Knoxville Business Formation Attorneys

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When starting a business in Tennessee, one of the key decisions you'll need to make is choosing the right business structure. Two common options are forming a Limited Liability Company (LLC) or a partnership. Understanding the basics of LLCs and partnerships under Tennessee law and the Tennessee Rules of Civil Procedure can help you make an informed decision about the best structure for your business.

Limited Liability Company (LLC)

1. Formation: To form an LLC in Tennessee, you must file Articles of Organization with the Tennessee Secretary of State and pay the required fee. The Articles of Organization must include the name of the LLC, its duration, the purpose of the LLC, and the name and address of its registered agent.
2. Management: An LLC can be managed by its members or by managers appointed by the members. Members are the owners of the LLC, while managers are individuals appointed to manage the LLC's day-to-day operations.
3. Liability: One of the key benefits of an LLC is limited liability protection. This means that the member's personal assets are generally protected from the LLC's debts and liabilities.
4. Taxation: LLCs are pass-through entities for tax purposes, meaning that profits and losses are passed through to the members, who report them on their individual tax returns. 

Partnerships

1. Formation: Partnerships in Tennessee can be formed by two or more individuals who agree to carry on a business together. There are two main types of partnerships: general partnerships and limited partnerships.
2. General Partnership: In a general partnership, all partners are personally liable for the debts and liabilities of the partnership. General partnerships are relatively easy to form and operate but do not offer limited liability protection.
3. Limited Partnership: A limited partnership consists of at least one general partner who has unlimited liability and one or more limited partners whose liability is limited to their investment in the partnership. Limited partnerships are more complex to form and operate but offer limited liability protection to some partners.
4. Taxation: Like LLCs, partnerships are pass-through entities for tax purposes, meaning that profits and losses are passed through to the partners, who report them on their individual tax returns.

Benefits and Disadvantages of a Limited Liability Company (LLC)

The benefits of forming a Limited Liability Company (LLC) in the State of Tennessee are:

1. Limited Liability: One of the main advantages of forming an LLC is that it provides limited liability protection to its owners, also known as members. This means that the personal assets of the members are typically protected from the debts and liabilities of the business.
2. Flexible Management Structure: LLCs offer flexibility in terms of management structure. They can be managed by the members themselves, known as member-managed LLCs, or by managers appointed by the members, known as manager-managed LLCs.
3. Pass-Through Taxation: LLCs are typically taxed as pass-through entities, meaning that the profits and losses of the business are passed through to the members and reported on their individual tax returns. This can lead to potential tax benefits for the members.
4. Less Formality: Compared to corporations, LLCs are often subject to fewer formalities and administrative requirements, making them easier and less expensive to maintain.

On the other hand, some potential disadvantages of forming a Limited Liability Company (LLC) in the State of Tennessee may be:

1. Limited Life: In some states, including Tennessee, an LLC has a limited life and may need to be dissolved upon the death or withdrawal of a member, unless the operating agreement provides otherwise.
2. Self-Employment Taxes: Members of an LLC are generally considered self-employed and are subject to self-employment taxes on their share of the profits.
3. Complexity: While LLCs are generally less complex than corporations, they can still be more complex than other business structures, such as sole proprietorships or partnerships.

Benefits and Disadvantages of Partnerships 

The benefits of forming a Partnership in the State of Tennessee are:

1. Ease of Formation: Partnerships are relatively easy to form and require less paperwork and formalities than corporations.
2. Shared Responsibility: Partnerships allow for shared responsibility and decision-making among the partners, which can be beneficial for sharing the workload and expertise.
3. Pass-Through Taxation: Like LLCs, partnerships are typically taxed as pass-through entities, which can result in tax benefits for the partners.

Some potential disadvantages of forming a Limited Liability Company (LLC) in the State of Tennessee may be:

1. Unlimited Liability: One of the main disadvantages of partnerships is that the partners are personally liable for the debts and obligations of the business. This means that their personal assets are at risk.
2. Shared Profits: Partnerships involve sharing profits and decision-making authority, which can sometimes lead to conflicts among partners.
3. Limited Life: Similar to LLCs, partnerships may have a limited life and may need to be dissolved upon the death or withdrawal of a partner, unless the partnership agreement provides otherwise.

Conclusion

Choosing the right business structure is an important decision that can impact your liability, taxes, and operations. If you need assistance with business formation in Tennessee, Herrera, Reilly & Associates, PLLC is here to help. We are a business defense law firm in Knoxville, Tennessee that focuses on business formation, litigation defense, and other small business legal needs in Tennessee. If you need any help or have questions, please call us at (865) 657-1385 to schedule a consultation.

DISCLAIMER: The information above is not intended as legal advice but rather for educational/opinion purposes only. If you seek legal advice, contact an attorney. By viewing this information/website, you are agreeing that no attorney-client relationship exists or has been created.