Starting a business can be a thrilling endeavor, but there are many considerations and choices to be taken. What kind of organizational structure you choose to use for your business will be one of your initial choices. The sole proprietorship and LLC are two popular choices for owners of small businesses. A sole proprietorship in Tennessee does not have to register with the state, but there are some significant factors to take into account.
The simplest and most typical type of business structure is a sole proprietorship. It is owned and run by a single individual who is in charge of every part of the company. There is no formal split between the owner and the company; rather, the business income is declared on the owner’s personal tax return.
Because the owner and the company are legally separated, an LLC, or limited liability company, provides extra security for the owner’s personal assets. The owner’s personal assets are protected from business obligations, but the business income is still recorded on the owner’s personal tax return.
An LLC comes with extra paperwork and costs, but it also provides better protection for the owner’s personal assets. An LLC must make an annual report and register with the Secretary of State in Tennessee. There may be additional fees for professional services on top of the $300 registration charge for an LLC in Tennessee.
Tennessee mandates the payment of state franchise and excise taxes by LLCs. The LLC’s net worth determines the franchise tax, whereas its net earnings determine the excise tax. The LLC’s income and net value determine the tax rates, but the minimum tax for both is $100 per year. Additionally, LLCs must apply for an IRS tax ID number. Tennessee Tax Identification Number
You must submit an application either by mail or online through the IRS website in order to get a tax ID number in Tennessee. Your firm is identified for tax reasons by its tax identification number, often known as an Employer Identification Number (EIN). To create a bank account, hire staff, or apply for specific licenses and permissions, you might need an EIN even if your business is a sole proprietorship and is not needed to register with the state. Getting Your Own Business Off the Ground A rewarding experience, starting your own business involves considerable planning and consideration. It’s crucial to weigh your alternatives and speak with a legal or financial expert before choosing a business form. Obtaining a tax ID number may still be necessary even when a sole proprietorship is not needed to register with the state of Tennessee. An LLC comes with extra paperwork and costs, but it also provides better security for your personal assets. In order to set up your business for success, whichever option you choose, make sure to conduct your homework and follow the necessary steps.
In Tennessee, you can operate a business from your house as long as you follow all applicable zoning laws and regulations. Nevertheless, it’s crucial to secure any licenses and permits your firm may need from the state or local government.