Tennessee Incorporation Services

Although the primary characteristics of corporations are similar from state to state, the applicable tax rate is not. Some states have tax rates as high as 10%. Tennessee, for example, has a 6.5% corporate tax rate, although it charges no state income tax on LLCs. Income tax considerations will generally not apply, however, to an entity that is not taxed at the business level, such as an LLC or S Corporation. 

It certainly would be advantageous to start or move your business to Tennessee to enjoy these tax advantages. However, if you’re operating your business in a different state, incorporating in Tennessee won’t excuse you from paying business taxes in your home state because every state requires businesses operating within its borders to pay tax on sales or revenue that originates within the state. More on this later. 

Although retaining an attorney is not required to incorporate your business, seeking legal counsel is advisable due to the complexities of the process. Thus, if you are considering incorporating out of state, consulting with legal counsel licensed and practicing in the incorporating state may represent an additional cost if you already obtain legal advice in your home state.

Every state requires a corporation to have a resident agent for service of process located at a physical address within that state. Many private service companies offer resident agent services in all states. The typical fees are between $125 and $200 per year. If you don’t have a physical address in the incorporating state, you’ll be required to pay an authorized company an annual fee for this service.

Finally, every state requires a foreign (out-of-state) corporation to register, or qualify, before conducting business within that state. This process involves filing paperwork with the foreign state, paying filing fees, and possibly paying penalties for conducting business prior to registering as a foreign corporation. It also imposes the same or similar annual reporting requirements and franchise and/or income tax obligations on the foreign corporation as are imposed on domestic corporations. In short, a corporation will usually wind up paying corporation maintenance fees and taxes in its home state as well as the foreign state where it registers.

If a business headquartered in one state is incorporated elsewhere, it will be subject to jurisdiction and service of process in the foreign state of incorporation. This may prove to be inconvenient for a variety of reasons. 

First, subjecting your corporation to service of process in the state of incorporation means that any legal notices and/or communications from the state will be sent to your registered agent in that state. Materials may therefore be delayed as your registered agent forwards them to you. Time-sensitive materials may be misplaced or may not reach you in time.

Second, subjecting your corporation to another state’s jurisdiction usually means that your corporation is governed by the laws of that state, which may differ from those of your home state. An important consequence of this is that the court system in your corporation’s state will probably require you to appear in court in that state if any legal disputes arise (for example, if a creditor is attempting to collect a debt owed by your corporation).