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Editorial 7 MIN READ

Tennessee in May 2022: the per-member filing fee, read carefully

A $300 floor, a $3,000 ceiling, and a franchise-and-excise pairing that most founders do not price in

The Editors
Staff, Incorporator.org
7 min read Updated
Contents 7 sections
  1. What the fee schedule actually says
  2. The annual report runs on the same formula
  3. Franchise and excise, the part most founders miss
  4. The business tax and other county-level arithmetic
  5. Parallel math against Delaware
  6. Who this state actually suits
  7. Sources

ennessee prices an LLC by its membership roster. The Articles of Organization filing fee is $50 per member, with a $300 minimum and a $3,000 maximum, and the annual report runs on the same formula. That per-member scaling is unusual enough to be worth a careful read, and it is only half of what the state will take from a new entity in its first year.

The rest is the franchise-and-excise pair, which catches founders who assumed no-income-tax Tennessee meant no-entity-tax Tennessee. It does not.

What the fee schedule actually says

The formation fee comes from Tenn. Code Ann. § 67-4-2106, which sets a franchise fee on Articles of Organization calculated at $50 per member, a floor of $300, and a cap of $3,000. The math is legible: one member is $300 because the floor binds, six members is $300 because six times fifty is exactly $300, seven members is $350, and the cap hits at sixty members because sixty times fifty is $3,000. Everything above sixty members files for $3,000 flat.

The Secretary of State collects this through form SS-4270. The form is two substantive pages and asks for the LLC name, the principal office, the registered agent with a Tennessee street address, the fiscal-year close month (Tennessee uses this to calendar the annual report), a box noting whether the LLC is member-managed or manager-managed, and the member count on which the filing fee is computed. The Secretary of State's online filing system does the fee math automatically; the mail-in version makes you add it up.

Two quirks worth flagging before drafting the paperwork. First, if the Articles expressly prohibit the LLC from transacting business in Tennessee, the fee is the $300 minimum regardless of member count; this is a rarely-used niche for holding entities organized in Tennessee but operating elsewhere. Second, the member count the state charges you for is the member count on the filing date, not your target cap table six months out. Adding a member later requires an amendment, and the amendment recomputes the fee on the incremental members.

The annual report runs on the same formula

Tennessee's annual report is also $50 per member, $300 minimum, $3,000 maximum. It is due on or before the first day of the fourth month following the close of the entity's fiscal year, which is April 1 for the vast majority of filers who run a calendar year. Corporations file on the same timetable under Tenn. Code Ann. § 48-26-203.

A 60-day grace window applies before administrative dissolution kicks in. The reinstatement process is not punishing, but it is not free either: you file a reinstatement application, pay any back fees with interest, and wait for the Secretary of State to reopen the charter. For a single-member LLC, that is an annoyance. For a holding entity whose subsidiaries rely on the parent's good standing to sign deals, it is a problem that surfaces at the worst possible moment.

One structural note on this fee design. Because the annual report rides the same $50-per-member formula as the formation fee, Tennessee is genuinely cheap for a tight founder-owned LLC and quietly expensive for a fund vehicle with forty or fifty LPs holding Class A interests. The state is priced for small business and lightly penalizes institutional membership structures. Most Delaware limited partnerships that foreign-qualify into Tennessee notice this on the first annual report and budget for it thereafter.

Franchise and excise, the part most founders miss

Tennessee's franchise tax under Tenn. Code Ann. § 67-4-2105 is imposed at $0.25 per $100, or 0.25%, of the taxpayer's net worth apportioned to Tennessee, with a $100 minimum. The base is the greater of net worth or the book value of real and tangible personal property owned or used in Tennessee; most operating LLCs are in the net-worth posture. The $100 minimum is payable regardless of activity, which is how a dormant Tennessee LLC still owes something each year.

Excise tax sits alongside franchise tax under § 67-4-2007 and is levied at 6.5% of net earnings apportioned to Tennessee. The starting point is federal taxable income, with state adjustments. Both taxes are reported on a combined franchise and excise return filed with the Tennessee Department of Revenue, separate from the Secretary of State's annual report.

