Tennessee LLC for Rental Property: When It Protects You and What It Costs

Most Memphis rental investors hear the same advice: put your properties in an LLC. Some act immediately. Others wait until they have three or four doors. A few never do it. The advice is not wrong, but it is incomplete. The LLC does specific things and does not do other things, and the cost-benefit math is different at different portfolio sizes.

Here is what Tennessee law actually provides, what it costs to maintain, and where the protection stops.

What an LLC actually does

A Tennessee LLC creates a liability boundary between the property and your personal assets. If a tenant sues over a slip-and-fall, a habitability claim, or a fair housing violation, a judgment against the LLC can reach the assets the LLC owns. It cannot reach your primary residence, personal bank accounts, retirement accounts, or properties held in separate LLCs. Each LLC is its own firewall.

The protection has firm limits. If you personally committed the negligent act — you made the repair that caused the injury, you personally handled the screening that produced a fair housing violation — you can be named individually regardless of the LLC structure. The LLC does not shield personal wrongdoing. And if you mix personal funds with business funds, sign leases in your personal name instead of the LLC name, or operate without a separate LLC bank account, a court can pierce the veil and disregard the LLC. The 2025 Tennessee Supreme Court clarified the piercing standard, requiring plaintiffs to prove both that the owner exercised complete dominion over the entity and that the control was used to commit fraud or a dishonest act. The bar is higher than it was. It is not zero.

Formation and annual costs

Filing Articles of Organization with the Tennessee Secretary of State costs $300 for a 1-to-6 member LLC (Form SS-4270, filed through the TNTAP portal). The fee structure is $50 per member with a $300 minimum and $3,000 maximum. A registered agent is required under TCA § 48-249-109 — you can serve as your own if you have a Tennessee street address, at no additional cost. Professional registered agent services run $49-$300 per year.

The annual report is due April 1 each year and costs another $300. Miss the deadline by more than 60 days and the LLC faces administrative dissolution. Total state-level cost: $300 to form, $300 per year to maintain — before accounting for registered agent fees, an operating agreement drafted by an attorney ($500-$1,500), or CPA fees for partnership returns if the LLC is multi-member.

For a single property producing $1,200 per month in rent, the $300 annual fee is 2.1% of one month's gross rent. That math works once you have personal assets outside the property worth protecting.

The FONCE exemption: the provision most investors do not know

Tennessee imposes a franchise tax (0.25% of net worth, $100 minimum) and an excise tax (6.5% of net income) on LLCs through Form FAE170. For a rental LLC generating $15,000 per year in net income, the excise tax alone would be $975 before any exemption applies.

Most Memphis rental investors qualify for a complete exemption under TCA § 67-4-2008 — the Family-Owned Non-Corporate Entity (FONCE) exemption. The requirements: at least 95% of ownership held by family members (spouses, lineal descendants, and siblings with their spouses all qualify), at least two-thirds of the entity's activity produces passive investment income, and all residential properties in the LLC have four units or fewer per location. A duplex qualifies. A 10-unit apartment building does not.

If your LLC meets these criteria, you file Form FAE183 with the Tennessee Department of Revenue and pay $0 in franchise and excise tax — only the $300 annual Secretary of State fee. A married couple owning a portfolio of single-family or small multi-family rentals through a family LLC almost always qualifies. Most investors do not know this exists. Their CPAs often do not either.

The FONCE exemption is separate from property taxes, which are owed regardless of ownership structure. The Shelby County property tax analysis covers what Memphis rental investors actually pay in 2026, including the 2025 reappraisal impact.

Charging order protection under TCA § 48-249-509

One underused feature of the Tennessee LLC is its charging order protection. Under TCA § 48-249-509, if a creditor wins a judgment against an LLC member personally, the creditor's exclusive remedy against that member's LLC interest is a charging order. That order entitles the creditor to receive distributions if and when the LLC makes them. The creditor gets no management rights, no voting rights, and no power to force a sale or liquidation of the property.

The statute says the charging order is "the sole and exclusive remedy." In practice: a creditor who obtains a judgment against you personally cannot force their way into your LLC and demand you sell your rental property to pay the debt. They can wait for a distribution. If you choose not to make one, they collect nothing from the LLC.

