Four Reasons to Operate Your Business as a LLC in Tennessee
An important decision when starting a business is choosing the structure of your business entity. For good reason, a popular choice in Tennessee for business owners is the limited liability company structure.
A Tennessee LLC offers the following four unique characteristics:
- Limited liability. A LLC is a separate entity from its owners (referred to as members), and thus, each members’ liability is limited to his or her capital contribution. In certain circumstances, a member can elect to have unlimited liability.
- Informal structure. A LLC has the flexibility to devise a management structure tailored to the members’ requirements. It also does not have formal record-keeping and meeting requirements which contribute to the low cost of maintaining a LLC other than filing an annual report and fee with the Tennessee Secretary of State. Since there are not many statutory requirements to operate a LLC, the members could experience disputes that are not governed by the law. However, potential issues can be anticipated and provided for in an operating agreement.
- Tax options. By default a LLC is taxed as a “pass through entity,” and thus the profits and losses pass through and are taxed at each individual members’ respective tax rates. In certain circumstances, the LLC can elect to be taxed as a corporation. Although a LLC is a “pass through entity,” it is required to annually file and pay Tennessee franchise and excise taxes which are based on the greater of the entity’s net worth or real and tangible property, and on net earnings from the business conducted in Tennessee.
- “Pass through” taxation. Although profits and losses may not be paid to the LLC’s members, the profits and losses are still “passed through” to the individual members who must pay taxes on them.
Before choosing the structure of your new business entity you should understand and take into consideration the unique characteristics of the entity in conjunction with the goals and objectives of your business.