Thinking of launching your business as an LLC? Kentucky recently ranked top in the nation for its cost of doing business according to CNBC, so the Blue Grass state could be the place for your new venture.
Kentucky’s Cabinet for Economic Development also boasts that the commonwealth has innovative and progressive tax incentive programs along with three international air shipping hubs. And just as Kentucky is friendly to business, so is a limited liability company (LLC). LLCs combine the flexibility and tax benefits of a sole proprietorship with the personal liability protection of a corporation.
Still, starting an LLC in Kentucky requires some patience and paperwork. If you’re a new entrepreneur, the red tape can seem as long as the 400-Mile Sale.
That’s where we can help. In this article, we’ll show you how to start an LLC in Kentucky. We’ll also point you to some of our services that can cut through the red tape.
Before we get started, we want to let you know that this guide is for only domestic (in-state), for-profit LLCs. If you want to start a foreign (out-of-state) LLC, a professional limited liability company (PLLC), or some other business entity, you may need to follow different steps that aren’t covered here. But if you’re ready to form a domestic LLC in Kentucky, read on.
To start an LLC in Kentucky, you first need to name your business. Kentucky has rules about what you can and can’t call your business. This is because customers can confuse companies if the names are too similar. Naming rules allow companies to compete against each other more fairly.
So what are the Kentucky business naming rules?
First, the name needs to be distinguishable from all the other business names in the commonwealth. Adding additional inconsequential words to the name (like “the” or a different entity designator) doesn’t make it distinguishable.
In Kentucky, that means that if “Rose Water LLC” is taken, then so is “The Rose Water LLC” or “The Rose Water Corporation.”
Here are some other essential naming rules to keep in mind:
You can check to see if your business name is available by contacting the Kentucky Secretary of State via phone, email, or the online contact form. Or, you can use our Kentucky business name search page for instructions for checking business name availability.
Note that checking the availability of the name doesn’t guarantee that it will be available when you register your business. Nor does it mean that it will be available when you’re ready to form your company. All it does is let you know if it’s available as of when you check.
You officially reserve a business name when you file the paperwork to start an LLC in Kentucky or by completing the name reservation process. Let’s go over the name reservation process now.
The name reservation process is a way for you to snag your choice of a business name before establishing the business. Knowing that the business name is yours can give you peace of mind while you prepare to take the next step in creating the company. You can use this extra time and space to hammer out the rest of the details.
Kentucky allows you to reserve a business name for 120 days for a small fee. You can renew the name reservation for another 120 days for an additional cost.
Naming your business is an essential step on your entrepreneurial journey. While there is no magic formula for coming up with the perfect name, here are some things to keep in mind:
A good name says what your company does and what it stands for memorably while meeting the state’s naming requirements.
Having a domain name (preferably, the “.com” version) that matches your business name can make a big difference. Customers need to know the name of your business. If you call your business The Kentucky Derby, LLC (just kidding; that one’s taken) and the domain is chocolate.com, it may be difficult for people to find you.
Check if your business name is available as a domain name and, if not, what names are available. This process can also help you search for the perfect name.
The state-level search doesn’t take into account trademarks. The state could approve your LLC’s name and you could spend big money on signage, business cards, advertising, etc. only to have someone serve you notice that you’re infringing on their trademark.
To see if any words in your LLC name are trademarked on a national level, do a search at the U.S. Patent and Trademark Office website. You can also try applying for a federal trademark of your own, but this can be a long and costly process. Getting a state trademark is simpler and less expensive, though it applies only within the state’s borders.
To see if your name is trademarked at the state level, go to the Trademarks and Service Marks section of the Kentucky Secretary of State website.
Want to change your business name? No problem. The Kentucky government lets you adopt an assumed or doing business as (DBA) name for your business — without having to dissolve and reform the company.
With an assumed business name, you can shorten your business name by removing the designator at the end. For example, you can change it from Awesome Business, LLC to Awesome Business. Or you can change the name altogether.
You can also have multiple assumed names to represent different aspects of your business. Assumed names still need to be different from the names of other Kentucky businesses and meet the other naming rules.
You can get into big trouble if your LLC does business under a name that’s not registered with the Kentucky Secretary of State. The Kentucky government may impose fines or keep you from doing business in the commonwealth.
Check out our helpful guide on How to Get a DBA Name in Kentucky.
