LLC vs. S Corp in Tennessee 2024: A Comprehensive Comparison

LLC vs. S Corp in Tennessee: Understanding the Differences

Embarking on the entrepreneurial journey in Tennessee, also known as The Volunteer State, is an exciting and transformative experience. Tennessee LLC and S Corporation are two popular options that often top the list of considerations for entrepreneurs. This article serves as your comprehensive guide, comparing LLC vs. S Corp in Tennessee and ultimately assisting you in determining the best fit for you.

Dive into business formation with confidence and clarity as LLCBase expert analysis simplifies the complexities of LLCs and S Corps, shedding light on their unique advantages and drawbacks. So, let’s explore the fascinating world of LLCs and S Corps and set your business on the path to success in Tennessee.

Compare LLC and S-Corp

On this page, you’ll learn about the following:

What are an LLC and an S-Corp
LLCs and S-Corporations Comparison
Easier to File in Tennessee: LLCs or S-Corporations
Filing Process for LLCs vs. S-Corporations in Tennessee
FAQs

What are an LLC and an S-Corp

A Limited Liability Company (LLC) is a popular legal business structure that offers a combination of benefits from both corporations and partnerships. It is specifically designed to provide personal asset protection to its owners, known as members. This protection ensures that the owner’s personal assets are separate from the business liabilities, such as debts and lawsuits.

In Tennessee, forming an LLC involves several steps, including paying an initial filing fee. Additionally, LLCs in Tennessee are required to pay an annual fee of $50 per member to maintain their legal status and stay compliant with the state regulations.

An LLC in Tennessee offers an attractive option for entrepreneurs seeking a flexible business structure with added liability protection and favorable tax treatment.

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On the other hand, an S-Corporation, or S-Corp, is not a separate legal business entity like an LLC. Rather, it is a tax classification that existing corporations and LLCs can elect. A business can bypass double taxation by opting for this tax status, as the profits and losses are directly passed through to the owner’s personal tax return. Starting an S Corp in Tennessee allows business owners to report and pay taxes on their business income as part of their individual income tax filings, eliminating the need for separate corporate taxes.

In Tennessee, it is crucial for business owners considering this tax classification to fully understand the implications and requirements of being an S-Corp in Tennessee. This includes adhering to specific rules and regulations related to ownership, shareholder limits, and tax filing deadlines. If you want to start an S-Corp, LegalZoom will help you every step of the way!

LLCs and S-Corporations Comparison

Let’s explore the comparison between LLCs and S-Corporations to help you make an informed decision.

1. Taxation Differences in Tennessee

One of the main differences between LLCs and S-Corporations in Tennessee lies in how they are taxed. LLCs are typically subject to pass-through taxation, meaning the business profits and losses are reported on the owner’s personal tax return. In contrast, S-Corporations must adhere to specific tax requirements, including distributing salaries to shareholders and adhering to the state’s income tax rate.

Federal Taxes: When choosing between an LLC or S-Corporation in Tennessee, it’s essential to consider several federal tax factors. These factors include differences in Pass-Through Taxes and Self-Employment Taxes.
Pass-Through Taxes: Both LLCs and S-Corporations in Tennessee benefit from pass-through taxation at the federal level. Due to pass-through taxation, these entities do not pay federal income taxes as separate legal entities. Instead, their owners are required to pay federal income taxes on their share of the business income. This type of taxation prevents the company from being taxed twice. In contrast, C-Corporations in Tennessee are subject to double taxation, meaning they must pay federal taxes at the entity level and their owners’ taxes.
Self-Employment Taxes: Many LLC owners in Tennessee opt for S-Corporation taxation to reduce their self-employment taxes. An S-Corporation owner is not considered self-employed; they can become an employee of the company and receive regular salary benefits. Conversely, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings when calculating their self-employment tax. Share distributions determine the corporate income of S-Corporation shareholders. For example, suppose you are the sole owner of an LLC in Tennessee with an annual profit of $150,000 and a fair wage for someone in your location doing the same job as you is $100,000. Under the default LLC taxation, you must pay self-employment taxes on the $150,000 profit. However, if your company is taxed as an S-Corp in Tennessee, you would be responsible for paying payroll taxes only on the $100,000 standard wage. Income tax would still apply to the remaining $50,000.
Tennessee State Taxes: No major tax differences exist between regular LLCs and S-Corporation LLCs at the state level. For filing an annual report in Tennessee, it costs $50 per member, which can be paid to the TX Comptroller. Additionally, before forming the LLC, you must pay $300.

On the other hand, if you form an S-Corporation in Tennessee, you will also need to pay taxes. This includes the S-Corp filing fee and an annual report fee after establishing your S-Corp for one year. You must also go to the TX Comptroller to make these payments.

