How to Form a Professional Corporation in Tennessee


Steve Goldstein
Steve Goldstein
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Form a Professional Corporation in Tennessee

Are you considering starting a professional corporation in Tennessee? Congratulations! Establishing a professional corporation is an excellent choice for entrepreneurs and professionals alike who seek to benefit from a business structure that provides limited liability protection, tax advantages, and enhanced credibility. However, navigating the process of forming a professional corporation in Tennessee can be daunting.

This article aims to provide a comprehensive guide on how to form a professional corporation in Tennessee, covering everything from understanding the basics of this business entity to the essential steps and requirements you must comply with to launch your new venture successfully. Let’s dive in and explore the ins and outs of forming a professional corporation in Tennessee!

What is a Professional Corporation in Tennessee?

A professional service corporation (PSC), sometimes called a professional corporation (abbreviated as PC), is a type of organization authorized by state law to allow owners of particularly licensed professions in Tennessee. The owner of a professional corporation is responsible for their own negligence or misconduct, but they are not held personally accountable for the actions of other owners. PC or P.C. is a regularly used abbreviation to identify professional corporations.

PCs and LLCs provide personal asset protection; that is, the personal assets are free from business debts. However, they do not have similar tax benefits. There is no secret formula as to which type of business structure is better than the other. It solely depends on the requirements of your business. However, forming an LLC is easier than setting up a PC in Tennessee.

LLCBuddy Editorial Team

Unlike other types of corporations, owners of Professional Corporations get two types of citizenship. One is where they incorporated the corporation, and the other is where they conduct the business. This benefit is not available for other types of corporations. You can form a free LLC in Tennessee if you hire a professional service that provides LLC formation at $0.

How to Form a Professional Corporation in Tennessee

To form a Professional Corporation for the professional service you provide, you must follow a few steps that include verifying if you are qualified for a PC, naming your business, hiring a Registered Agent, filing the Charter for Profit Corporation, outlining an operating agreement, requesting for an EIN, opening a bank account, getting a business license, and filing for an annual report and taxes.

Step 1: Verify If You Are Qualified for a Professional Corporation

In forming a professional corporation in Tennessee, you should know if you are qualified. There are specific professions that are allowed to form a professional service corporation, including-

  • Doctors
  • Architects
  • Engineers
  • Accountants
  • Lawyers and others

You should be qualified to have a license to provide your service. In most cases, once you have graduated with your studies, passed the exam, and got your license, you may now form a professional corporation. However, if you work in an industry that doesn’t offer a license or professional certification, you should consider forming a corporation or limited liability company.

Step 2: Name your Professional Corporation in Tennessee

After you have decided on the idea to form a professional corporation in Tennessee, deciding the name for your corporation is significant. There is a complete guide on Tennessee LLC name guidelines for you to have a proper business name. Here are some regulations you must follow while naming your professional corporation.

  • The business name should have the word PC, frequently followed by the name of the principal owner in place of Inc or LLC. (Example. John Doe, MD, PC)
  • No confusion with a government entity name.
  • A unique name is needed with no match
  • Limit of restricted words that need a license.

In Tennessee, if you do not wish to file your professional corporation right away but want to hold the name that you have decided on, then you can reserve your corporation name for 4 months. To keep the name, you must file a name reservation application with Tennessee Secretary of State.

A professional corporation, professional association, service corporation, or professional service corporation must be present in the name if it doesn’t already. You might opt to register your business under a different legal name if your preferred name isn’t available. Once you have chosen a name, you can submit an application for a DBA (doing business as). In this manner, you can choose any name you desire to run a clinic or law firm.

Step 3: Choose the Tennessee Registered Agent

The next step in forming a professional corporation is hiring the Tennessee Registered Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents, all notices of lawsuits, and other official government correspondence in Tennessee. Forming a professional corporation for your service will be easier if you have Registered Agent in Tennessee.

Alternatively, you can serve as your own Tennessee Registered Agent if you have the time. However, you must stay compliant to avoid missing any important documents from Tennessee.

Step 4: File the Charter for Profit Corporation in Tennessee

After you hire a Tennessee Registered Agent to form a professional corporation, the next step is to file the Tennessee Charter for Profit Corporation. In writing the Charter for Profit Corporation, the business name, owner’s contact information, corporation address, and Registered Agent contact information should be written. You should also include the names of all co-owners. All owners have to prove they have the proper license to practice the specific profession they intend to.