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The next step in how to get an LLC in KY is selecting a registered agent for your business. A registered agent is a person or entity that receives official or legal communications on behalf of the company.
For example, if someone sues your business, the registered agent receives the legal paperwork on behalf of the company. Likewise, the person receives certain government notices and other official paperwork on behalf of the company. They collect the information and pass it on to the business.
There are four main requirements to be a registered agent for a business:
Remember that the registered agent must accept the appointment in writing by filing the acceptance form with the Kentucky Secretary of State. If you skip this step, the appointment isn’t valid, and your company can be in bad standing with the government. Or, the Kentucky Secretary of State may reject your filing.
You can act as your business’s registered agent or have a friend do it for free. But there are advantages to hiring a professional registered agent service:
Our Kentucky Registered Agent Service matches you with qualified professional registered agents in the Bluegrass State. We store all the business documents you file with or receive through us on your convenient dashboard — goodbye to wasting your Saturday tearing apart your office to find your legal documents. We’ve got you covered.
Filing the Articles of Organization is the next step to forming a Kentucky LLC. The Articles of Organization is your company’s birth certificate. It proves that your business exists, says what its name is, and gives other important information.
The Articles of Organization is a form that you file with the Kentucky Secretary of State. The Articles of Organization is the document that, when accepted by the Secretary of State, means that your business is official.
When you file the Kentucky Articles of Organization, you will need to have the following information:
The LLC Organizer files the Articles of Organization. Their sole job is to ensure that the Articles of Organization is filed on time and contains the correct information. You or another member or manager of the LLC can act as the LLC organizer. You can also use a professional service, like our Business Formation Service, to file the Articles accurately and appropriately.
As of this writing, the Kentucky Secretary of State charges a $40 filing fee for you to file the Articles of Organization. There are additional filing fees if you want to expedite the filing process or need to file an amendment or another form.
Protect your investment by using our Worry-Free Compliance service. Let our expert team keep track of and file your ongoing paperwork with the Secretary of State.
A limited liability company can be managed by its members (member-managed) or managers (manager-managed). Whoever manages the LLC can or must be involved in important decisions, like accepting investments or new members.
For a single-member LLC, you may keep it simple and have the LLC be member-managed. If you have or plan to have more than one member, you may want to have the managers manage the LLC. Having the managers manage the LLC simplifies holding votes and ensuring all members are present for management meetings.
We made our Business Formation Service with business owners like you in mind. We know that you probably have better things to do than to sit around and fill out paperwork. At the same time, you understand that you need to follow certain steps to set yourself up for success. That’s where we come in. We have it down to a science, saving you time and money while you begin your dream business.
As your business grows, its information can change. Maybe your company started as a member-managed LLC, but you want to transition to a manager-managed LLC. You can make changes by filing an amendment to the Articles of Organization. Help make sure it’s done right by using our Amendment Filing Service.
Write an operating agreement for your Kentucky business. An operating agreement is an internal document that lays out how to run the LLC. It answers questions like:
It’s not uncommon for small business owners to be tempted to forgo writing up an operating agreement. After all, they may think, “It’s going so well. Why do I need to talk to everyone about all this legal stuff? Won’t that jinx it?”
Unfortunately, most business disputes, especially those involving new or small businesses, stem from the same thing: misunderstandings. In many cases, everyone could have avoided the misunderstanding by simply putting an agreement in writing.
Do it right the first time and write an operating agreement.
An operating agreement is a good idea, even if you’re the only member. Potential investors, future business partners, and vendors may want to see your operating agreement.
It’s additional evidence that your business is real and separate from you (much like evidence that you have a business and a personal bank account). An operating agreement also indicates how everything is to be handled if something happens to you and you can’t run the business anymore.
Feeling unsure as to how to create an operating agreement for your LLC? We offer a guided customizable template to help get you started. Our chatbot walks you through the process of creating your agreement and allows for e-signature of the document.
Apply for an Employer Identification Number (EIN) with the federal government. An EIN acts like your business’s Social Security number. A federal EIN can be used to open a bank account, hire employees, and pay taxes. Kentucky refers to the state tax ID as the Commonwealth Business Identifier (CBI).
You get a Federal EIN by applying with the IRS. You can do this online or by mailing in a form. Note that if you file online with the IRS, you must complete the process in one sitting. The IRS cautions that you can’t save the form and go back later. Make sure you have all your business’s information ready when you file to save time.
