directors of a professional corporation in Tennessee must have a professional license or be authorized to obtain one.
Can a non-licensed person own a professional corporation in Tennessee?
No, only licensed professionals can own a professional corporation in Tennessee.
How many shareholders can a professional corporation in Tennessee have?
A professional corporation in Tennessee can have up to 50 shareholders.
How much does it cost to form a professional corporation in Tennessee?
There is a $100 fee to file Articles of Incorporation with the Tennessee Department of State.
Do I need to file for a business license in Tennessee if I form a professional corporation?
Yes, you will need to obtain a business license and any necessary professional licenses or permits to operate in Tennessee.
What types of professions can form professional corporations in Tennessee?
Some of the professions that can form professional corporations in Tennessee include doctors, lawyers, accountants, architects, and engineers.
Can a professional corporation offer services outside of Tennessee?
Yes, a professional corporation can offer services outside of Tennessee as long as all necessary licenses and permits are obtained.
What type of liability protection does a professional corporation offer in Tennessee?
A professional corporation in Tennessee offers limited liability protection, which means that shareholders are not personally responsible for any business debts or liabilities.
Can I file for a professional corporation as a sole proprietor in Tennessee?
No, a professional corporation in Tennessee requires at least two shareholders.
How is a professional corporation taxed in Tennessee?
A professional corporation in Tennessee can be taxed as a C corporation, an S corporation, or a partnership.
Can a professional corporation in Tennessee be dissolved?
Yes, a professional corporation in Tennessee can be dissolved by a vote of the shareholders or by court order.
How do I amend my professional corporation’s Articles of Incorporation in Tennessee?
To amend your professional corporation’s Articles of Incorporation in Tennessee, you must file a Certificate of Amendment with the Tennessee Department of State.
Are there any annual reporting requirements for professional corporations in Tennessee?
Yes, professional corporations in Tennessee must file an annual report and pay a $50 fee.
Can I convert my existing business into a professional corporation in Tennessee?
Yes, you can convert your existing business into a professional corporation in Tennessee by filing a Certificate of Conversion with the Tennessee Secretary of State.
Can a professional corporation in Tennessee merge with another corporation?
Yes, a professional corporation in Tennessee can merge with another corporation as long as all necessary legal requirements are met.
What is the minimum amount of capital required to form a professional corporation in Tennessee?
There is no minimum amount of capital required to form a professional corporation in Tennessee.
Can I use a PO Box as my professional corporation’s address in Tennessee?
No, your professional corporation’s address in Tennessee must be a physical street address.
How long does it take to form a professional corporation in Tennessee?
It generally takes around 7-10 business days to form a professional corporation in Tennessee.
Can a professional corporation have a DBA in Tennessee?
Yes, a professional corporation in Tennessee can operate under a DBA, also known as a “fictitious name.”
What is the franchise tax rate for a professional corporation in Tennessee?
The franchise tax rate for a professional corporation in Tennessee is $0.25 per $100 of authorized capital.
Can a professional corporation in Tennessee have multiple classes of stock?
No, a professional corporation in Tennessee can only have one class of stock.
Are professional corporations exempt from certain taxes in Tennessee?
No, professional corporations in Tennessee are not exempt from any taxes.
What is the professional licensing board in Tennessee that oversees professional corporations?
The Tennessee Board of Professional Responsibility oversees professional corporations in Tennessee.
Can a professional corporation be sued in Tennessee?
Yes, a professional corporation in Tennessee can be sued, but only the assets of the corporation are at risk.
Are there any restrictions on advertising for professional corporations in Tennessee?
Yes, advertising for professional corporations in Tennessee is subject to certain restrictions imposed by the Tennessee Board of Professional Responsibility.

Also Read

How to Save Money While Forming Tennessee Professional Corporation

To begin with, thorough research is essential. Understanding the legal requirements and regulations of forming a Tennessee PC is crucial. This includes determining the various licenses, permits, and certifications needed to legally operate a professional corporation. While it may be tempting to hire an attorney to guide you through this process, it is also possible to undertake this investigation independently. By conducting in-depth online research and utilizing available resources such as the Tennessee Secretary of State website or Tennessee Business Services Division, one can gather necessary information, saving costs associated with consulting an attorney.

Moreover, preparing the required documentation for incorporating a Tennessee PC can be another potential source of savings. Legal document preparation services and online platforms offer templates, guides, and step-by-step instructions for drafting articles of incorporation and other essential documents. These resources come at a fraction of the cost of hiring a lawyer. By thoroughly familiarizing oneself with the necessary paperwork and using these resources, entrepreneurs can significantly reduce expenses.

Furthermore, choosing the most cost-effective method of incorporation can contribute to saving money. In Tennessee, entrepreneurs have the option to hire a professional registered agent or act as the designated agent themselves. Engaging a professional registered agent not only entails an additional cost but also results in long-term financial commitments. Instead, except in particular professional fields with additional requirements, serving as a registered agent can prove both fiscally prudent and an effective way to gain a deeper understanding of the corporation’s operational intricacies.

Additionally, carefully considering the location and cost of a business address is important. Rather than acquiring expensive office space, entrepreneurs can initially utilize virtual office services. This allows for a professional image at a considerably lower cost. Virtual offices provide business addresses and communication services like call answering, mail forwarding, and meeting room access, all of which are crucial elements of a professional corporation without the expense of traditional office space.

Finally, maintaining financial efficiency within the corporation helps promote savings as well. Establishing and adhering to a budget, keeping overhead costs low, and seeking out cost-effective vendors for supplies and services can all have a positive impact on the company’s balance sheet. Identifying strategies to reduce unnecessary expenses and optimizing the use of existing resources are effective means of keeping costs under control.

In conclusion, saving money during the formation of a Tennessee Professional Corporation requires careful decision-making and practical strategies. While hiring an attorney may be the traditional avenue to navigate this process, personal research, cost-effective documentation preparation services, acting as the registered agent, choosing a virtual office, and maintaining financial efficiency are all valuable alternatives that can yield considerable savings. By meticulously examining each step of the incorporation process, entrepreneurs can confidently navigate the financial aspects of forming a Tennessee PC and set themselves up for long-term success.

Conclusion

In conclusion, forming a professional corporation in Tennessee is a strategic decision for licensed professionals who seek to combine their expertise and services under a single corporate entity. This business structure offers limited liability protection, a formal governance structure, and compliance with state licensing requirements. However, it also comes with certain restrictions on ownership, transfer of shares, and personal liability for professional malpractice. By carefully considering the advantages and disadvantages of a professional corporation, professionals can determine whether this structure aligns with their business goals, regulatory requirements, and risk management needs, ultimately contributing to a more organized, secure, and compliant professional practice.

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