Can a sole proprietorship become an LLC in Tennessee?

Yes. A sole proprietorship is not a legal entity separate from its owner, so you convert by forming a new Tennessee LLC and moving the business into it. File your Articles of Organization with the Tennessee Secretary of State and pay the filing fee ($50 per member, with a $300 minimum and a $3,000 maximum). On the EIN, the IRS says a single-member LLC can keep using your sole proprietor EIN if it does not choose corporate or S-Corporation tax treatment, has no employees and owes no excise tax; otherwise it needs its own EIN, which you apply for on Form SS-4. Move the business's accounts and contracts into the LLC's name, update your business licenses with the city or county where you operate, and check whether any state tax registrations must be reissued in the LLC's name. Forming the LLC gives you limited liability protection that a sole proprietorship lacks. Confirm current fees and submission requirements with the Tennessee Secretary of State before filing.

Does forming an LLC reduce self-employment tax in Tennessee?

No, forming a Tennessee LLC doesn't by itself reduce self-employment tax. By default, a single-member LLC is taxed like a sole proprietorship and a multi-member LLC like a partnership, and the owners generally owe 15.3% self-employment tax on net self-employment earnings. Self-employment tax is a federal tax paid to the IRS, not to a state agency: it is 12.4% for Social Security, which applies only up to an annual earnings cap, plus 2.9% for Medicare. However, an eligible LLC can file Form 2553 (Election by a Small Business Corporation) with the IRS to be taxed as an S-Corporation. You then pay yourself a reasonable salary, which is subject to Social Security and Medicare payroll taxes, and take remaining profits as distributions, which are not. The trade-off: an S-Corporation must run payroll, file payroll tax returns and a separate federal return (Form 1120-S), and pay for the accounting that requires. Whether the tax savings exceed those costs depends on your profits. An S-Corporation election does not remove Tennessee's franchise and excise tax, which the LLC owes either way. Next step: consult a Tennessee CPA to model the savings based on your projected income before filing Form 2553.

How much does it cost to form an LLC in Tennessee?

Tennessee's state filing fee to form an LLC is $50 per member, with a $300 minimum and a $3,000 maximum, paid to the Tennessee Secretary of State when you file your Articles of Organization, so an LLC with one to six members pays $300. Tennessee LLCs also file an annual report with the Secretary of State on or before the first day of the fourth month after the close of the fiscal year (April 1 for a calendar-year LLC). The fee is $300 for an LLC with up to six members and rises by $50 for each member over six, up to $3,000. Tennessee also taxes the LLC itself: the Department of Revenue collects franchise tax (0.25% of Tennessee net worth, with a $100 minimum payable if the LLC is registered with the Secretary of State, whether active or inactive) and excise tax (6.5% of Tennessee taxable income), subject to narrow exemptions. A single-member LLC is not disregarded for these taxes unless its single member is a corporation. If you use a paid service to form the LLC, Northwest Registered Agent charges $39 plus the state fee with a year of registered agent service included, and ZenBusiness charges $0 plus the state fee, with registered agent service at $99 for the first year when you form with them. File your Articles of Organization with the Tennessee Secretary of State to get started.

Does an LLC protect my personal assets in Tennessee?

Yes. Tennessee's Revised Limited Liability Company Act provides that an LLC's debts, obligations and liabilities are solely the LLC's, and that a member or manager is not personally liable for them. That protection has limits: it covers liability that arises only from your role as a member, so it does not cover, for example, a debt you personally guarantee. The same law says a member or manager may still be personally liable for their own acts or omissions, and it makes anyone required to collect and pay over tax collected from the LLC's customers, such as sales tax, personally liable for that tax. Keeping a separate business bank account and never mixing personal and business funds are still sensible practices, because courts can in some cases disregard an LLC and reach its owners ("piercing the veil"), and commingled funds invite that argument. If a creditor wins a judgment against your LLC for a company obligation you did not guarantee, it generally collects from the LLC's assets, not your personal home and savings. To secure this protection, file your Articles of Organization with the Tennessee Secretary of State and open a dedicated business bank account from day one.

Can one person own an LLC in Tennessee?

