Are you looking to form a professional limited liability company (PLLC) in Tennessee, but you’re not sure how the formation process works? There are several important steps when it comes to creating a Tennessee PLLC that is compliant and able to do business in the state.
What is a Tennessee Professional LLC?
The professional limited liability company (PLLC) is a specialized type of LLC that is intended for licensed professionals to offer their unique services. In Tennessee, PLLCs can be formed to render any service that may only be lawfully rendered by a person licensed or otherwise authorized by a licensing authority in Tennessee, such as physicians, accountants, and lawyers.
The Tennessee PLLC is typically more popular than a professional corporation (PC) because it’s a more flexible business type, but it still includes the personal asset protection and professional qualifications that make the PSC valuable.
PLLCs in Tennessee have relatively simple formation and maintenance requirements, several options for how they want to be taxed, and flexible management. From one-person businesses to multi-member PLLCs with several owners, the PLLC is a popular choice for a reason.
An important detail of the PLLC that differs from a traditional LLC is that liability protection is not shared across all members of the company. For example, if you operate a PLLC for physicians, your business structure does not shield each individual member from malpractice suits. Instead, each member is liable for their own malpractice insurance, and no member is liable for another member’s malpractice.
Forming a PLLC in Tennessee (in 6 Steps)
Step One) Choose a PLLC Name
Your PLLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to take into consideration when selecting a name for your business:
In Tennessee, the name of a PLLC must contain the words "professional limited company," "professional limited liability company," "professional LLC," or "limited liability professional company," or the abbreviations "P.L.C.," "P.L.L.C.," or "L.L.P.C.," or such abbreviations without punctuation. The name may not contain the word "corporation" or "incorporated" or an abbreviation of these words, and it also may not contain any language that states or implies the PLLC is organized for a purpose other than a purpose authorized by law or the PLLC’s Articles of Organization.
Another aspect to consider is including language that explains what your business does. For example, if you’re a doctor, put the word “physician” or the initials “MD” in your PLLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
Do You Like It?
At the end of the day, this is your business, and you should choose a name that makes you proud. You should also make sure your PLLC name both sounds good when spoken out loud, and looks good when written down.
The most important consideration for naming a PLLC is to not get too attached to any one business name until you know that it is available for use. To confirm whether a name is available, you can use the Business Name Availability search tool on the Tennessee Secretary of State’s website. If you would like to reserve a business name prior to filing your Articles of Organization as described in below in Step Three, you can do so by submitting an Application for Name Reservation to the Secretary of State, either by mail or in person. The filing fee for the Application for Name Reservation is $20, and the reservation period lasts 120 days.
Step Two) Designate a Registered Agent
Every PLLC in Tennessee is required to designate a registered agent, which is the individual or business entity that receives government correspondence on behalf of your business, then forwards those documents to you.
Your Tennessee PLLC’s registered agent can be either a person or a legal entity located in Tennessee. Your PLLC’s registered agent’s name and street address in Tennessee must always be on file with the Division of Business Services.
Without a registered agent, you could lose your good standing with the state of Tennessee, and the state also has the right to dissolve your PLLC if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
At the end of the day, we recommend hiring a dedicated registered agent service to handle these requirements. Doing so will help eliminate junk mail and more importantly, keep your personal and/or business address off public record.
Step Three) File Formation Documents with the State
Once you are ready to form your Tennessee professional limited liability company, you will fill out the Articles of Organization.
This is THE document that will register your PLLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Name of your PLLC
- Name and address of your PLLC’s registered agent and office in Tennessee
- Your PLLC’s fiscal year close
- Effective date and time of the Articles of Organization, if other than upon filing
- Whether your PLLC is member-managed, manager-managed, or director-managed
- Number of members at the time of filing
- Duration of your PLLC
- Address of your PLLC’s principal executive office
- Mailing address of your PLLC, if other than the principal executive office
- Designation that the entity is a PLLC and the name of the profession
- Whether your PLLC will be an “Obligated Member Entity” and a list of the obligated members, if applicable
- Whether your PLLC is prohibited from doing business in Tennessee
- Any other provisions agreed to by the members
- Signature and capacity of the signatory
You can file the Articles of Organization online, by mail, or in person with the Secretary of State.