Filing the Charter for Profit Corporation in Tennessee may be done with four methods that are e-filing, by email, by mail and in-person. The Charter for Profit Corporation fee may vary from different states. However, in Tennessee, it costs $100 for online and by mail filing. 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. . For offline filing, 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.

Step 5: Write an Operating Agreement in Tennessee

An operating agreement is a document that contains all of your company’s organizational details. It is not required to draft an operating agreement in most states. Yet, having one as an internal document is strongly advised. The Tennessee operating agreement includes information like-

  1. About Business
  2. Members and management
  3. Capital contribution
  4. Profit Distribution
  5. Change of membership
  6. Dissolution

Step 6: Designate the PC Board of Directors in Tennessee

The next step is to appoint the initial board of directors in your PC in Tennessee. All the initial directors must submit their details to the owner. The owner must keep the records and submit them in accordance with the Tennessee SOS. When writing the By-laws, as a shareholder and owner, you must make sure there is a point mentioned about appointing a new director later.

Step 7: Write the Corporate Bylaws

Now that you are done forming the team of the board of directors, the next step is to draft corporate bylaws. Corporate bylaws are the basic rules that control a corporation. It includes the organization’s structure, processes, laws, and rules. As a result, all personnel, managers, and corporation members must obey the firm’s rules.

In creating corporate bylaws, you should include the following on how the decisions will be made.

  • The responsibilities are given to each officer.
  • How will judgments in business be made?
  • Where and when are the annual shareholder meetings?
  • The minimum number of shareholders required for decision-making.
  • Location and timing of dividend payments.

Step 8: Hold the First Board of Directors’ Meeting

After drafting the corporate bylaws, gather all the board of directors for the first meeting. This meeting will be finalized by appointing directors to manage the company’s daily operations, approve the bylaws, choose the corporation’s accounting year, and approve the stock issue. All board meetings should have minutes taken and stored with the company’s records.

Step 9: Request an EIN in Tennessee

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your professional corporation. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in Tennessee can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is 4 weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

After you have your EIN number, you can benefit in a number of ways. It will give your professional corporation the final advantage necessary to operate at full capacity without encountering legal or judicial issues.

Step 10: Open a Bank Account and Prepare for Taxes

Once you have filed and received your Employer Identification Number, you should open a bank account since you will use this account for yourself, your clients, and your employees.

Your business dealings in Tennessee might be simpler by having a US business bank account because it boosts your company’s legitimacy and liquidity. For firms other than sole proprietorships, most banks demand an EIN to create a business bank account. Also, keeping separate finances helps you avoid combining personal and professional finances. Also, having an EIN makes tax preparation easier. With a professional corporation, you can anticipate paying employment and corporate taxes.

Step 11: Get a Business License in Tennessee

Before your professional corporation operates in Tennessee, you need to have a business license first. A business license is a formal document issued by the state government agency that allows you to operate your business in the geographic region that that agency governs. In Tennessee, business license and permit costs depend on the business’s nature and type. You must check with the local authorities if any special licenses or city-based permits are needed.

Step 12: File Your Taxes in Tennessee

Finally, you are down to the last step. After getting a business license and being ready to operate, do not forget to file your taxes first. You should start paying taxes quarterly as soon as possible to avoid a large tax bill. Each state has different tax requirements. Go through the Tennessee classification of taxes for the taxes an LLC in Tennessee has to pay.

Important Information

Maintaining Professional and Business License in Tennessee

Now that you have established your professional corporation, you must maintain or renew your professional license every now and then. Even if your business is established but you don’t have a valid license to operate, your business is irrelevant. And, even if your professional license is still valid for a year or two, but your business license is already expired, it is still irrelevant.

Make time to check the status of your licenses at least once per year. Then, you can keep from missing anything significant. If there are any issues, you can address them.

Filing an Annual Report in Tennessee

In Tennessee, you will be required to submit a report each year. The owners’ and Registered Agent’s names and contact details are listed in the annual report. Also, it should include all of your yearly financial activity. You must submit one yearly in Tennessee, and you can do it yourself or hire someone else to handle it. Everything must be precise and up to date.

Advantages of Forming a Professional Corporation in Tennessee

A professional corporation takes a lot of time to process and pursue. However, with the help of the Tennessee Registered Agent, everything will become easier. In fact, there are advantages that will help you form a professional corporation in Tennessee.

