Benefits of a corporation
One of the biggest advantages of forming a corporation is the limited liability it offers its owners/shareholders. Because a corporation is a separate legal entity, the shareholders’ homes, cars, and other personal assets are not at risk if the corporation is sued or runs into financial trouble. The shareholders’ losses are limited to the amount they invested in the corporation. Forming a corporation also offers benefits such as possible tax savings and the facility to transfer shares from one shareholder to another.
Requirements for incorporating in Tennessee
Preparing your charter
To form a corporation, you must file a charter with the Secretary of State and pay a filing fee. The corporation’s existence begins when you file the charter, unless the charter specifies a later date. The charter can include many provisions, but it must contain the following:
- Name of the corporation
- Address of the corporation’s principal office
- Stock structure
- Names and addresses of incorporators
- Registered agent
- A statement that the corporation is for profit
The charter must state the total number of shares the corporation is authorized to issue. If more than one class of shares is authorized, the charter must state the number of shares in each class and prescribe a distinguishing designation for each class. Before shares of a class can be issued, the charter must state the preferences, limitations and rights applicable to shares in that class.
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Naming your corporation
You must choose a corporate name that is available for use in Tennessee. You can check name availability online at the Secretary of State’s website.
You may reserve a corporate name for four months by filing an application with the Secretary of State.
When choosing a name for your corporation, you must adhere to the following requirements:
- Your corporation’s name must contain the word “corporation,” “incorporated” or “company,” or the abbreviation “corp.,” “inc.” or “co.”
- A corporation’s name must be distinguishable from any other active or reserved name in the Secretary of State’s corporate management system database.
An incorporator signs the charter and files it with the Secretary of State. You must meet the following requirements when specifying incorporators:
- Incorporators’ names and addresses must be listed in the charter.
- Your corporation must have at least one incorporator.
- An incorporator may be a person who is at least 18 years old or an entity.
- If the charter does not list the initial directors, the incorporators must elect directors. They may also approve bylaws and complete the organization of the corporation.
The corporation’s business is managed under the direction of the board of directors. Directors also exercise corporate powers and develop long-term strategies.
When specifying directors for your corporation, you must adhere to the following requirements:
- A corporation must have at least one director. There is no maximum number of directors, but the number of directors should be stated in either the charter or bylaws.
- The charter or bylaws can establish eligibility requirements for directors. The state does not require that directors be shareholders or Tennessee residents.
Specifying a registered agent and registered office
A registered agent receives official correspondence, such as lawsuits and notices on behalf of a corporation, and forwards that correspondence to the corporation. A registered office is the business address where the agent can be found during normal working hours.
The following requirements apply when specifying a registered agent and office:
- The charter must list the street address in Tennessee of the registered office and the name of the registered agent.
- A registered agent may be an individual who resides in Tennessee or a corporation formed or authorized to do business in Tennessee. The registered agent’s business address must be identical to the registered office address.
Stating a corporate purpose
Tennessee law does not require you to state a corporate purpose in the charter. All Tennessee corporations have a purpose of engaging in any lawful business, unless the charter states a more limited purpose.
Determining incorporation bylaws
Your corporation’s bylaws are its internal rules and procedures, such as procedures for holding shareholders’ meetings and choosing officers and directors. There is no specific information that must be included in the bylaws. Anything that relates to regulating the business and affairs of the corporation is acceptable. Bylaws are not filed with the Secretary of State.
The following requirements apply when determining your corporation’s bylaws:
- The board of directors or incorporators must adopt corporate bylaws.
- Bylaws cannot be inconsistent with the law or the charter.
Costs of incorporating in Tennessee
The Tennessee Secretary of State requires a fee when filing a charter or reserving a corporation name. Corporations are also required to pay state and federal income taxes.
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