Entity Formation Attorney · Nashville
The form filer's preference is not
the owner's actual tax position.
LLC, S-corp, C-corp, and partnership formation aligned to your actual tax position.
By Knight Lancaster, JD, CPA · Last reviewed May 2026
The structure that decides the next ten years.
Most new businesses get formed as whatever the online filing service was running on the homepage that day. The form gets filed, the EIN gets assigned, the bank account gets opened, and the entity choice that decides the next ten years of tax bills, governance flexibility, and exit options gets made by default.
The entity structure decides four things: liability protection, tax treatment, governance flexibility, and the path to the eventual exit. Lancaster Law forms LLCs, S corporations, C corporations, and partnerships in Tennessee for owners who want the structure to match the actual business — and the actual return that will come out of it.
Three entity options, with the tradeoffs.
The three entity options for a closely held Tennessee business, and where each one earns its keep.
LLC, Partnership & LLP
The default for most closely held Tennessee businesses.
Pass-through taxation by default. Limited liability. Flexible governance through the operating agreement. Simple to form, simple to maintain. The Tennessee Revised LLC Act gives the operating agreement broad authority to override default rules. For a single owner, a single-member LLC is by far the most common starting point. Multi-owner ventures, professional firms, and family businesses use the partnership or LLP form when flexible economics or partner-level liability shielding matter most.
S Corporation
Pass-through with W-2 compensation discipline.
Owner-employees take a reasonable salary on a W-2; the rest of the profit comes through as a K-1 distribution that escapes self-employment tax. The IRS scrutinizes the reasonable-compensation question. Limits on shareholder types and number (100 max, US individuals and certain trusts).
C Corporation
The right answer in three specific situations.
Founders planning to qualify for §1202 QSBS treatment on a future sale (federally tax-free up to $10M or 10x basis). Companies planning to take venture capital from funds that require C-corp structure. Owners with non-individual investors an S-corp cannot accommodate.
The tax bill attached to entity choice.
Entity choice has a tax bill attached, and the bill compounds. The lines of the calculation that move the most money.
The provision
Pass-through vs. C-corp double taxation
What it does
The obvious one. A C corporation pays federal tax on profits, and shareholders pay federal tax again on distributions. A pass-through (LLC, S-corp, partnership) is taxed once at the owner level. For most $2M to $50M Tennessee businesses, that single layer is the right answer — unless §1202 or VC structure pulls the other way.
The provision
§199A pass-through deduction
What it does
Pass-through owners may deduct up to 20% of qualified business income against their personal return. The qualifying calculation depends on the business type and the owner's overall income, with phase-outs that limit the deduction for specified service trades or businesses above the income threshold.
The provision
S-corp reasonable compensation
What it does
A real audit issue. The right number sits in a defensible range that depends on the owner's role, the company's profit, and the comparables in the geography. The W-2 / K-1 split is the value of the S-election; getting the split wrong invites both back-taxes and penalties.
The provision
§1202 QSBS exclusion
What it does
A C corporation that meets the qualifying small business stock rules of IRC §1202 lets the founder exclude the greater of $10M or 10x basis of capital gain on a third-party sale, federally tax-free. The §1202 question has to be analyzed before any restructuring; some moves disqualify QSBS retroactively.
The formation filing is the start. The operating agreement is the work.
The operating agreement (for LLCs) or the shareholder agreement and bylaws (for corporations) is the document that actually governs the company: who has authority, how distributions get paid, what happens when an owner wants out, how a deadlock gets resolved.
The Tennessee Revised LLC Act (Tenn. Code Ann. § 48-249) gives the operating agreement broad authority to override default statutory rules — but only if the agreement actually says so. A silent operating agreement defaults to statute, which is rarely what the owner intended. We draft the formation filings, the operating or shareholder agreement, the initial resolutions, the EIN application, and the first franchise-and-excise registration in one bundle.
When the entity choice needs to change.
Sometimes the structure that fit at year five is not the structure that should run year ten. Five common reasons to convert or restructure — and each one routes back to the broader succession plan.
| §1202 QSBS planning | An LLC converted to a C-corporation before the five-year holding period starts, so the founders can run the QSBS clock toward a future federally tax-free exit. |
| Family LLC for gifting | A family limited liability company that holds the business and supports valuation discounts on gifted ownership interests. Routes into the broader business succession plan. |
| Private equity preparation | PE transactions often require C-corporation or specific S-corporation structures, F-reorganizations, or rollover-equity vehicles. The structure decisions get modeled against the tax math before the LOI. |
| §199A optimization | Restructuring to optimize the qualified business income deduction when phase-outs, specified service trade limits, or wage-and-property tests are leaving deduction on the table. |
| Holding-company structures | An operating subsidiary under a holding company for liability isolation, asset protection, or multi-state qualification, drafted alongside the foreign-entity registrations the structure requires. |
"The form filer's preference is not the owner's actual tax position."
The Tennessee Secretary of State and what comes after the filing.