This protection is clearest in multi-member LLCs. Tennessee courts have not published a definitive ruling on whether a single-member LLC enjoys the same exclusive-remedy language when a creditor pursues the single owner's interest directly. If charging-order protection is the primary motivation for the structure, consult an attorney about using a multi-member structure.

The due-on-sale problem with existing properties

Most investors want to transfer existing properties into an LLC after the fact. Here is where the plan often stalls.

Nearly all residential mortgages contain a due-on-sale clause giving the lender the right to accelerate the loan — demand full repayment — if the borrower transfers the property without consent. The Garn-St. Germain Act (12 U.S.C. § 1701j-3) protects specific transfer types from due-on-sale enforcement, including transfers to a living trust where the borrower remains beneficiary. An individual-to-LLC transfer is not on that protected list.

In practice, most lenders do not actively monitor deed records and do not call performing loans when a borrower quietly transfers to their own LLC. For loans originated through Fannie Mae on or after June 1, 2016, there is an explicit exception: transfer to an LLC controlled by or majority-owned by the original borrower does not trigger due-on-sale, provided the loan's occupancy classification is unchanged. Roughly 70% of conventional residential mortgages flow through Fannie or Freddie.

The right sequence: call your loan servicer before transferring, ask their policy on LLC transfers, and get the answer in writing. Do not assume the risk is zero. Do not assume they will catch it and accelerate. Out-of-state investors face the same analysis with additional compliance layers — the out-of-state landlord guide covers HB 1814 contact disclosure requirements, LLC registration rules under TCA § 48-208-101, and the other obligations that apply to remote owners in Shelby County.

When the LLC makes sense and when it does not

The LLC makes clear financial sense at three or more properties, when significant personal assets exist outside real estate (primary residence equity, retirement accounts, investment accounts), and for commercial or larger multi-family properties where liability exposure is higher per unit. A portfolio of five single-family rentals across five separate LLCs — one property per LLC — provides cross-property firewall protection. A lawsuit from Property A cannot reach Property B. The cost of five LLCs ($1,500 per year in state fees) is a real business expense that belongs in the return model.

The LLC does not make sense for a single property under $100,000 with a conventional mortgage and limited personal net worth outside the property. The $300 annual state fee plus accounting costs can approach 1-2% of the property's value per year before the investment has produced meaningful equity to protect. A $1 million personal umbrella insurance policy — which adds $1 million in liability coverage for roughly $200-$400 per year — solves most single-property liability exposure at a lower total cost than an LLC.

Do not form an LLC to buy your first rental through a conventional lender. Most 30-year residential mortgage programs do not originate loans in LLC names. Buy in your name, build equity, then evaluate the LLC transfer with lender input. The full cash flow math for a Memphis rental — including the cost of professional management and legal structure at scale — is in the rental property cash flow analysis.

The Series LLC: a recognized option with an operational problem

Tennessee recognizes the Series LLC under TCA § 48-249-309. A single master LLC contains multiple series, each holding its own property, with each series theoretically shielded from the liabilities of the others. One annual report and one set of Secretary of State fees covers the entire structure.

The title insurance gap makes this structure impractical for most investors. Some title insurance companies will not insure property held in a Tennessee Series LLC. Without title insurance, standard purchase and resale transactions become complicated. The Series LLC works for properties acquired in the structure from the start and held long-term with sophisticated buyers who accept it on the buy side. For standard buy-hold-sell investing in Memphis, separate LLCs per property or per cluster of properties is the cleaner path.

The Tennessee Investment Services Trust (TIST) is a separate option — a self-settled asset protection trust that can hold property with privacy benefits in public records and without the LLC annual report requirement. It requires an attorney and is not a self-service tool. For most investors with 1-6 units, the added complexity does not justify the structure over a straightforward LLC with a current operating agreement.

Whatever the ownership structure, the obligations to tenants under Tennessee's Uniform Residential Landlord and Tenant Act run with the property. The Tennessee landlord-tenant law guide covers what those obligations are and where the legal thresholds sit in Shelby County.