2. Liability Protection

LLCs and S-Corporations in Tennessee provide liability protection for their owners. This means that the owner’s personal assets are protected from business debts and lawsuits. However, S-Corporation status does not offer the same level of protection as an LLC, as it is primarily a tax designation.

The following factors exclude certain individuals and entities from becoming shareholders in an S-Corporation in Tennessee:

Insurance businesses
Domestic international sales corporations
Partnerships
Corporations
Unauthorized immigrants
Specific financial institutions

While understanding the ownership requirements of LLCs and S-Corporations in Tennessee is essential, seeking legal counsel when establishing your business is still advisable. For assistance with your Tennessee LLC or Tennessee S-Corp, consider consulting with professionals.

3. Ownership Requirements and Restrictions

LLCs and S-Corporations in Tennessee have specific ownership requirements and restrictions. For instance, an LLC can have unlimited members, while an S-Corporation is limited to 100 shareholders. Additionally, S-Corporations can only have one class of stock and must follow strict rules regarding shareholder eligibility.

Easier to File in Tennessee: LLCs or S-Corporations

While filing an LLC or S-Corporation in Tennessee requires time and preparation, proper planning can make the process manageable. Both LLCs and S-Corporations can be filed through the Tennessee Registered Agent.

To start an LLC in Tennessee, you must submit the Articles of Organization to the Tennessee Secretary of State. This document should contain all the necessary information for your LLC, along with the payment of the associated filing fee.

On the other hand, if you want to elect S-Corporation status for your Tennessee LLC, you will need to submit additional paperwork. First, file Form 8832 with the Internal Revenue Service (IRS) to indicate your preference to tax your LLC as a corporation rather than a partnership. Next, submit Form 2553 to choose S-Corporation status.

Remember, maintaining legal compliance is crucial for your LLC. This means submitting annual tax returns and reports after establishing your business entity.

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Filing Process for LLCs vs. S-Corporations in Tennessee

Forming an LLC in Tennessee involves several crucial steps. To start, you must file Articles of Organization with the Tennessee Secretary of State and pay the associated filing fee of $300. Once your LLC is established, you must comply with annual reporting and tax requirements.

On the other hand, if you want to elect an S-Corporation status for your existing LLC or corporation, the process is slightly different. Firstly, you must file Form 8832 with the Internal Revenue Service (IRS) to classify your LLC as a corporation for tax purposes. Then, you must submit Form 2553 to the IRS to choose S-Corporation status. In Tennessee, the S-Corporation filing fee is $100 for online and by mail filing.

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The LLC formation and S-Corporation election processes can be completed through four methods that are e-filing, by email, by mail and in-person. Online incorporation is available at Create an account/Log in to the SOS site, get the e-form, fill it, and submit online. Or get the online PDF, fill it up and upload it back on the site. , while offline incorporation can be done at Send the form by mail to or drop it off in person at Corporate Filings, 312 Rosa L. Parks Avenue, 6th Floor, William R. Snodgrass Tower, Nashville, Tennessee 37243. It is essential to stay up-to-date with any ongoing reporting and tax requirements for your chosen business structure.

The filing process for LLCs and S-Corporations in Tennessee varies slightly, with each requiring specific forms and fees. It’s essential to consider the unique requirements of each business structure before making a decision. Consulting with a legal or financial advisor can provide valuable guidance on which structure best suits your business in Tennessee.

FAQs

What is the difference between an LLC and an S corp in Tennessee?

LLC is a legal structure for a company that provides limited liability to its members, while s corp is a type of business structure that elects to pass corporate revenues, deductions, credits, and losses through to their shareholders’ individual tax returns.

What is the statutory registration fee for an LLC in Tennessee?

Currently, Tennessee LLCs need to pay an initial fee of $300 to the Secretary of State while registering.

What is the corporate tax rate for an S corp in Tennessee?

S corps are pass-through entities meaning that the income is passed through and taxed on owners’ personal tax returns in Tennessee. Hence corporate tax rate does not apply.

Do LLCs and S Corps have different liability protections in Tennessee?

Not exactly. Both LLCs and S Corps offer personal liability protection under Tennessee law.

Which is considered a better legal structure for a small business in Tennessee – LLC or S Corp?

Choosing between an LLC and an S Corp formation totally depends on the business owner’s goals.

What is the procedure and cost involved in LLC renewal in Tennessee?

LLC owners in Tennessee can renew their LLC business online or file their paperwork with the Secretary of State’s Office within 30 days after their business’s anniversary date. The renewal fee is $300.

What form is required during S Corp formation in Tennessee?

In Tennessee, for S corporation status, businesses are required to file Form D (Statement of Election to Be taxed).

How many members can an LLC have in Tennessee?

An LLC in Tennessee can have one or more members.

What are the ongoing compliance requirements for LLCs in Tennessee?

Annual reports are required to be filed in Tennessee for LLCs, which contain updates on Member/Manager info and Registered Agent information along with giving updated historical & present informative information about the respective LLC. Annual reports require a fee of $50.