Yes, Tennessee allows an LLC with a single member, and that one person can own and manage it. For federal tax purposes, the IRS treats a single-member LLC as a disregarded entity by default, so the LLC's income is reported on your personal return, just as with a sole proprietorship. For Tennessee's franchise and excise tax, however, a single-member LLC is not disregarded unless its single member is a corporation, so unless an exemption applies your LLC owes at least the $100 minimum franchise tax each year. An eligible LLC can instead elect S-Corporation tax treatment by filing Form 2553 with the IRS, which can reduce self-employment taxes on profits taken as distributions. The practical benefit: you gain personal liability protection for business debts. To form one, file your Articles of Organization with the Tennessee Secretary of State and pay the filing fee ($50 per member, with a $300 minimum and a $3,000 maximum). The IRS says a single-member LLC with no employees, no excise tax and no corporate tax election can use your sole proprietor EIN instead of getting a new one.

Is a sole proprietorship legal in Tennessee without registration?

Yes, a sole proprietorship doesn't have to file formation documents in Tennessee. You become a sole proprietor when you start doing business on your own, with no filing at the Tennessee Secretary of State. There are still caveats. Check with your city or county whether your type of business needs a local license, since local requirements and fees vary. If you operate under a name other than your own legal name, check with the state and your county whether you must register it as an assumed or trade name. Certain professions, such as health practitioners, need specific state licenses from their licensing boards, and a business that sells taxable goods or services generally needs a sales tax registration. The practical implication: while you avoid state formation fees, you remain personally liable for all business debts and legal judgments, unlike an LLC owner. Your next step: contact your city or county to confirm licensing requirements and fees for your specific business type and location.

LLC Guide

Tennessee LLC vs Sole Proprietorship: Make the Right Choice for Your Business

Understand the key differences between LLCs and sole proprietorships in Tennessee, from liability protection to tax implications, to choose the best structure for your business.

Last updated: September 2026

In Tennessee, an LLC fits when you have personal assets to protect from business liabilities and lawsuits; a sole proprietorship fits when you're testing a low-risk business idea with minimal startup costs. Compare both structures in detail below.

Read this guide for another state:

Affiliate disclosure: We may earn a commission at no extra cost to you.

Start your LLC with ZenBusiness$0 service fee plus your state's filing fee. Registered agent is extra: $99 for the first year when you form with them, then $199/yr.Form your LLC with Northwest ($39 + state fee)Includes a year of registered agent service. That enrolls you by default in annual report filing at $100 plus state fees, charged automatically to your saved payment method and cancellable any time.

Not sure which service is right? Compare formation services →

Comparison chart for Tennessee LLC versus Sole Proprietorship, contrasting liability, taxation and ongoing filing burden across 8 factors. — Side-by-side on the factors that decide the choice, for Tennessee. Source: Tennessee Secretary of State.

LLC vs Sole Proprietorship: Side-by-Side

Factor	LLC	Sole Proprietorship
Personal liability protection	Limited liability: members aren't personally liable for the LLC's debts and obligations, but may still be liable for their own acts or omissions	No protection: you're personally liable for all business debts and legal claims
Formation cost & paperwork	$300 Tennessee filing fee for Articles of Organization with the Secretary of State ($50 per member, $300 minimum, $3,000 maximum)	No state formation filing required, just start doing business
Taxation	Federal pass-through by default (corporate or S-Corp election available), but Tennessee taxes the LLC itself: franchise and excise tax, $100 minimum	Pass-through only: all business income is reported on your personal return (Schedule C)
Self-employment tax	15.3% self-employment tax on net self-employment earnings by default (Social Security part capped yearly); an S-Corp election may reduce it at higher profits	15.3% self-employment tax on net self-employment earnings, with the Social Security part capped each year; a sole proprietorship cannot elect S-Corp status
Business credibility	Professional appearance with 'LLC' designation helps with customers, vendors, and lenders	May appear less established: operates under your personal name or a trade name
Banking & contracts	Separate business bank account recommended to keep LLC and personal funds apart; easier to get business credit cards and loans	Can use personal accounts, though a separate account makes business records and taxes easier to track
State fees in Tennessee	$300 minimum filing fee, plus a $300 minimum annual report (April 1 for a calendar-year LLC) and, unless an exemption applies, at least the $100 minimum franchise tax each year	$0: no state formation filing required (check whether a local license or an assumed name registration applies)
Conversion path to LLC	Already an LLC: can elect different tax treatments as the business grows	You can form a Tennessee LLC later by filing Articles of Organization with the Tennessee Secretary of State

When an LLC Makes More Sense

You have personal assets to protect from business liabilities and lawsuits
You want professional credibility and easier access to business banking and credit
Your profits are high enough that an S-Corp election's self-employment tax savings would outweigh the added payroll and accounting costs
You plan to have business partners or investors in the future

