Starting a Professional Corporation in Tennessee 2024: Ultimate Guide

Licensed professional? Level up your business with Tennessee professional corporation! Enjoy unique benefits like Tennessee LLC, such as limited liability, tax perks, and a polished image. Our step-by-step guide unravels the essentials for smooth compliance and the right fit. LLCBase has your back with expert guidance, so make an informed decision and triumph in Tennessee with your professional corporation today!

This guide will review the requirements for starting a professional corporation in Tennessee, explore the advantages and disadvantages of this business structure, and help you determine if it is the right fit for your business goals.

What is a Professional Corporation

A Professional Corporation (P.C.) is a unique type of corporation designed for licensed professionals, such as doctors, dentists, lawyers, architects, and accountants. Forming a P.C. allows licensed professionals to offer their services through a corporate structure, providing them with the benefits of a traditional corporation, such as limited liability protection and tax advantages. Forming a professional corporation in Tennessee is a popular choice due to the thriving professional landscape and business-friendly environment. When starting a professional corporation, choose a reliable formation service in Tennessee.

The primary purpose of Tennessee Professional Corporation is to protect its owners from personal liability for the corporation’s actions. The shareholders’ personal assets are protected if the professional corporation faces legal issues. Moreover, Tennessee professional corporations can offer certain tax benefits, such as deducting employee benefits and operating expenses. These advantages make forming a professional corporation an attractive option for many professionals in Tennessee.

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Who Can File Under Professional Corporation Laws

Under Tennessee Professional Corporation laws, only certain licensed professionals are eligible to form a professional corporation. The specific professions allowed to form a P.C. may vary slightly by state, but in Tennessee, the following professionals can typically form a professional corporation:

Each profession has its governing licensing board, which sets specific rules and regulations for forming and operating a professional corporation. It is essential to check with the relevant board and state laws to ensure that your profession is eligible to form a professional corporation and to understand the specific requirements associated with your profession.

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Structure of a Professional Corporation

• Shareholders: Tennessee Professional Corporation’s shareholders must be licensed professionals in the same field as the corporation’s purpose. For example, if a professional corporation is formed to offer legal services, all shareholders must be licensed attorneys. This requirement ensures that the professional corporation’s management comprises qualified individuals with relevant expertise.
• Directors: The directors of a professional corporation in Tennessee are responsible for overseeing the corporation’s operations and making high-level decisions. The directors must also be licensed professionals in the same field as the corporation’s purpose. The number of directors required depends on the specific licensing board’s regulations, but typically a minimum of one director is needed.
• Officers: The officers of Tennessee Professional Corporation manage the professional corporation. Officers typically include a President, Secretary, and Treasurer. However, additional officers can be appointed as needed. While not all officers must be licensed professionals, the President must hold a valid license in the same field as the corporation’s purpose.

Starting a Professional Corporation in Tennessee: A Guide

Here is a detailed guide to starting a professional corporation in Tennessee that you should follow.

Step 1: Appointment of Registered Agent

The first step in forming a Professional Corporation is appointing Registered Agent in Tennessee. This individual or company will act on behalf of the corporation, receiving official notices and legal documents. The agent must have a physical address in Tennessee and be available during regular business hours.

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Step 2: Choosing the Name of the Corporation

Selecting a name for your Tennessee Professional Corporation is crucial. The name must be unique and appropriate, including the words “professional corporation” or the abbreviation “P.C.” It must also comply with the rules and regulations of the governing licensing board and should not be confusingly similar to an existing corporation’s name.

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Step 3: Drafting of By-laws

By-laws are the internal rules and regulations governing the management and operations of the professional corporation. These should include provisions related to the appointment of directors, issuance of shares, and any restrictions imposed by the licensing board.

Step 4: Appointment of Board of Directors

The board of directors oversees the management and operations of the Tennessee Professional Corporation. Directors must be licensed professionals in the same field as the corporation’s purpose.

Step 5: Conduction of Board Meetings

Regular board meetings are essential for maintaining the proper functioning and compliance of the professional corporation. The by-laws should specify the frequency, notice requirements, and procedures for conducting these meetings.

Step 6: Issuance of Corporate Shares

Shares represent ownership in the corporation. The professional corporation must issue shares to its shareholders, who must be licensed professionals in the same field. Share issuance should comply with the by-laws and any restrictions imposed by the licensing board.