Are security and exchange commission (SEC) regulations applicable to LLCs in Tennessee?

SEC regulations are not applicable to LLCs unless they go public, which is highly unlikely for a small business.

What tax classification applies if an LLC is sole proprietor managed?

Sole proprietor LLCs are taxatively classified as single member LLC and pay tax as individuals.

What is the maximum number of shareholders allowed in an S Corp in Tennessee?

In Tennessee, the S corporation is allowed to have no more than one hundred (100) shareholders (stockholders).

How are shareholders’ personal liabilities limited in an S Corp in Tennessee?

In the S corp, shareholders’ personal liabilities are limited just like LLC

Is it an expensive process for electing S corp status for Tennessee LLC?

No, it’s not too expensive or complicated to convert from an LLC to an S corp in Tennessee; instead, it’s a much easier and quicker than deciding from scratch about a LLC or S corporation when it initially forms.

Can LLC ownership impacts protect integrity in successions or will administration in Tennessee if, unfortunately, the owner is no more?

LLC estate planning and utilizing ownership succession planning is considered more flexible and durable under Tennessee Revised Limited Liability Company Act than S corp.

What annual filings should S corps be mindful of in Tennessee?

Annual report filings should be filed with Tennessee Secretary of State Office by April 1st each year with a fee of $50.

Tax-wise, which businesses in Tennessee leans favorably to LLCs instead of S-corps; if there are any?

If a small business owner is not intending to go public soon and profits early during an initial setup charade, Incorporating an LLC might be more favorable and tax-beneficial merely in lower overhead fees, and easy renewal costs in comparison to s-Corporations though it varies by individual suitable contextual requirement.

What about franchise tax that can be avoided by an LLC in Tennessee?

LLCs meeting the requirement as a family partnership or qualified joint venture shall not be required to pay the franchise and excise tax.

Can S corps convert back to a Tennessee Limited Liability Company?

Yes, and it happens for reasons like simplification of state filing requirements, avoiding excessive/prolonged business regulation risks passing down to family, splitting the heavy annual fee, or even to avoid tax load.

According to the Tennessee LLC annual report requirements, is the company status included?

Status of company, whether active or not, stands reported in the annual and general information.

Why does a personal injury require an LLC?

An LLC offers limited liability protection that enables members to keep their personal assets separate and protected from the business’s operations and third-party liability by getting adequately insured.

Is an S Corp eligible for pass-through tax benefits?

As a pass-through entity, S corps pass corporate income tax to shareholders’ individual tax returns in Tennessee.

Compared to various states, are Tennessee’s LLC and S corp regulations conservative?

No different than everyday comparing between other states regulations, Tennessee has fairly average LLC and S corp determining policies and flexibility.

What is the LLC act that promotes limited liability in Tennessee?

Going before December 31 of the year held Tennessee Revised Limited Liability Company Act promotes limited liability of newly formed businesses.

What kind of reserved LLC or S Corp names are doing dynamic business in Tennessee?

Descriptive and nimble naming like Far-preach Solutions LLC, Cupid-pink Brands Services LLC, Empowerment Works Industries S Corp.

What is state charter tax in relation to an S Corporation registered in Tennessee?

S corps in Tennessee don’t need charter tax clearance, instead, are subject to paying annual reports along with counting sales factor annual filing.

What security performance exchange guidelines should private LLC memorize in Tennessee?

Unlike private national and technology security regulations, Tennessee regulations require being mindful of how liability insurances or real estate leases prevent and respond to worst-case events and disasters.

For small businesses, what is the initial startup cost for S Corp in Tennessee?

Along with filing initial review fees below $400, S Corps will need state certification documents.

Can Tennessee’s S corps benefit from incorporating online?

Corporations in Tennessee do not necessarily need to do an electing resolution to S IRS status but elect by filing Form 2553 properly and can be done electronically where available.

Is forming an LLC or S Corp convenient for new freelancers financially in Tennessee?

Forming an LLC or an S corp seems part of serious business planning for Tennessee state-licensed freelancers as it offers essential legal, documented, and taxation guidelines along with a convenient taxation system soon after going paid.

Conclusion

Navigating the world of business structures and filings may seem daunting, but with the right information and guidance, you can confidently make the best decision for your unique entrepreneurial journey. Remember, the path to success is paved with well-informed choices and a clear understanding of your business goals. So, take the time to research, consult with professionals, and weigh the pros and cons of LLCs and S-Corporations in Tennessee.

As you embark on this exciting adventure, remember that a strong foundation built on sound legal and financial principles will be the backbone of your thriving enterprise. Embrace the challenge, stay curious, and always remember your passion and vision. Visit LLCBase today to access valuable resources, expert guidance, and personalized support tailored to your needs. Don’t wait any longer – let us help you realize your entrepreneurial dreams.