The failure mode is predictable. A founder reads that Tennessee has no personal income tax, forms an LLC that elects partnership taxation at the federal level, and assumes that flow-through treatment means no entity-level tax. Tennessee does not honor the federal election for franchise-and-excise purposes. Under § 67-4-2106 and its excise-side counterpart, an LLC taxed as a partnership federally still owes the state franchise and excise at the entity, and the members still owe Tennessee on their own capacity as members to the extent the state can reach them. The quiet exception is an LLC disregarded federally whose sole member is itself an LLC disregarded up to a corporation, where the franchise-and-excise liability flows up; the paperwork is arcane and the Department of Revenue's notice F&E-3 is the place to start.

A small comfort: the Hall income tax, the 19th-century levy on interest and dividends, was repealed effective January 1, 2021 under Public Chapter 1093 of the 2016 session. Tennessee now has no personal income tax of any kind. The franchise and excise taxes are the last entity-level taxes standing, and they are the ones that matter.

The business tax and other county-level arithmetic

A separate business tax under Tenn. Code Ann. § 67-4-708 applies at county and municipal levels, imposed as a privilege tax on gross receipts for most classifications of business. The rate schedule runs between roughly 0.02% and 0.3% depending on the classification, with a $22 minimum, and both the state and the local jurisdiction where the business is located can impose. The business tax is filed with the Tennessee Department of Revenue, not the county clerk, after a registration with the county or city clerk in the jurisdiction where the business operates.

For most small Tennessee LLCs, the business tax is a real annual obligation that many founders skip for a year before the county clerk's office catches up. The registration is administrative rather than punitive, but the delinquency penalties accrue from the first missed filing. Budget for it the first time you open a bank account locally.

Parallel math against Delaware

The headline comparison most founders run is Delaware. Delaware charges $90 to form an LLC and $300 a year to maintain it, both flat. Tennessee charges a $300 minimum to form and a $300 minimum annual report for the first six members, after which both scale upward.

On pure filing-fee arithmetic, the two states are comparable for a single-member LLC (Delaware $390 in year one, Tennessee $300 in year one plus $300 next April) and Tennessee becomes more expensive as membership scales. For a ten-member LLC the formation cost alone is $500 in Tennessee against $90 in Delaware, and the annual-report delta widens from there.

Where the comparison turns is the state-tax layer. Delaware does not impose a franchise or excise tax on LLCs; the $300 annual is the whole bill. Tennessee layers franchise and excise on top of the filing fees, meaning a Tennessee operating LLC with real revenue owes more than the SOS schedule implies. A Tennessee LLC with $500,000 in Tennessee net worth owes $1,250 in franchise tax, plus 6.5% on whatever the excise base works out to, plus the annual report, plus business tax. A Delaware LLC with no Delaware operations and the same $500,000 net worth owes $300, full stop.

The inverse cut matters too. Tennessee has no personal income tax and Delaware has an 8.7% corporate rate plus a top personal rate above 6%. For a Tennessee resident operating a Tennessee business, domiciling the entity in Delaware buys you Chancery access and nothing else. The franchise and excise travel with where you operate, not where you charter.

Who this state actually suits

Tennessee is a good home state for a resident-founder business with modest membership and local operations, and an awkward forum for anything else. The per-member fee rewards tight cap tables. The franchise and excise reward operations with modest net worth and modest Tennessee-source earnings. The Hall-tax repeal made the state materially friendlier to dividend-heavy individual portfolios, though that change benefits residents rather than entities.

If you are a Nashville founder forming a three-member consulting LLC, Tennessee is a rational default and the $300-$300 annual carry is reasonable. If you are a California fund sponsor looking to domicile a 50-LP vehicle because a portfolio company happens to be in Knoxville, the per-member schedule will price you out and the franchise-excise pair will find you anyway. Foreign-qualify instead, and file your charter somewhere the fee schedule is flat.

The fee math in Tennessee is honest once you read it. The problem is that most comparison tables print only the $300 minimum, which is the number you see when you have six members or fewer, and leave out everything else the state collects. On a ten-year horizon, the franchise-and-excise figure is usually the bigger line.

Sources

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