Step 7: Comply with State Requirements

Forming Tennessee Professional Corporation requires compliance with specific state requirements, such as obtaining necessary permits and licenses, paying fees, and adhering to rules and regulations the governing licensing board sets forth.

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Step 8: Filing of Statement of Information

Tennessee professional corporations must file an annual report with the Tennessee Secretary of State. This document includes essential information about the corporation, including its name, address, Registered Agent, and directors.

Step 9: Getting Tax Permits from the State

The professional corporation must obtain the necessary tax permits from the Tennessee Department of Revenue, such as an Employer Identification Number (EIN) from the Internal Revenue Service (IRS).

Step 10: Opening of a Bank Account

Finally, open a separate bank account for the Tennessee Professional Corporation to maintain proper accounting and financial records.

Fees Associated with Professional Corporation in Tennessee

Here are some of the most common fees when starting a professional corporation in Tennessee.

• State Laws and Regulations: To form a professional corporation in Tennessee, it is crucial to comply with the state laws and regulations governing professional corporations. The Tennessee Code Title 48 and the specific licensing board’s regulations for each profession outline the requirements and restrictions for professional corporation formation. Before starting the process, professionals should consult with their licensing board to ensure they meet the necessary qualifications.
• Incorporation Process: Once the licensing requirements are met, the next step to form a professional corporation in Tennessee is to draft and file the Charter for Profit Corporation with the Tennessee Secretary of State. This document includes essential information about the corporation, such as its name, address, purpose, and number of authorized shares. Filing the Charter for Profit Corporation requires a filing fee currently $100 for most professions. However, it is essential to check with the Tennessee Secretary of State for the specific fee associated with your profession.
• Naming Requirements: You must follow specific rules when choosing a name for a Professional Corporation in Tennessee. The name must include the words “Professional Corporation,” “P.C.,” or “Prof. Corp.” Additionally, the name cannot be misleading or too similar to an existing corporation’s name. Conducting a name search with the Tennessee Secretary of State is recommended to ensure the chosen name is available. This search is free, but reserving a name before filing the Charter for Profit Corporation requires a reservation fee of $20 online and $20 mail.
• Charter for Profit Corporation: The Charter for Profit Corporation is a critical document for forming a professional corporation in Tennessee. It outlines the corporation’s essential information, such as the name, address, purpose, and number of authorized shares. The Articles must also include a statement that the corporation is a professional corporation and the specific profession it practices. Once completed, the Charter for Profit Corporation must be filed with the Tennessee Secretary of State, accompanied by the appropriate filing fee.
• Additional Fees and Costs: In addition to the filing fees mentioned above, forming Professional Corporation in Tennessee may involve other costs, such as:
  • Annual Report: professional corporations must file an initial Statement of Information with the Tennessee Secretary of State every April 1st of filing the Charter for Profit Corporation. The filing fee for this form is $50 per member.
  • Licensing and Permit Fees: Depending on the specific profession, the governing licensing board may require additional licensing and permit fees.
  • Registered Agent Fee: Hiring of Registered Agent service will likely involve an annual fee of $50 – $150, which can vary depending on the service provider.
  • Legal and Accounting Fees: Forming a professional corporation may involve consulting with attorneys and accountants, which can result in additional professional fees.

Advantages of a Professional Corporation

• Limited Liability Protection: One of the main benefits of a professional corporation is its limited liability protection to its shareholders. This means the shareholders’ assets are protected from the corporation’s debts and liabilities.
• Tax Benefits: Professional Corporations enjoy specific tax benefits, such as deductions for business expenses and the ability to retain earnings within the corporation.
• Business Credibility: Operating as a professional corporation can enhance the credibility and reputation of the professional services, demonstrating a commitment to compliance and professionalism.
• Continuity of Operations: A professional corporation has a perpetual existence, ensuring the continuity of operations even if the shareholders or directors change.

Disadvantages of a Professional Corporation

• Complexity and Cost of Formation: Forming a professional corporation can be more complex and costly than other business structures, such as sole proprietorships or partnerships.
• Ongoing Compliance Requirements: professional corporations must adhere to ongoing compliance requirements, including regular board meetings, filing annual reports, and maintaining proper records.
• Limited Flexibility in Management: professional corporations may need more flexibility in management, as the board of directors must consist of licensed professionals in the same field.