When a Sole Proprietorship Makes More Sense

You're testing a low-risk business idea with minimal startup costs
Your business has low liability risk (like freelance writing)
You want to avoid Tennessee's $300 minimum filing fee, the $300 minimum annual report, the franchise and excise tax and LLC paperwork
Your income is modest and you want maximum tax simplicity

Tax Deep Dive

Sole Prop Tax

Sole proprietorships report business income on Schedule C of your personal federal return. You pay regular income tax plus 15.3% self-employment tax on net self-employment earnings, with the 12.4% Social Security part applying only up to an annual earnings cap, and a sole proprietorship cannot elect S-Corporation tax treatment.

Llc Default Tax

By default, a single-member LLC is a 'disregarded entity' for federal tax purposes, taxed like a sole proprietorship, and a multi-member LLC is taxed as a partnership. Either way, you generally still owe self-employment tax on net self-employment earnings, but an LLC can elect a different tax treatment as your business grows. Tennessee is different at the state level: the LLC itself owes Tennessee franchise and excise tax, including a $100 minimum franchise tax, and a single-member LLC is not disregarded for those taxes unless its single member is a corporation.

Llc S Corp Election

Tennessee LLCs can elect S-Corporation tax status to split income into a reasonable salary (subject to Social Security and Medicare payroll taxes) and distributions (not subject to those taxes). Whether it saves money depends on your profits and the added payroll and accounting costs, so have a CPA model it before electing. An S-Corporation election does not remove Tennessee's franchise and excise tax, which the LLC owes either way.

This guide is general information, not legal or tax advice, and reading it does not create an attorney-client relationship. It reports published tax rates and statutory attributes, with the sources this page cites. It cannot tell you which structure is better for you: that turns on your profit, the salary you could defend as reasonable compensation, every state you owe tax in, and plans for owners, investors and exit that no figure on this page measures. Confirm your own position with a CPA or tax attorney licensed in your state before you elect anything, because some elections are slow or costly to reverse.

