Setting Up a Business Partnership in Tennessee

Determine which type of partnership structure is best for your business in Tennessee: general partnership, limited partnership (LP), or limited liability partnership (LLP). Each has different liability protections, tax implications, and filing requirements. Consider consulting with a business attorney to understand which structure aligns with your business goals and risk tolerance.

Create a comprehensive partnership agreement that outlines ownership percentages, profit and loss allocations, management responsibilities, dispute resolution procedures, and exit strategies. This document is not legally required in Tennessee for general partnerships but is strongly recommended for all partnership types to prevent future disputes and provide clear operating guidelines.

Create a document detailing each partner's initial and ongoing capital contributions to the business, including cash, property, services, or other assets. This agreement should specify the value of non-cash contributions, timing of contributions, and how capital accounts will be maintained.

Apply for an EIN from the IRS, which is required for partnerships even if you don't have employees. This number is necessary for tax filings, opening business bank accounts, and other business transactions. Apply online through the IRS website for immediate processing.

If forming a limited partnership or limited liability partnership, file a Certificate of Partnership with the Tennessee Secretary of State. General partnerships are not required to file formation documents in Tennessee but may choose to file a Statement of Partnership Authority. Filing fees apply and vary by partnership type.

If operating under a name other than the partners' legal names, file a Fictitious Business Name Statement (also called a DBA or 'doing business as') with the county clerk's office in each county where you'll conduct business. This registration is typically valid for 5 years and must be renewed before expiration.

Apply for necessary business licenses at the state, county, and city levels. Tennessee requires most businesses to obtain a basic business license from the county clerk's office. Depending on your business type, additional professional or industry-specific licenses may be required. Research requirements specific to your industry and location.

If your partnership will sell tangible goods or certain services in Tennessee, register for a sales tax permit with the Tennessee Department of Revenue. You'll need to collect and remit sales tax on applicable transactions. Register online through the Tennessee Taxpayer Access Point (TNTAP).

Open a separate business bank account for the partnership using your EIN. Bring your EIN confirmation, partnership agreement, and any filed formation documents. Complete the bank's Business Account Resolution form, which authorizes specific partners to conduct banking transactions.

Create a buy-sell agreement that outlines what happens to a partner's ownership interest in case of death, disability, retirement, or voluntary departure. This document should include valuation methods for the business, funding mechanisms for buyouts (such as insurance), and procedures for transferring ownership interests.

Document day-to-day operational procedures including meeting schedules, voting procedures, record-keeping requirements, and partner responsibilities. While similar to portions of the partnership agreement, this document provides more detailed guidance on routine operations and can be updated more frequently as business needs change.

If your partnership will have employees, register with the Tennessee Department of Labor and Workforce Development for unemployment insurance tax and with the Department of Revenue for employee withholding tax. You'll also need to set up workers' compensation insurance through a private carrier.

Mark your calendar for ongoing compliance requirements. LPs and LLPs must file an annual report with the Tennessee Secretary of State by the first day of the fourth month following the close of the fiscal year. General partnerships typically don't have state filing requirements but must maintain accurate financial records for tax purposes.

Set up systems for tracking income, expenses, and partner distributions. Partnerships must file annual federal tax Form 1065 and provide Schedule K-1 forms to each partner. Tennessee doesn't impose an income tax on partnerships, but the Franchise and Excise Tax may apply depending on your business structure and activities.

Assess and obtain appropriate business insurance. General partners have unlimited personal liability for partnership debts and obligations, making adequate insurance coverage crucial. Consider general liability, professional liability, property, business interruption, and other industry-specific policies based on your risk exposure.