If you’d rather deal with the IRS as little as possible, we can get your Employer Identification Number for you. Our EIN service is quick and eliminates the hassle.
As we discussed, you’ll need to register with the Kentucky Department of Revenue to get a CBI. You do this after you have an EIN from the federal government. You accomplish this by filing a separate form online.
Before you’re off to the races, you must sign up for workers’ compensation insurance if you intend to have employees. In addition, you have to register to pay payroll taxes, sales taxes, unemployment taxes, and other filings.
Some Kentucky businesses must also register for special tax applications, like motor vehicle usage and business personal property taxes.
The LLC business structure was created to be flexible, and one of those flexibilities comes in how you can choose to have your LLC taxed. One method of taxation could save you thousands over another method, so you’ll want to consider this carefully before you start an LLC in Kentucky.
By default, you’re taxed as a sole proprietor if it has only one member or a partnership if it has multiple members. This appeals to most owners of LLCs because it avoids the “double taxation” of C corporations (the default form of corporation), in which a business pays taxes at both the business level and again when the income is paid to the individual owners. But some LLCs opt to be taxed as a C corporation or an S corporation because it works to their advantage.
Being taxed as a C corporation does mean facing double taxation, but, for certain LLCs, the pros can sometimes outweigh the cons. C corporations have the widest range of tax deductions, which could be an advantage in some scenarios. For example, the cost of certain benefits can be written off as a business expense.
S corp is short for “Subchapter S Corporation” and is geared toward small businesses. Having your LLC taxed as an S corp has pass-through taxation like a standard LLC, but there’s another potential advantage: It could save you money on self-employment taxes.
It does this by allowing you to be both an owner and an employee of your LLC and split your income into your salary and your share of the company’s profits. In this way, you pay self-employment taxes on your salary, but not your profits.
The drawback is that the Internal Revenue Service scrutinizes S corps closely, meaning you’re more likely to get audited. S corps are also harder to qualify for.
While it’s possible that one of the above options could work better for your LLC, we don’t need to tell you that taxes are very complicated. They’re also very specific to your situation. That’s why you really need to consult a tax professional to see which taxing method works best for your Kentucky LLC.
If you do decide that filing as an S corp is right for your limited liability company, we have an S corp service that can help you do that at the time of your formation.
Ready to set up shop in Kentucky? We’re here to help you understand how to get an LLC in KY and help you get it done with our free LLC service. Create a LLC in Kentucky with confidence by using our expert-backed services. We’ve helped over 500,000 people like you start, manage, and run their businesses.
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When it comes to business licenses and permits in Kentucky, the commonwealth doesn’t have a general statewide business license that you’re required to have. But some Kentucky cities and counties require businesses to register for a general business license to operate in that area.
It’s likely that your LLC will require other licenses and/or permits, as well. For example, suppose you decide to start a commercial animal feed manufacturing business in Kentucky. In that case, you’ll need to get a Commercial Feed Manufacturing Facility Registration from the University of Kentucky College of Agriculture.
Likewise, if you want to manufacture, distribute, or sell automobiles, you may have to get one of these licenses from the Kentucky Motor Vehicle Commission:
Save time and money with our Business License Report. Through our partnership with Avalara, we streamline the process of finding out what licenses and permits you need to run your business legally.
The state fees for forming an LLC in Kentucky start at $40 for the Articles of Organization. After that, you could pay additional state fees to file for an assumed name, change your registered agent, amend the Articles of Organization, or file other necessary business paperwork.
The Bluegrass State is a business-friendly, low-cost-of-living kind of place. The Tax Foundation rates Kentucky as 13th in the nation for its low sales tax and 15th for its corporate tax, giving it an overall ranking of 18th in the country.
As a bonus, LLCs allow business owners to forgo certain formalities that a corporation would have to comply with. Likewise, they can enjoy the personal liability protection of a corporation with the option to avoid the double taxation of a corporation.
LLC members in Kentucky will need to pay taxes at the state and federal levels (and sometimes local). With each, there are multiple elements to consider, so we’ll address them separately below. For local taxes, you’ll need to consult your local taxing authorities.
By default, if your LLC consists of one person, it’s taxed as a “Disregarded Entity,” meaning it’s taxed as a sole proprietorship. This means that profits aren’t taxed at the business level, but only when they “pass through” to become your income.
