Form a Tennessee Corporation: Shield Family Assets
Incorporating in Tennessee can help separate business risk from family assets. Below is a practical overview of formation steps with the Tennessee Secretary of State, governance practices to preserve limited liability, and key tax considerations. Always verify current requirements with official state resources and get advice tailored to your situation.
Why a Tennessee Corporation Can Help Protect Family Assets
A properly formed and maintained corporation is a separate legal entity. That separation can help shield owners’ personal assets from many business debts and claims. When respected, the corporate veil generally means that creditors pursue corporate assets, not the shareholders’ personal property. This protection is not absolute—personal guarantees, commingling funds, fraud, undercapitalization, and failure to observe corporate governance requirements can support veil-piercing claims and expose owners to liability. In family-run businesses, set clear boundaries between personal and business finances and document decisions to preserve the liability shield. See the Tennessee Secretary of State’s Business Services for entity guidance.
Choosing Between a Tennessee Corporation and Other Entities
Corporations offer familiar governance (directors, officers, shareholders) and access to stock-based ownership and potential venture capital. An LLC may offer comparable liability protection with more flexible management and default pass-through taxation. Your goals for growth, compensation, equity incentives, and tax treatment should guide the choice. For closely held and family businesses, consider ownership sharing, succession planning, and how you will maintain governance practices over time.
Core Steps to Form a Tennessee For-Profit Corporation
- Choose a name. Ensure the name is distinguishable on the Secretary of State’s records.
- Appoint a registered agent. Tennessee requires a registered agent with a physical street address in the state (no P.O. boxes). See Registered Agents.
- File the charter. Prepare and file a charter (articles of incorporation) with the Tennessee Secretary of State and pay the filing fee. See Business Entity Filings.
- Adopt bylaws and organize. Hold an organizational meeting to adopt bylaws, appoint directors/officers, authorize share issuances, and approve banking and tax matters.
- Issue stock and maintain records. Document consideration received and keep a stock ledger.
- Get an EIN and open accounts. Obtain an EIN from the IRS (IRS EIN), then open a dedicated business bank account and set up accounting systems.
- Register for taxes and licenses. Address state and local registrations. For state business taxes, review Tennessee Franchise & Excise Tax.
Ongoing Corporate Formalities to Preserve Limited Liability
- Keep business and personal funds strictly separate; use dedicated business bank accounts and credit.
- Maintain accurate corporate records: bylaws, minutes, resolutions, stock ledger, and key contracts.
- Hold and document director and shareholder meetings as required by your bylaws and applicable law.
- Sign contracts in the corporation’s name and with proper officer titles.
- Ensure adequate capitalization and appropriate insurance for the business’s risks.
- Avoid personal guarantees when possible; if required, understand they create personal exposure.
Practical Tips to Protect the Corporate Veil
- Use a consistent signature block: “Corporation Name, by Jane Doe, President.”
- Adopt a clear reimbursement policy for business expenses and enforce it.
- Calendar annual and special meetings; circulate agendas and keep minutes.
- Centralize key records (bylaws, stock ledger, resolutions) in a secure, backed-up location.
- Review insurance annually to match evolving risks.
Tennessee Filing, Reports, and Public Information
Filing a charter with the Secretary of State creates your Tennessee corporation, and certain information (e.g., corporate name, registered agent/office, authorized shares) becomes public record. Corporations are also subject to periodic state reporting and taxes. Deadlines, fees, and requirements vary by activity and structure—confirm current rules on the Secretary of State’s site and with the Department of Revenue.
Tax Considerations and Elections
By default, a C corporation is a separate federal taxpayer; eligible corporations may elect S corporation status. Tennessee imposes franchise and excise taxes that may apply to corporate operations. The best structure depends on profits, owner compensation, reinvestment, and exit strategy. Coordinate with legal and tax advisors before issuing shares and making federal or state elections.
Asset Protection in Family Businesses
Family-run corporations face unique risks: informal decisions, personal accounts used for business, and undocumented loans. Strengthen protection by using written employment and compensation arrangements; documenting owner loans with promissory notes; properly recording dividends/distributions; and adopting buy-sell terms addressing death, disability, divorce, and disputes. Consider layered protection with trusts and insurance, and align estate plans with the corporation’s stock structure.
Formation Checklist
- Verify and reserve a distinguishable corporate name in Tennessee.
- Designate a Tennessee registered agent with a physical street address.
- Draft and file the charter; pay the filing fee.
- Prepare bylaws; schedule and hold the organizational meeting.
- Appoint directors and officers; adopt initial resolutions.
- Issue shares; record consideration; update the stock ledger.
- Obtain an EIN; open a dedicated bank account.
- Set up accounting; separate personal and business finances.
- Register for Tennessee franchise and excise taxes, if applicable.
- Calendar annual reports, tax filings, and meeting dates.
Practical Timeline and Costs
Timelines depend on state processing, completeness of filings, and whether you request expedited service. Costs include the Tennessee charter filing fee, any name reservation fees, registered agent fees, and professional fees. Verify current fees and processing options with the Tennessee Secretary of State before filing.
When to Seek Legal Counsel
Engage counsel when selecting the entity type; drafting bylaws and shareholder agreements; issuing shares and allocating equity among family members; planning for succession and buy-sell terms; evaluating tax elections; or if you anticipate investors, acquisitions, or regulated activities.
FAQ
Do Tennessee corporations have to file annual reports?
Yes. Corporations generally must file periodic reports and pay applicable fees. Confirm current deadlines and fees on the Secretary of State’s site.
Can I be held personally liable after incorporating?
Shareholders generally have limited liability, but personal guarantees, fraud, commingling, and failure to follow governance formalities can create personal exposure.
Is an S corporation a different Tennessee entity?
No. S corporation status is a federal tax election for a qualifying corporation; it does not change Tennessee corporate law requirements. State franchise and excise taxes may still apply.
Do I need a Tennessee address to incorporate?
You need a registered agent with a physical Tennessee street address to receive service of process. Owners and directors may reside elsewhere.
Next Steps
1) Confirm the name is available; 2) designate a registered agent; 3) prepare and file the charter; 4) draft bylaws and hold the organizational meeting; 5) issue shares and set up banking and accounting; 6) complete tax and license registrations; and 7) calendar recurring reporting and tax obligations.
Ready to move forward? Contact our team to discuss your Tennessee incorporation.
Tennessee-specific notice: Requirements can change and vary by circumstances. Always verify with the Secretary of State and Department of Revenue and consult counsel.