Setting up Your Business

Setting up Your Business

 

Choose a Business Name

See Establishing a Brand to help you with this.  You can find out if this name is already registered with the state and file a form to secure your name at the Tennessee Secretary of State website.

Determine and Set Up the Business Structure

Here are the types of structures typically considered:

  • Sole proprietorship
  • Limited Liability Corporation (LLC)
  • S Corporation
  • C Corporation

An Internet search using “compare business structures” will reveal several different charts from several different vendors that show the benefits and disadvantages for each.

LLCs must file articles of organization and corporations must file articles of incorporation.  Forms can be found at the TN Secretary of State website.

Here are some tidbits to help you with your decision:

  • Although a sole proprietorship is often the easiest structure, it puts you at a higher risk for personal liability (e.g., you can lose all of your personal assets if the business fails or you are sued).  We don’t recommend it for any business.
  • LLCs are easy to start and eliminate the liability risk, but you will have to convert to a C Corporation to accept any outside investment money.
  • If you expect to generate more than $100K/year in sales and don’t plan to take on outside investors, an S-Corp can be a very efficient tax structure.
  • You can change the structure of the business as it evolves.

Obtain a Federal Employer Identification Number (EIN)

You have to get a federal tax ID if your business is anything other than a sole proprietorship.  Instructions for online registration are at the IRS website.

State of Tennessee Requirements

All business types that have employees (regardless of the structure chosen) must get a state tax identification number, and register for both income tax withholding and unemployment Insurance tax.  The State of Tennessee has a One Stop Business Resource website that can help you decide on a name, file a business charter, obtain a state tax ID number, and obtain an unemployment insurance number.

Some companies need business licenses and some don’t.  SCORE has good description of when a license is needed.  Additionally, you may need a business license both in your city and in your county.  Check with your County Clerk to see if you need a county business license and with your city clerk to see if you need a city business license.
 
There may be other licenses or permits needed to run your business, depending on the type of business. For example, a home-based Internet business may only require a Tennessee business license to operate. However, a retail store may have to obtain a business license, zoning permit, seller’s permit, and a sales tax license. Contact your city or county clerk to ensure the business has met all legal obligations.