Are you thinking of forming a Kentucky corporation? Corporations are a popular business type because they’re treated as independent legal entities, limiting the liabilities of the owners and allowing the corporation to enter into contracts and maintain stability over time. 

If you’ve decided that a corporation is the right business entity structure for your company, read on to learn how to get started forming your Kentucky corporation today. These steps are for forming a C corporation (the default form of corporation) in Kentucky that is for-profit and domestic (in-state).

How do I form a Kentucky corporation?

To start a corporation in Kentucky, you must file the Articles of Incorporation with the Kentucky Secretary of State office, but there are important decisions to make before doing so, in addition to steps you need to take afterward.

To simplify the process of forming a corporation in the Commonwealth of Kentucky, we’ve put together 10 easy steps for you to form your business:

Step 1: Name Your Kentucky Corporation

Before you can file any paperwork, you need to decide on a business name. This might seem simple on the surface, but you must consider many factors and adhere to regulations.

Start by brainstorming a list of potential names. Names on this list should match your business’s purpose, and the more names you have, the better. The next several steps will begin to narrow your options. Once you have your short list, search your prospective business names on the Kentucky Secretary of State’s website to eliminate any names that are too similar to existing businesses.

Guidelines for Naming a Corporation in Kentucky

Here are some guidelines to help you through the naming process:

• The final version of any name you choose must end with the word “Corporation,” “Company,” or “Limited,” or an abbreviation, such as “Corp.,” “Inc.,” “Co.,” or “Ltd.” If a nonprofit corporation’s name contains “Company” or “Co.,” it may not be immediately preceded by the word “and” or the abbreviation “&.
• Kentucky corporation names can’t contain language implying they’re organized for a purpose other than what’s stated in the Articles of Incorporation.
• The name can’t suggest that it’s associated with any government agency or include anything indicating it will be engaged in illegal business.

Once you’ve narrowed your list based on the above, the next task is to search for available domain names to ensure you can secure a website domain that matches your business name.

Check Business Nam eTrademarks

Check to make sure your desired Kentucky corporation name hasn’t already been trademarked by someone else. Search federal and Kentucky trademark databases. If your name isn’t claimed, you can also consider trademarking it and/or your logo or slogan. To do this within Kentucky, you’ll need to register your trademark with the commonwealth, complete the application, and pay a small fee. But while it’s easier and quicker to file at the state level, filing at the federal level affords broader protection, which helps if you plan on doing business outside Kentucky.

Reserve Your Business Name

Once you’ve settled on a business name, you may choose to reserve the name if you are not ready to register it. Reserving your business name can be done by filing a Reservation or Renewal of Reserved Name form with the Secretary of State and paying a filing fee. The reservation will be valid for 120 days. You’ll have to mail the form to Michael Adams, Office of the Secretary of State, P.O. Box 718, Frankfort, KY 40602-0718.

Kentucky DBA Names

You also don’t want to overlook the importance of choosing a name that also has an available website domain name. Additionally, you should consider any “doing business as” (DBA) names or trademarks you may want. If you’d like to do business under a name different from your official business name (often called a “doing business as,” or DBA, name), you’ll need to file a Certificate of Assumed Name with the Kentucky Secretary of State and pay a small filing fee.

Step 2: Appoint Directors

A corporation’s board of directors is responsible for overseeing the operations of the business. As such, your business needs one to get started. The initial incorporators — those filing the Articles of Incorporation for the business — often appoint the initial directors. Afterward, the board is elected annually by shareholders (those who hold stock in the company; this can include the original incorporators).

In Kentucky, only a single incorporator is required, and only one member on the board is needed, although having more is generally advisable. Incorporators may be directors and shareholders. In fact, a single person can start a Kentucky corporation and hold all associated titles. But the three titles are associated with different roles within the company.

To clarify, here are some of the different roles that exist in a corporation:

• Incorporators are responsible for starting the business and filing the initial paperwork.
• The board of directors oversees the operation of the business.
• Shareholders finance the business by owning shares in the company. They also often have voting power when selecting the board of directors.
• Officers execute the duties associated with running the business.

It’s a good idea for all incorporators to meet and elect an initial board of directors before filing the Articles of Incorporation. This board can then begin creating the corporate bylaws (described in a later section). 

Step 3: Choose a Kentucky Registered Agent

A registered agent is a person or entity that receives service of process and other important legal notices and government correspondence on behalf of the corporation. If your business is sued, the court summons will be given in person to your Kentucky registered agent. 

When filing your Articles of Incorporation, you must list a registered agent who is an individual or entity with a street address (not a P.O. box) in Kentucky. The agent must always be available during normal business hours. The Kentucky registered agent must give explicit consent to being your registered agent, typically by signing the Articles of Incorporation.