Taxation of Professional Corporations

Here are the taxes that your professional corporation must pay in Tennessee:

Federal income tax

A professional corporation in Tennessee is subject to federal income tax on its net earnings. However, a P.C. can elect to be taxed as an S corporation, which allows the corporation’s income, deductions, and credits to pass through to the shareholders. This can result in significant tax savings by avoiding double taxation.

State taxes

Tennessee Professional Corporation is also subject to state taxes, such as the Tennessee franchise tax, which is based on the corporation’s annual net income. Additionally, depending on the nature of its operations, the professional corporation may be subject to other state and local taxes, such as payroll and sales taxes permit in Tennessee.

Tax deductions and exemptions

A professional corporation in Tennessee can take advantage of various tax deductions and exemptions, such as deductions for employee benefits, operating expenses, and depreciation. These deductions can help reduce the corporation’s taxable income, ultimately leading to tax savings for the P.C. and its shareholders.

Alternatives to Professional Corporations in Tennessee

If you decide that a professional corporation is not for you, then you might consider the following alternatives.

• Sole Proprietorships: A simpler business structure is where an individual operates the business under their name without limited liability protection.
• Partnerships: Two or more individuals join to operate a business, sharing profits, losses, and responsibilities.
• Limited Liability Companies (LLCs): A hybrid business structure that combines the limited liability protection of a corporation with the tax benefits and flexibility of a partnership.
• S-corporations: Starting an S Corp in Tennessee avoids double taxation by allowing income, losses, and deductions to pass through to the shareholders’ personal tax returns.

FAQs

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How to Save Money While Forming Tennessee Professional Corporation

One key way to save money while forming a Tennessee professional corporation is to do thorough research and planning before starting the process. By fully understanding the legal requirements and regulations for setting up a professional corporation in the state, individuals can avoid costly mistakes that could result in additional fees or complications down the road. Taking the time to research and educate oneself about the process can help individuals make informed decisions that can ultimately save them money.

Another way to save money when forming a Tennessee professional corporation is to consider the different business structures available and choose the one that best fits the needs of the company. While a professional corporation offers certain benefits, such as liability protection and tax advantages, it may not be the most cost-effective option for every situation. By exploring alternative business structures, such as a limited liability company (LLC) or sole proprietorship, individuals can potentially save money on setup and maintenance costs without sacrificing important protections.

In addition, individuals can save money by handling certain aspects of the formation process themselves, rather than hiring expensive legal or accounting professionals. While it is important to seek professional advice when navigating the complexities of forming a professional corporation, there are certain tasks that can be done independently to save money. For example, individuals can file the necessary paperwork with the Tennessee Secretary of State on their own, rather than paying a lawyer or service provider to do it for them.

Furthermore, individuals can save money by leveraging online resources and tools to streamline the formation process. There are a multitude of online services and platforms that offer affordable solutions for forming a professional corporation, including document templates, filing assistance, and compliance monitoring. By utilizing these resources, individuals can save time and money while still ensuring that their professional corporation is set up correctly and in compliance with state laws.

Lastly, individuals can save money by carefully managing ongoing expenses and responsibilities associated with maintaining a Tennessee professional corporation. This includes staying on top of annual filing requirements, maintaining accurate financial records, and minimizing unnecessary costs. By being proactive and diligent in managing the day-to-day operations of the professional corporation, individuals can prevent costly errors and penalties that could impact the financial stability of the business.

In conclusion, forming a Tennessee professional corporation does not have to be a prohibitively expensive endeavor. By taking a strategic and cost-conscious approach to the formation process, individuals can save money and successfully launch their professional corporation without overspending. By conducting thorough research, exploring alternative business structures, handling certain tasks independently, leveraging online resources, and managing ongoing expenses responsibly, individuals can navigate the formation process with financial efficiency and confidence.

Conclusion

Tennessee Professional Corporation can offer several benefits for licensed professionals. However, it is essential to carefully consider the proper structure and compliance requirements before proceeding. Seeking professional guidance in forming a professional corporation can help ensure a smooth process and enable professionals to focus on providing their services. Visit LLCBase for more information about starting a professional corporation in Tennessee.