Corporations are a popular business type because they are treated as independent legal entities, limiting the liabilities of the owners and allowing the corporation to enter into contracts and maintain stability over time.
Corporations fall into the following three categories:
- C corporations are owned by shareholders who elect a board of directors to oversee operations. They are taxed as a separate legal entity from anyone else involved and provide the greatest protection between business and personal assets.
- With S corporations, earnings are split among shareholders and are taxed at that level only, not also separately as a business entity.
- Nonprofit corporations are tax-exempt at the corporation level (employees must still pay taxes on their salaries), require significantly more paperwork, and must adhere to strict regulations to maintain their tax-exempt status.
If you’ve decided that a corporation is the right structure for your business, read on for how to get started forming your Kentucky corporation today.
How do I form a corporation in Kentucky?
Steps to Incorporate in Kentucky:
- Name Your Corporation
- Appoint Directors
- Choose a Kentucky Registered Agent
- File the Kentucky Articles of Incorporation
- Create Corporate Bylaws
- Draft a Shareholder Agreement
- Issue Shares of Stock
- Apply for Necessary Business Permits or Licenses
- File for an EIN and Review Tax Requirements
- Submit Your Corporation’s First Report
To start a corporation in Kentucky, you must file the Articles of Incorporation with the 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 Corporation
Before you can file any paperwork, you need to decide on a business name. This might seem simple on the surface, but there are many factors to consider during the process and regulations to adhere to.
You also don’t want to overlook the importance of choosing a name for which you can reserve a matching website domain name that has not been taken. Additionally, you should consider any “doing business as” (DBA) names or trademarks you may want.
Here are some guidelines to help you through the naming process:
- 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 down your options.
- 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 “&.”
- Search your prospective business names on the Secretary of State’s website to eliminate any names that are too similar to existing businesses.
- Corporation names also cannot contain language implying they are organized for a purpose other than stated in the Articles of Incorporation.
- The name cannot suggest that it is associated with any government agency or include anything indicating it will be engaged in illegal business.
- Once you’ve narrowed down 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 to make sure your desired 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 $10 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 of Kentucky.
- If you would like to do business under a name different from your official business name (often called a “doing business as,” or DBA, name), you will need to file a Certificate of Assumed Name with the Secretary of State and pay a $20 filing fee.
- Once you have 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 $15 filing fee. The reservation will be good 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.
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 board of 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 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 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 the commonwealth of Kentucky. The 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 of the initial puzzle pieces are in place, you are ready to file your Articles of Incorporation to register your business with the commonwealth officially. In this document, you will need to include:
- The name of your business (including the suffix designating that it is a corporation)
- 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
Once you’ve filled out the form, you will mail it to the Secretary of State with a check for $50, made out to the “Kentucky State Treasurer.” $10 of this fee is an organization tax fee for 1,000 shares of stock or less. 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 will need to contact the Secretary of State’s office to determine your total filing fee.
The address to mail the form is:
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 should 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 are 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 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 is 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 Permits or Licenses
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:
- Federal licenses may be required if your business activities are supervised or regulated by a federal agency.
- Occupational licenses may be required for certain businesses.
- Environmental licenses or permits may be required by the federal, state, or local government, depending on your business activities and whether you do anything involving construction or manufacturing.
- Many cities and counties require a local business license, so you should check with your local government.
Building or zoning permits is also something to check into, especially if you are renovating.
Step 9: File for an EIN and Review Tax Requirements
Corporations are generally regarded as unique entities separate from the people involved in them. As such, you will need to acquire an Employer Identification Number (EIN). This number acts like the corporation’s Social Security number for tax purposes.
Visit the 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 will 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.
Step 10: Submit Your Corporation’s First Report
In Kentucky, all corporations are required to file an annual report to update information with the commonwealth. You should expect to receive a reminder postcard in January and will have until June 30 of that year to return the completed postcard or complete your annual report by filing online with the Secretary of State.
Information you will 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 registered agent and office
In addition, you will need to submit a $15 filing fee. If you fail to file the annual report and pay the $15 fee, the commonwealth can dissolve your corporation in 60 days.
How much does it cost to start a corporation in Kentucky?
The exact cost of starting a Kentucky corporation will vary depending on the size and type of business and where it is located. You will need to pay the $50 fee for filing the 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
- $15 annual report fee
- $15 name reservation fee
- Fees for an accountant or tax consultant
- Costs associated with renting space
ZenBusiness can help get your corporation off the ground by assisting with many of the required steps for a low annual fee.
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, there are disadvantages you should also be aware of to make an informed decision. The disadvantages are the tax structure (profits are taxed at both the corporation and personal income tax levels), and there is a lot more red tape and paperwork involved than other structures, such as limited liability companies (LLCs).
How is a Kentucky corporation taxed?
How a corporation is taxed in Kentucky depends on its designation. Corporations may be designated as a C corporation, an S corporation, or a nonprofit.
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, there are some benefits to this tax structure, including more flexibility in what can be deducted.
S corporations are pass-through entities. All profits are passed through to the owners, who must pay on their individual income taxes.
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.
Kentucky Corporation FAQs
- Does running a corporation in Kentucky involve more paperwork than running other types of businesses?
Corporations are known for requiring a lot more paperwork and record keeping. This is not surprising, considering they tend to have more laws to comply with and usually more people involved. Consider bylaws, shareholder agreements, keeping track of all stock issuances, meeting notes, etc., and the paperwork can add up pretty quickly.
- What is the difference between an LLC and a corporation in Kentucky?
LLC stands for limited liability company. This type of business structure is a pass-through entity for tax purposes, and, like a corporation, it is useful in keeping the owners’ assets separate from business assets. However, LLCs do not have a board of directors and do not issue shares.
- How do I change my corporation’s name in Kentucky?
To change your corporation’s name, you will need to file the Articles of Amendment with the Secretary of State and pay a $50 filing fee.
- How many people are needed to form a corporation in Kentucky?
It takes just one person to form a corporation in Kentucky as the incorporator.
- Can I form my Kentucky corporation online?
Yes! By using Kentucky’s One Stop Business Portal, you can take care of all of your business filings online, including initial registration.
- How do I dissolve my Kentucky corporation?
To dissolve your corporation, you will need to file the Articles of Dissolution. There are different forms and fees for this, depending on whether your corporation is being dissolved by the incorporators or initial directors ($40), by the board of directors or shareholders ($40), or whether your corporation is a nonprofit ($5).
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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.