If your LLC has more than one member, it’s taxed as a partnership by default, which also means the income is taxed at the individuals’ level and not the business’s. This avoids the “double taxation” that corporations pay, in which profits are taxed at the corporate level and again when they’re paid out to the owners (“shareholders”).
Single-member LLCs don’t have to file a separate federal return for their LLC; they report the LLC income on their personal income tax return (Form 1040). But LLCs with multiple members must file a separate federal return for the LLC, Form 1065. Then each LLC member reports their share of the profits on Schedule K-1 and attaches it to their own personal federal tax return.
Members of LLCs can also elect to be taxed as corporations. Some LLC members choose to classify their businesses as an S corporation or a C corporation, which can be advantageous in some cases. In particular, many LLCs elect to be taxed as S corporations because it can seriously lower their self-employment taxes. You can learn more on our What Is an S Corp? page.
There are also a few other forms of federal taxation to keep in mind. For example, you will likely need to pay certain kinds of employment taxes, such as Social Security, Medicare, and unemployment.
At the state level, every LLC must register with the Kentucky Department of Revenue and pay the Limited Liability Entity Tax (LLET). The amount of LLET is based on the amount of business a company does in Kentucky, which is measured by the company’s Kentucky gross receipts or profits.
However, if either the total gross receipts or total gross profits of an LLC amount to $3 million or less, the company only pays a $175 minimum LLET.
Other Kentucky taxes may include:
The best way to find out everything you need to know to file your taxes correctly is to talk to a licensed tax professional. Taxes are complicated, and no two situations are identical.
The Kentucky Secretary of State strives to process documents on the day that it receives the forms, but it can take up to an additional three business days. Note that the Kentucky Secretary of State doesn’t have an option to expedite the filing time.
You don’t need to file the LLC operating agreement with any government agency. As we discussed before, the operating agreement is an internal document that you keep on file in your business’s records.
That’s going to depend on your individual circumstances and goals. Most LLCs elect pass-through taxation, where the LLC’s members are only taxed on their earnings at the individual level without first being taxed at the business level.
If you choose to be taxed as a C corporation (the default form of corporation), you’ll be taxed twice on your profits — once at the entity level and then at the individual level when you file your personal tax returns. Despite this double taxation, certain LLCs may benefit from this tax structure, as it has the most possible deductions.
Being taxed as an S corporation also has pass-through taxation, but it allows LLC members to earn money from the business both from its profits and by being paid a salary. In some instances, this could reduce the self-employment taxes members pay because they would pay the Social Security/Medicare portion of their taxes on their salary, but not their share of the LLC’s profits.
Kentucky doesn’t allow you to form a series LLC. This business structure has an “umbrella” LLC under which one or more LLCs are organized. It’s a relatively new way to structure an LLC, and not all states allow them at this time.
To dissolve your Kentucky LLC, you file the Articles of Dissolution with the Kentucky Secretary of State. Instead of using the state’s form, you can draft and file your dissolution agreement, so long as it meets the requirements set out in Kentucky law. You’ll also need to follow any rules for dissolution established in your LLC operating agreement.
You can transfer ownership of your Kentucky LLC using the methods in your company’s operating agreement. If you don’t have an operating agreement, you can sell all or part of your ownership interest in the LLC. You accomplish this by drafting a buy-sell agreement. The buy-sell agreement is a contract where existing LLC members agree to buy and you agree to sell some (or all) of your ownership interest.
The other option is to dissolve the LLC and immediately form a new one. You might decide to do this if multiple members leave at once and you don’t have an operating agreement.
You can get an assumed name or DBA by filing for a Certificate of Assumed Name. The name can’t be reassigned to another LLC once the Certificate of Assumed Name is filed and accepted. But you can withdraw or amend the assumed name later.
You can remove a member using the method provided in the operating agreement. If you don’t have an operating agreement, you may seek a court order to remove the member in some circumstances. Another option is to enter a buy-sell agreement to purchase the member’s remaining ownership interest in the LLC.
Yes, you need to file a Kentucky annual report each year. The state filing fee for the annual report is $15 as of this writing. You file this annual report yearly to keep your LLC current and in good standing with the Kentucky Secretary of State.
Our Annual Report Service can handle this process for you every year.
Having a business plan in place isn’t a legal requirement. But it’s an excellent idea to have one. Business plans help entrepreneurs develop strategies to set up new companies for success.
Without a business plan, it might be hard for you to persuade others to invest in or join your business.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Written by Team ZenBusiness
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