Step 4: File the Kentucky Articles of Incorporation

Now that all the initial puzzle pieces are in place, you’re ready to file your Articles of Incorporation to register your business with the commonwealth officially. In this document, you’ll need to include:

• The name of your business (including the designator indicating that it’s a corporation, such as “Inc.”)
• The number of authorized shares of stock (this is often determined by the board of directors or the incorporators). The Articles of Incorporation form issued by the Kentucky Secretary of State may only be used to start a corporation with one share class. If the corporation needs a multiple share class structure, you must compose your own Articles of Incorporation.
• The name and physical address of your registered agent
• The street and mailing address of the principal office or location of the business
• The name(s) and address(es) of the incorporator(s)
• An indication of whether your business is veteran-owned
• The signature(s) of the incorporator(s)
• A signed statement regarding the registered agent’s consent

Mail Form to the Kentucky Secretary of State

Once you’ve filled out the form, you will mail it to the Secretary of State with a check for the filing fee, made out to the “Kentucky State Treasurer.” As of this writing, $10 of this fee is an organization tax fee for 1,000 shares of stock or fewer. As long as you don’t have more than 1,000 shares, this is all you pay. If you plan on having more than 1,000 shares, you’ll need to contact the Kentucky Secretary of State’s office to determine your total filing fee.

The address to mail the form is:

Michael Adams
Office of the Secretary of State
P.O. Box 718
Frankfort, KY 40602-0718

Alternatively, you can register online using the Kentucky Business One Stop Portal. After the incorporation, one copy of the Articles of Incorporation must be filed with the county where the corporation’s registered office is located.

Step 5: Create Corporate Bylaws

Before your business can get up and running, the incorporators or the board of directors need to create the corporate bylaws. The bylaws establish all of the rules and day-to-day activities of your business. Not only is this a good idea, but it also is required by Kentucky for all corporations.

Your corporate bylaws may include:

• A clear statement of your business purpose
• A list of the board of directors and the rights, responsibilities, and qualifications of each
• Details of your management structure and the duties of each officer
• Annual meeting scheduling and goals for directors and shareholders
• How ownership and shares are distributed and how the stock is sold or transferred
• How changes are made or voted on
• Details of any committees and their responsibilities
• How conflicts of interest are to be handled

While you’re not required to file your bylaws anywhere, you are required to keep them in a safe place with any other corporate records. It’s often a good idea when starting to set up a corporate records book where you can keep all of your corporation’s important papers, including bylaws, minutes from meetings, and stock certificates.

Step 6: Draft a Shareholder Agreement

The shareholder or stockholder agreement is a document that outlines the rights and responsibilities of all shareholders in the company. It may include the following:

• Shareholders and their contact information (address, phone number, etc.)
• Shareholder responsibilities, including rules about officer appointments and any actions that shareholders are allowed to take on behalf of the business
• Shareholder voting rights, including whether a simple majority or higher percentage may be required for certain decisions
• How changes to the original shareholder agreement may be made
• How stock can be sold or transferred
• The financial obligation and time commitment for each shareholder
• A clear outline of how dividends are distributed
• A plan for the distribution of assets should the business close

Again, this agreement can be drafted from a template, but you may want to utilize professional assistance. Your shareholder agreement should be kept with your other important corporate records.

Step 7: Issue Shares of Stock

One of the requirements for starting a corporation is issuing stock. When you filed your Kentucky Articles of Incorporation, you stated the number of stock shares that were authorized. The number of shares you issue should always be less than or equal to this number.

It’s a good idea to determine how much capital you need before issuing shares of stock so that you can determine a reasonable value for each share. Shares of stock may also be issued in exchange for services or other noncash value and capital contributions.

Each share is only issued once. However, after being issued, it can be traded and sold. All issued shares must be documented in the company’s annual report. Although it’s not typically required, many corporations issue certificates to shareholders, indicating their shares. 

Stock may be issued publicly or privately. Privately issued stock is usually issued to the founders or a private group of investors. A public corporation makes a portion of its stock shares available for public purchase.

Companies that issue public stock need to file quarterly statements with the Securities and Exchange Commission (SEC). They must also track how many shares are issued and to whom. You should also check with the Securities Division of the Kentucky Department of Financial Institutions for regulations and requirements at the state level.

Step 8: Apply for Necessary Business Licenses or Permits

Next comes the task of determining which additional licenses and permits your business may need. The Kentucky One Stop Business Portal outlines the following types of licenses and permits to consider:

• The federal government may require licenses if your business activities are supervised or regulated by a federal agency.
• Occupational licenses may be required for certain businesses.
• The federal, state, or local government may require environmental licenses or permits, depending on your business activities and whether you do anything involving construction or manufacturing. Many cities and counties require a local general business license, so you should check with your local government.

Remember to also check into building and zoning permits, especially if you’re renovating a space.