Tennessee entity formation runs through the Secretary of State office. The Articles of Organization (LLC) or Articles of Incorporation (corporation) get filed with the SOS, the registered agent gets named, and the entity becomes legal as of the filing date. We handle the filings directly, including foreign-entity registrations for businesses operating across state lines.
The Tennessee Revised LLC Act and the Tennessee Business Corporation Act govern post-formation life. Tennessee imposes a franchise tax (0.25% of net worth, post-reform) and an excise tax (6.5% of net earnings) — Knight serves on the Tennessee Society of CPAs State and Local Tax Committee, which follows the Department of Revenue's positions on F&E. For commercial paper that runs the day-to-day, see commercial contracts; for ongoing review under a flat-fee retainer, see fractional general counsel.
Entity choice is a tax decision dressed in a legal filing. The §199A deduction, the S-corp reasonable-compensation discipline, the §1202 holding period, and the franchise-and-excise reporting all run through the same return Knight would prepare. As a CPA, he sees the legal structure and the tax math at the same time, so the entity that gets formed and the return the firm files agree at the line. Tennessee bar admitted, dually licensed as a Certified Public Accountant, recognized in Best Lawyers in America.
The entity that fits the business, and the return that follows from it.
Formation, answered.
LLC or S-corp, which is better?
For most Tennessee owner-operators in the $2M to $20M revenue range, an LLC taxed as an S corporation is the common answer. The LLC gives flexible governance and limited liability; the S-corp election gives the SE-tax savings on the W-2-versus-K-1 split. The decision depends on whether the owner can support reasonable-compensation discipline, whether the business has multiple owners with different economic arrangements, and whether the owner wants the flexibility to add or change owners over time.
Do I need a lawyer to form an LLC in Tennessee?
You can form a Tennessee LLC online at the Secretary of State's website without a lawyer. The filing is simple. The operating agreement that comes after the filing is where the work is. The default rules under the Tennessee Revised LLC Act may not be what the owners actually want, and a generic template often is not either. Most owners who form their own LLC eventually hire a lawyer to redo the operating agreement once a partner dispute, a hiring decision, or a sale offer makes the original gaps obvious.
What does a corporate governance attorney do?
A corporate governance attorney drafts the documents that decide who has authority in the company and how decisions get made: the operating agreement or bylaws, the shareholder agreement, the board resolutions, the officer appointments, and the policies that govern owner-manager relationships. For closely held Tennessee businesses, the work runs through the operating agreement (LLC) or the shareholder agreement and bylaws (corporation).
How long does entity formation take in Tennessee?
A standard LLC or corporation formation takes 1-2 business days for the Tennessee Secretary of State filing once we have the necessary information. The operating agreement, EIN application, and initial resolutions are typically completed within 5-10 business days from engagement. For more complex structures (holding company plus operating subsidiary, multi-state qualification), the timeline runs 2-4 weeks.
Can the same firm prepare the resulting tax return?
Yes. The Lancaster CPA Firm prepares the corporate, partnership, and personal returns that come out of the entity formation work, including the first F&E filing, the federal Form 1120-S or 1065, and the K-1s for owners. Owners who hire one firm for the entity formation and the resulting tax filings tend to find the math comes out tighter than splitting the work across two firms.
What is a §83(b) election and do I need one?
A Section 83(b) election is a tax filing that founders make within 30 days of receiving founder stock subject to vesting. The election locks in the income tax at the grant date (when the stock is typically worth almost nothing) instead of as the stock vests over time (when it may be worth substantially more). Missing the 30-day window costs the founder the favorable treatment and cannot be corrected. If you are receiving founder equity that vests, you almost certainly need to file an 83(b).
Reviewed by Knight Lancaster, JD, CPA, MBA
Knight Lancaster is the founder of Lancaster Law, P.C. and The Lancaster CPA Firm, P.C. in Nashville, Tennessee. He is one of a small number of attorneys in Tennessee who is also a licensed CPA, giving him a dual perspective on the legal documents and the tax returns that follow them. Knight has been recognized in Best Lawyers in America, Ones to Watch (Corporate Law), in 2023 and 2024, and serves on the Board of Directors of the American Academy of Attorney-CPAs. He earned his JD and MBA from Belmont University (the first graduate of Belmont's joint JD/MBA program) and a BS in Accounting from the University of Tennessee. Before founding Lancaster Law, Knight practiced at Bone McAllester Norton (now Spencer Fane), where his work focused on mergers, acquisitions, dispositions, and securities matters.
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This article is for educational purposes only and is not legal advice. Reading it does not create an attorney-client relationship. For advice specific to your situation, contact Lancaster Law directly.
Tennessee Bar
Practicing since 2019
Triple credential
JD · CPA · MBA
Peer-reviewed
Best Lawyers, Ones to Watch, 2023 + 2024
National board
American Academy of Attorney-CPAs, Director
Formation counsel across Tennessee.
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