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Forming Your Business Out-of-state

You are probably familiar with companies that will form a corporation or LLC out-of-state. While this is certainly legal, you should be aware of some of the downsides:
  • Officially, you are required to register as a "foreign" corporation or LLC with the Tennessee Secretary of State. Foreign corporations and LLCs must pay the same taxes as domestic (tennessee) businesses, so you will not save any taxes.
  • You must allocate earnings according to the state where the revenue was earned, which will result in more complex tax returns and increased tax preparation fees.
  • If you decide not to voluntarily register with the Tennessee Secretary of State, you will be required to register when you hire employees or sell items.
  • Foreign corporations and LLCs cannot get Small Business Certification to sell to the State.
  • It violates the "think globally, buy locally" mantra. When companies pay taxes and fees to other states it places a higher burden on everyone else.