Frequently Asked Questions

: Yes. A sole proprietorship is not a legal entity separate from its owner, so you convert by forming a new Tennessee LLC and moving the business into it. File your Articles of Organization with the Tennessee Secretary of State and pay the filing fee ($50 per member, with a $300 minimum and a $3,000 maximum). On the EIN, the IRS says a single-member LLC can keep using your sole proprietor EIN if it does not choose corporate or S-Corporation tax treatment, has no employees and owes no excise tax; otherwise it needs its own EIN, which you apply for on Form SS-4. Move the business's accounts and contracts into the LLC's name, update your business licenses with the city or county where you operate, and check whether any state tax registrations must be reissued in the LLC's name. Forming the LLC gives you limited liability protection that a sole proprietorship lacks. Confirm current fees and submission requirements with the Tennessee Secretary of State before filing.
: No, forming a Tennessee LLC doesn't by itself reduce self-employment tax. By default, a single-member LLC is taxed like a sole proprietorship and a multi-member LLC like a partnership, and the owners generally owe 15.3% self-employment tax on net self-employment earnings. Self-employment tax is a federal tax paid to the IRS, not to a state agency: it is 12.4% for Social Security, which applies only up to an annual earnings cap, plus 2.9% for Medicare. However, an eligible LLC can file Form 2553 (Election by a Small Business Corporation) with the IRS to be taxed as an S-Corporation. You then pay yourself a reasonable salary, which is subject to Social Security and Medicare payroll taxes, and take remaining profits as distributions, which are not. The trade-off: an S-Corporation must run payroll, file payroll tax returns and a separate federal return (Form 1120-S), and pay for the accounting that requires. Whether the tax savings exceed those costs depends on your profits. An S-Corporation election does not remove Tennessee's franchise and excise tax, which the LLC owes either way. Next step: consult a Tennessee CPA to model the savings based on your projected income before filing Form 2553.
: Tennessee's state filing fee to form an LLC is $50 per member, with a $300 minimum and a $3,000 maximum, paid to the Tennessee Secretary of State when you file your Articles of Organization, so an LLC with one to six members pays $300. Tennessee LLCs also file an annual report with the Secretary of State on or before the first day of the fourth month after the close of the fiscal year (April 1 for a calendar-year LLC). The fee is $300 for an LLC with up to six members and rises by $50 for each member over six, up to $3,000. Tennessee also taxes the LLC itself: the Department of Revenue collects franchise tax (0.25% of Tennessee net worth, with a $100 minimum payable if the LLC is registered with the Secretary of State, whether active or inactive) and excise tax (6.5% of Tennessee taxable income), subject to narrow exemptions. A single-member LLC is not disregarded for these taxes unless its single member is a corporation. If you use a paid service to form the LLC, Northwest Registered Agent charges $39 plus the state fee with a year of registered agent service included, and ZenBusiness charges $0 plus the state fee, with registered agent service at $99 for the first year when you form with them. File your Articles of Organization with the Tennessee Secretary of State to get started.
: Yes. Tennessee's Revised Limited Liability Company Act provides that an LLC's debts, obligations and liabilities are solely the LLC's, and that a member or manager is not personally liable for them. That protection has limits: it covers liability that arises only from your role as a member, so it does not cover, for example, a debt you personally guarantee. The same law says a member or manager may still be personally liable for their own acts or omissions, and it makes anyone required to collect and pay over tax collected from the LLC's customers, such as sales tax, personally liable for that tax. Keeping a separate business bank account and never mixing personal and business funds are still sensible practices, because courts can in some cases disregard an LLC and reach its owners ("piercing the veil"), and commingled funds invite that argument. If a creditor wins a judgment against your LLC for a company obligation you did not guarantee, it generally collects from the LLC's assets, not your personal home and savings. To secure this protection, file your Articles of Organization with the Tennessee Secretary of State and open a dedicated business bank account from day one.
: Yes, Tennessee allows an LLC with a single member, and that one person can own and manage it. For federal tax purposes, the IRS treats a single-member LLC as a disregarded entity by default, so the LLC's income is reported on your personal return, just as with a sole proprietorship. For Tennessee's franchise and excise tax, however, a single-member LLC is not disregarded unless its single member is a corporation, so unless an exemption applies your LLC owes at least the $100 minimum franchise tax each year. An eligible LLC can instead elect S-Corporation tax treatment by filing Form 2553 with the IRS, which can reduce self-employment taxes on profits taken as distributions. The practical benefit: you gain personal liability protection for business debts. To form one, file your Articles of Organization with the Tennessee Secretary of State and pay the filing fee ($50 per member, with a $300 minimum and a $3,000 maximum). The IRS says a single-member LLC with no employees, no excise tax and no corporate tax election can use your sole proprietor EIN instead of getting a new one.
: Yes, a sole proprietorship doesn't have to file formation documents in Tennessee. You become a sole proprietor when you start doing business on your own, with no filing at the Tennessee Secretary of State. There are still caveats. Check with your city or county whether your type of business needs a local license, since local requirements and fees vary. If you operate under a name other than your own legal name, check with the state and your county whether you must register it as an assumed or trade name. Certain professions, such as health practitioners, need specific state licenses from their licensing boards, and a business that sells taxable goods or services generally needs a sales tax registration. The practical implication: while you avoid state formation fees, you remain personally liable for all business debts and legal judgments, unlike an LLC owner. Your next step: contact your city or county to confirm licensing requirements and fees for your specific business type and location.

Sources

Each entry below is a document recorded in our verified Tennessee sources, and each entry says what the document is. Some statutory text is read from an accurate mirror rather than from the state's own host, and those say so. Where we hold the citation but no stable public link, the citation is printed on its own rather than pointed at a guessed address.

tn.gov/revenue/taxes/franchise---excise-tax.htmlTennessee Department of Revenue, franchise and excise tax
tn.gov/content/dam/tn/revenue/documents/tax_manuals/june-2025/Frachise-Excise-Tax-Manual.pdfTennessee Department of Revenue, Franchise and Excise Tax Manual (June 2025)
Tenn. Code Ann. 48-249-114, personal liability
irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxesIRS, Self-employment tax (Social Security and Medicare taxes)
irs.gov/businesses/small-businesses-self-employed/do-you-need-a-new-einIRS, Do you need a new EIN?
sos.tn.gov/businessesTennessee Secretary of State: business entity filings
sos.tn.gov/businesses/services/business-forms-feesTennessee LLC filing fees

Formation Services Compared

Forming an LLC in Tennessee?

See how Northwest Registered Agent, Bizee, ZenBusiness and LegalZoom, the formation services we partner with, compare on 3-year cost, BBB rating and Trustpilot score before you choose.

Compare Services →

Ready to Form Your Tennessee LLC?