  1. Limited Liability: The biggest advantage of setting up a professional corporation is that the owners are not held personally responsible for the debts and obligations of the company. This indicates that only the company’s assets will be confiscated to settle claims and creditors if the business is sued or declares bankruptcy. Additionally, this protection exempts corporate owners from being held accountable for other owners’ reckless or criminally negligent acts.
  1. Tax Deductions: Similar company expenses, such as employee fringe benefits, startup and operating costs, and equipment purchases, can be written off by professional companies in the same ways they can be for other kinds of firms. However, there are several tax deductions professional corporations can take advantage of that other types of businesses can’t. For example, the salaries and bonuses paid to owners and employees are tax-deductible.
  1. Retained Earnings: Professional corporations can keep a portion of their profits under the corporate tax system to grow their companies.

FAQs

What is a Professional Corporation in Tennessee?
A Professional Corporation in Tennessee is a type of corporation formed by one or more individuals, who are licensed and regulated in the state of Tennessee, with the purpose of providing professional services.
How do I form a Professional Corporation in Tennessee?
In order to form a Professional Corporation in Tennessee, you must file Articles of Incorporation with the Tennessee Secretary of State. You must also file the Certificate of Formation and Statement of Professional Corporation with the Tennessee Secretary of State.
What are the requirements for forming a Professional Corporation in Tennessee?
The requirements to form a Professional Corporation in Tennessee include obtaining a Certificate of Good Standing from the Tennessee Secretary of State, filing Articles of Incorporation with the Tennessee Secretary of State, and filing the Certificate of Formation and Statement of Professional Corporation with the Tennessee Secretary of State.
Are there any fees associated with forming a Professional Corporation in Tennessee?
Yes, there are fees associated with forming a Professional Corporation in Tennessee. The fee to file Articles of Incorporation with the Tennessee Secretary of State is $100 and the fee to file the Certificate of Formation and Statement of Professional Corporation with the Tennessee Secretary of State is $50.
What is the process for registering a Professional Corporation in Tennessee?
The process for registering a Professional Corporation in Tennessee requires filing Articles of Incorporation with the Tennessee Secretary of State, filing the Certificate of Formation and Statement of Professional Corporation with the Tennessee Secretary of State, and obtaining a Certificate of Good Standing from the Tennessee Secretary of State.
What are the benefits of forming a Professional Corporation in Tennessee?
The benefits of forming a Professional Corporation in Tennessee include limited liability protection for the shareholders, tax efficiency when filing taxes, and the ability to raise capital for business expansion.
What are the disadvantages of forming a Professional Corporation in Tennessee?
The disadvantages of forming a Professional Corporation in Tennessee include the need to complete additional paperwork and the possibility of increased liability if not managed properly.
What documents must be filed with the Tennessee Secretary of State in order to form a Professional Corporation?
The documents that must be filed with the Tennessee Secretary of State to form a Professional Corporation include the Articles of Incorporation, Certificate of Formation, and Statement of Professional Corporation.
What is the annual filing requirement for Professional Corporations in Tennessee?
The annual filing requirement for Professional Corporations in Tennessee is to file an annual report with the Tennessee Secretary of State.
What is the deadline for filing the annual report for Professional Corporations in Tennessee?
The deadline for filing the annual report for Professional Corporations in Tennessee is April 15th of each year.
Am I required to file taxes as a Professional Corporation in Tennessee?
Yes, Professional Corporations in Tennessee are required to file taxes with the Tennessee Department of Revenue.
What type of taxes must be filed by Professional Corporations in Tennessee?
Professional Corporations in Tennessee must file Franchise and Excise taxes, as well as income taxes.
Are there any special regulations for Professional Corporations in Tennessee?
Yes, Professional Corporations in Tennessee must comply with the regulations set forth by the Tennessee Professional Corporation Act.
What is the liability protection offered to shareholders of a Professional Corporation in Tennessee?
The liability protection offered to shareholders of a Professional Corporation in Tennessee is limited liability protection.
Are there any restrictions on the type of professional services that can be provided by a Professional Corporation in Tennessee?
Yes, Professional Corporations in Tennessee are limited to providing services that are regulated by the professional licensing board in Tennessee.
Can I form a Professional Corporation in Tennessee without a lawyer?
Yes, you can form a Professional Corporation in Tennessee without a lawyer, however it is recommended that you seek legal advice in order to ensure that your Professional Corporation is properly formed and in compliance with all applicable laws.
What is the minimum number of shareholders required to form a Professional Corporation in Tennessee?
The minimum number of shareholders required to form a Professional Corporation in Tennessee is one.
Is there a minimum amount of capital that must be invested in a Professional Corporation in Tennessee?
No, there is no minimum amount of capital that must be invested in a Professional Corporation in Tennessee.
What type of corporate governance structure is required for a Professional Corporation in Tennessee?
A Professional Corporation in Tennessee must have a board of directors, and the board of directors must meet at least once a year.
Are there any restrictions on the type of business activities a Professional Corporation in Tennessee can engage in?
Yes, Professional Corporations in Tennessee are limited to providing professional services as regulated by the professional licensing board in Tennessee.
Can a Professional Corporation in Tennessee be dissolved?
Yes, a Professional Corporation in Tennessee can be dissolved by filing Articles of Dissolution with the Tennessee Secretary of State.
Is there a fee associated with filing Articles of Dissolution for a Professional Corporation in Tennessee?
Yes, the fee to file Articles of Dissolution for a Professional Corporation in Tennessee is $50.
Can a Professional Corporation in Tennessee be converted to another type of entity?
Yes, a Professional Corporation in Tennessee can be converted to another type of entity, such as an LLC or partnership, by filing Articles of Conversion with the Tennessee Secretary of State.
How long does it take to form a Professional Corporation in Tennessee?
It typically takes 5-10 business days to form a Professional Corporation in Tennessee.
Do Professional Corporations in Tennessee need to maintain corporate records?
Yes, Professional Corporations in Tennessee must maintain corporate records, such as minutes of board meetings, financial statements, and corporate resolutions.
What are the financial reporting requirements for Professional Corporations in Tennessee?
Professional Corporations in Tennessee must file an annual report with the Tennessee Secretary of State and must also file Franchise and Excise taxes and income taxes with the Tennessee Department of Revenue.
Are there any restrictions on how Professional Corporations in Tennessee can distribute profits?
Yes, Professional Corporations in Tennessee must distribute profits in accordance with the Tennessee Professional Corporation Act.
Can a Professional Corporation in Tennessee issue stock?
Yes, a Professional Corporation in Tennessee can issue stock, however the stock must be registered with the Tennessee Secretary of State.
Are there any restrictions on the types of investments a Professional Corporation in Tennessee can make?
Yes, Professional Corporations in Tennessee are subject to the regulations of the professional licensing board in Tennessee and must only make investments related to their professional services.
What are the requirements for maintaining a Professional Corporation in Tennessee?
The requirements for maintaining a Professional Corporation in Tennessee include filing an annual report with the Tennessee Secretary of State, filing taxes with the Tennessee Department of Revenue, and complying with the regulations of the professional licensing board in Tennessee.

