Tennessee LLCs: Top Five Most Common Mistakes when forming a Tennessee LLC

Forming a Tennessee limited liability company (TN LLC) may seem like a simple task, but there is more to it than filing Articles of Organization with the Secretary of State.  The following is a list of five things that are commonly overlooked when forming a TN LLC.

  • Although an Operating Agreement is not required by TN statute, all LLCs should have one, especially multi-member LLCs.  The Operating Agreement is a contract between/among the members of the LLC that lays out the rights and obligations of the members with respect to the LLC.  The Operating Agreement structures the LLC’s financial and functional decisions, and governs the internal operations of the LLC in a way that suits the specific needs of the business owners.  Without an Operating Agreement, the LLC will be governed solely by the provisions of the TN Revised LLC Act, which may not be desirable to the members in certain circumstances.  Multi-member LLC Operating Agreements are complicated legal documents that require the attention of an attorney who is experienced in TN LLC formation.
  • The LLC’s Articles of Organization must be filed with the Register of Deeds in the county in which the LLC’s principal office is located, if the principal office is located in TN.  This requirement is not common in most states and is easily overlooked if the LLC is formed by someone who is not experienced in TN LLC formation.
  • The LLC must have an EIN to open a bank account, to pay taxes and for other business purposes.  EIN stands for Employer Identification Number (also known as a Federal Tax Identification Number) and is the corporate equivalent of a social security number for individuals.  The LLC may obtain an EIN by completing an application on the IRS website.
  • All TN LLCs must register with the TN Department of Revenue.  The TN Department of Revenue recently started cracking down on business registrations. The LLC may register online with the TN Department of Revenue for any of the following taxes which it may be subject to: City and County Business Tax, Franchise and Excise Taxes, Sales and Use Tax, and other taxes that apply only to specific industries.  An LLC that has not registered with the TN Department of Revenue will not be able to obtain a Certificate of Good Standing from the TN Secretary of State and may be subject to administrative dissolution.
  • All TN LLCs (except those satisfying one of the limited exemptions set forth in T.C.A. Section 67-4-2008) are subject to TN Franchise and Excise Taxes.  Historically Franchise and Excise Taxes only applied to corporations, but in 1999 they were extended to other entity types including LLCs.  The Franchise Tax is an annual tax required to be paid upon the value of the assets of the LLC, and the minimum amount payable each year is $100.  The Excise Tax is basically an income tax of 6.5% on what would be the LLC’s net earnings for federal income tax purposes.  An attorney who is experienced in TN LLC law can help you minimize your TN Franchise and Excise Tax obligations.