Cost to Form a PLLC
The filing fee for the Articles of Organization in Tennessee is $50 per member in existence on the date of the filing, with a minimum fee of $300 and a maximum fee of $3,000. If the Articles of Organization prohibit your PLLC from doing business in Tennessee, the filing fee is $300.
Online filings are processed instantly, and mailed filings are processed within 1-2 business days of receipt. If filing in person, the Articles of Organization can generally be processed while you wait.
Step Four) Create an Operating Agreement
After you register a PLLC in Tennessee, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for a copy of this document. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your operating agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your operating agreement, or you can create one from a free template online. You can read more about operating agreements here, but some of the basic information you’ll want to have includes:
- Individual members' ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the PLLC
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death
Step Five) Handle Taxation Requirements
The vast majority of PLLCs require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important PLLC functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LLC for free through the IRS.
Generally all businesses operating in Tennessee are subject to a state business tax and franchise and excise tax. Depending on its business activities, your PLLC may also be subject to other Tennessee state business taxes. More information about state taxes is available on the Tennessee Department of Revenue’s website.
Once you’ve determined your PLLC’s tax obligations, you can register, e-file, and pay for many state business taxes online through the Tennessee Taxpayer Access Point.
Depending on where in Tennessee your business is located, you may also need to pay some local taxes. Many cities in Tennessee have enacted a city business tax. You can find a list of these cities on the State of Tennessee’s website. Your PLLC may be subject to other local taxes as well, so you should be sure to check with your local tax authorities to confirm your PLLC’s tax obligations. If your PLLC is located in one of the four largest cities in Tennessee, you can find local resources at the following links: Nashville, Memphis, Knoxville, and Chattanooga.
Step Six) Obtain Business Licenses and Permits
If your PLLC is subject to the state business tax, it must obtain a standard business license from the county clerk. If your PLLC is located in a city that also imposes a city business tax, your PLLC must obtain a city business license as well. You may also need to obtain industry- or occupation-specific licenses or permits, depending on the nature of your PLLC’s business activities. You can find more information about these licenses and permits on the Tennessee State Government’s website.
Would You Prefer a Professional Form Your PLLC?
If you would prefer to have a professional handle the paperwork for you, consider hiring an online business formation service.
Because of the often-complex nature of professional limited liability companies, some of our favorite service providers don’t offer PLLC formations, but there are still plenty of quality companies that do provide this service. A couple of our favorites for PLLC formation are LegalZoom and MyCorporation.
Another option would be to hire a business attorney to handle your PLLC formation. While this is certainly a more expensive route than using an online formation service, a lawyer’s expertise could come in handy when you’re forming a specialized business structure like this.
Next Steps: What to Do After Creating a PLLC in Tennessee
Open a business bank account
We highly recommend that you establish a separate business banking account so that your business and personal finances are maintained completely separate. This is important because it helps protect your personal assets and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
Generally, employers with five or more employees in Tennessee are required to obtain workers’ compensation coverage. Family members, part-time employees, and officers are included when determining the number of employees. If you expect to have five or more employees for your PLLC, you can meet the workers’ compensation coverage requirement by either purchasing an insurance policy from an insurance carrier or by qualifying as a self-insured employer with the Department of Commerce and Insurance. More information about workers’ compensation in Tennessee is available on the Tennessee Department of Labor and Workforce Development’s website. Though not required, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies pertaining to the profession practiced by your PLLC.
Understand income reporting
Income reporting is just what it sounds like – reporting the income you made from your business. It’s important to note that you must file this form whether you made or lost money over the course of the year.
You will report your PLLC’s income on a federal tax return. On the state level, your PLLC’s income that is subject to the business tax described above in Step Five will be included on a Tennessee Business Tax Return. You can find the Business Tax Return on the Department of Revenue’s website. Tennessee otherwise does not have an income tax or require income reporting.
Understand annual reporting
Your PLLC will be required to file an Annual Report every year in Tennessee, either online or by printing and mailing the form prepared online. The Annual Report will be due on or before the first day of the fourth month following your PLLC’s fiscal year closing. For LLCs, the Annual Report fee ranges from $300 to $3,000, depending on the number of members.
Find an accountant
We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how to best manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.