Also Read

Why Tennessee Professional Corporation is So Important

One of the key reasons why forming a Tennessee PC is crucial is liability protection. By establishing a PC, professionals are able to shield their personal assets from any potential lawsuits or claims that may arise from their professional practice. This separation between personal and business assets is essential in protecting professionals from financial ruin in the event of a legal dispute. Without the protection of a PC, professionals could risk losing everything they have worked for due to a single legal claim.

In addition to liability protection, forming a Tennessee PC also provides professionals with a structured business entity that can help them better manage their finances and operations. By operating under the umbrella of a PC, professionals are able to take advantage of certain tax benefits and deductions that are not available to individuals. This can result in significant savings for professionals who are looking to grow their businesses and maximize their earnings.

Furthermore, a Tennessee PC can also help professionals attract and retain clients. Clients often feel more confident working with professionals who operate under a recognized legal structure, such as a PC. This added layer of professionalism can build trust and credibility with clients, ultimately leading to more business opportunities and referrals.

Another important aspect of forming a Tennessee PC is the governance and compliance requirements that come with it. By establishing a PC, professionals must adhere to certain rules and regulations set forth by the state. While this may seem burdensome, it actually provides professionals with a clear framework for running their businesses in a compliant manner. This not only protects the interests of professionals themselves, but also the interests of their clients and the public at large.

Overall, the benefits of forming a Tennessee Professional Corporation are numerous and significant. From liability protection to tax advantages to enhanced credibility with clients, the advantages of operating under a PC far outweigh the potential drawbacks. For professionals who wish to establish a successful and sustainable practice in Tennessee, forming a PC is an essential step that should not be overlooked. By taking the time to set up a Tennessee PC, professionals can safeguard their assets, optimize their operations, and ultimately set themselves up for long-term success in their chosen field.

Conclusion

In forming a professional corporation in Tennessee, having someone to help you build it is not necessary but suggestible. Even though it is easy because of the listed benefits and advantages above, forming your group of professional individuals will make it somehow successful. Just make sure to be guided by the steps and ensure that every one of the details and records is accurate and precise. And if you have any questions, share them in the comment section below.

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