Step 9: File for an EIN and Review Tax Requirements

Corporations are generally regarded as distinct entities separate from the people involved in them. As such, you’ll need to acquire an employer identification number (EIN), also known as a federal tax identification number. This number acts like the corporation’s Social Security number for tax purposes. You’ll also need an EIN when you open your corporation’s business bank account.

Visit the Internal Revenue Service (IRS) website and fill out the online form. It only takes a few minutes and is free. Afterward, you will receive your EIN. Keep this number safe, as you’ll need it for future documentation and filing your business’s tax returns.

Remember that corporations must pay their own taxes separate from any taxes paid on shareholder earnings. This must be done at the federal and state levels by submitting the appropriate returns each year. Having a separate business bank account from your personal bank account is critical at tax time.

Step 10: Submit Your Corporation’s First Report

Kentucky requires all corporations to file an annual report to update information with the commonwealth. Expect to receive a reminder postcard for the annual report in January. You’ll have until June 30 of that year to return the completed postcard or complete your annual report by filing online with the Kentucky Secretary of State. 

Information you’ll need to provide in your annual report includes:

• Names and addresses of all officers, directors, managers, etc., associated with your corporation
• Confirmation of the principal office address 
• Confirmation of the Kentucky registered agent and office

Also, you’ll need to submit a filing fee. If you fail to file the annual report and pay the fee, the commonwealth can dissolve your corporation in 60 days.

How much does it cost to start a Kentucky corporation?

The exact cost of starting a Kentucky corporation will vary depending on the size and type of business and where it’s located. You’ll need to pay the fee for filing the Kentucky Articles of Incorporation at a minimum. Additional fees may include:

• Registered agent service fees
• Fees assessed for amendments or other business filings
• Fees associated with licenses or permits
• Annual report fee
• Name reservation fee
• Fees for an accountant or tax consultant
• Costs associated with renting space

Our formation plans can help get your corporation off the ground by assisting with many of the required steps.

What are the benefits of a corporation in Kentucky?

Many benefits come with starting a corporation in Kentucky. As a business type, the benefits of a corporation include:

• Protection of personal assets
• Legal recognition as a separate entity in and outside the U.S.
• The ability to issue stock (which can help with funding and capital)

However, also be aware of the disadvantages so you can make an informed decision. The primary disadvantages are the tax structure (profits are taxed at both the corporation and personal income tax levels) and having more red tape and paperwork than other structures, such as limited liability companies (LLCs).

What are the different types of corporations in Kentucky?

Corporations mainly fall into the following three categories:

• C corporation – Shareholders own C corporations and elect a board of directors to oversee operations. C corporations provide limited liability protection to the shareholders, meaning that their personal assets are usually safe from the corporation’s liabilities and debts. A C corporation is the default form of corporation.
• S corporation – An S corporation is a tax status rather than a business entity type. A C corporation or a limited liability company (LLC) can apply for this status if it meets the Internal Revenue Service’s criteria. Unlike a C corporation, S corporation earnings avoid the double taxation of a C corporation by being federally taxed only at the individual shareholder level, not also separately as a business entity. 
• Nonprofit corporation – Nonprofit corporations are organized for a purpose other than profit, such as something educational, scientific, or humanitarian. They’re usually exempt from federal taxes but must adhere to strict regulations to maintain their tax-exempt status.

How is a Kentucky corporation taxed?

How a corporation is taxed in Kentucky depends on its designation. Corporations are most commonly designated as C corporations, S corporations, and nonprofit corporations.

Kentucky C Corporation Taxation

C corporations are treated as separate entities and must file their own tax returns. In addition to this, all owners and shareholders file tax returns for earnings and dividends. This results in “double taxation.” While that might seem less than ideal, this tax structure includes some other benefits, such as more flexibility in what can be deducted and being able to operate internationally.

Kentucky S Corporation Taxation

S corporations are pass-through entities. All profits are passed through to the owners without first being taxed at the business level, thus avoiding the double taxation of a C corporation. 

Kentucky Nonprofit Corporation Taxation

Nonprofit corporations are exempt from paying federal and state taxes, provided they stay within the rules for nonprofit activity. However, anyone drawing a salary from a nonprofit corporation will pay income tax on that salary. 

Kentucky has a gross receipts tax called the Limited Liability Entity Tax (LLET) that applies to businesses with limited liability, like corporations and LLCs. Kentucky charges an LLET rate of $950 for every $1,000,000 in gross receipts or $7,500 for every $1,000,000 in gross profits, whichever is lower. The minimum LLET is $175. Visit the Kentucky Department of Revenue website for more information about additional taxes your corporation may be responsible for, including sales tax.

ZenBusiness has experts who can walk you through each step of the process as you get your business started. With our help, navigating the ins and outs of growing a business doesn’t have to be a headache.