How to Start an LLC in Kentucky
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When forming an LLC, the business structure provides personal asset protection, which is a big perk. Paying federal taxes and state taxes as an LLC is fairly simple too. No matter what your reason for selecting an LLC or other type of business like sole proprietorship or corporation, follow this step-by-step guide to get the new business set up in the state.
Kentucky is known for the Kentucky Derby, bourbon, and its famous green grass. Yet, it is also the home to the Corvette, KFC, Texas Roadhouse, and a host of large-scale museums including Noah’s Ark and The Creation Museum. Primary industries in Kentucky include food and beverages, manufacturing, plastics and rubber, aerospace, and primary metals. Kentucky produces the most beef east of the Mississippi River. Other top-producing crops are corn, hay, wheat, and soybeans. Despite all the farmland, it’s manufacturing that brings in the most money to the state. It accounts for one-fifth of the state’s gross product. Its main export is transportation equipment, which made up $17.6 billion in exports in 2018. Such diversity offers a lot of opportunities for those who want to start a limited liability company in the state. We’ve created a guide to get you started so your LLC can launch well right out of the gate.
Name your LLC
Are you sure your proposed name is unique? Check it out by using the free business search tool. Names that show up are unavailable. If your chosen name doesn’t appear, it’s yours to claim.
For LLC formation, Kentucky requires that businesses have names that are unique from other businesses. That means your business name has to both look and sound different from everyone else’s name
Check name availability
To see whether your proposed business name is unique, visit the Kentucky Secretary of State’s website. You can search for business entities in the state for free by entering your proposed name into the name search tool.
A list of similar businesses will generate and that tells you whether someone else has already registered your proposed business name. You may need to try several different names before finding clear name availability.
Consider what makes a name memorable
It takes some thought, and maybe even some market research, to pick a good business name. A good business name should be easy to pronounce, simple to understand concerning the business, and one that is memorable. After all, you want people to remember your business to refer to others.
Those who need some extra creative help in picking a business name can try using a business name generator. These are automatic services that push out a list of possible names based on the information you give them. Names chosen are shown to be available in the state you’re registering your business in too so that makes it easy to get set up.
You can validate that the name can be claimed by inserting it into the free tool to make sure it’s available.
Once you find a name you want, you can file a name reservation with the Kentucky Secretary of State’s office so no one else can use it while you set up your business. However, you can’t submit a reservation request online and must submit it in writing. The name reservation cost $15 and is good for 120 days. Payments are made by check or money orders.
Check on a domain name too
Ideally, your business name will match the company URL or domain name. Entrepreneurs should check into domain names before registering with the state.
Select a registered agent
Every Kentucky business needs to identify a registered agent to accept legal documents, like service of process, for the business.
Kentucky has a few regulations on who can be a registered agent. Being a registered agent is a legal designation as the sole purpose is to be able to receive court documents and be served in a legal case.
Registered agents in Kentucky must:
- Be at least 18 years old
- Be a Kentucky resident
- Have a physical street address that can be shown publicly (not a P.O. box)
- Be available to accept documents during normal business hours
It is legal for a business owner, a family member, an employee, or a trusted friend to serve as a registered agent as no special skills are required. However, many choose to list an attorney in that capacity because it involves legal action. Plus, you don’t want to put stress on your family, friends, or yourself if you’re running a business.
Some hire a registered agent service. Many individuals do this as a private practice and larger business service companies offer it as one of their services too. Nationwide companies, like ZenBusiness, Northwest Registered Agent, and Bizee do business in every state and have other functions that can make it easier to get your business going.
Other services typically offered by large professional business companies include getting your EIN. registering your business with the state, and getting you listed with the state revenue department.
File Articles of Organization
A new business must have Articles of Organization filed with the State of Kentucky. You can file these electronically along with a doing-business-as (DBA) name and other required paperwork with this form.
Kentucky wants specific information listed on the Articles of Organization in Kentucky including:
- A business name
- The name and physical street address of its registered agent
- The primary mailing address for the business
- Whether the LLC is managed by its members or a manager
- The date application is effective
You can find out more about Kentucky’s process for filing formation documents here.
The filing fee for filing Articles of Organization to create an LLC in Kentucky is $40. Checks should be made to the Kentucky State Treasurer.
Kentucky processing time
Kentucky has one of the fastest processing times with many business registration requests processed on the same day as they are filed. It can take up to three days to process a request, depending on the volume.
Create an LLC operating agreement
Operating agreements are not mandated in Kentucky. Yet, creating one is still a good idea for many reasons. The primary reason is an operating agreement holds a higher place in court than state law. That means you and your LLC members can dictate how things like transferring a member’s interest are handled and your decisions would hold merit over state law if ever questioned.
Settling these types of issues up front among LLC members is the best option because it prevents assumptions and identifies expectations.
An operating agreement should be highly detailed and include elements like:
- Lists primary activities of the LLC
- Defines and identifies decision-makers
- Voter rights
- Member interest transfers
- Initial contributions
- Profit and loss management
- Management structure (like member-managed, manager-managed)
- Bookkeeping methods
- Dissolution procedures
Running a business can involve a lot of daily tasks and most of that, at least in the beginning, involves getting all the correct filings into various governments for taxes, business licenses, and certifications.
Get your EIN
Practically every business, except for sole proprietorships, will need an employer identification number (EIN). This is a number that identifies the business to the Internal Revenue Service (IRS). You will need this number to do anything with the business like hire employees, file taxes, and open a bank account. It is like a business Social Security number.
It’s easy to get an EIN online from the IRS. The IRS will issue your business EIN immediately after you answer some basic questions such as what type of business it will be, your industry, and the names of the LLC owners. It’s a simple process that only takes a few minutes.
Any new Kentucky business will also need to file with the Kentucky Department of Revenue for a state tax number. This allows you to pay state sales taxes, corporate taxes, and any state employee withholding tax. You can do this through the Kentucky OneStop Portal.
You can get your EIN by visiting the IRS website.
Open business bank accounts
Now that you have your essential tax identification numbers, you can open a business bank account. It’s important to have an operating business bank account to accept checks, set up your merchant processing, and pay vendors. You will also need a good banking relationship established to take out loans and obtain business credit cards.
A business should have a savings account as well as some business credit cards to help during times when cash flow is slower. That can help keep vendors paid and help with salaries until the season picks up again.
Attending the financial part of your business is crucial because you will need to report to other LLC members and also make everything available to the IRS when you file taxes. The most important part of business accounting is to keep your company’s money separate from personal money. The IRS and the state taxation department see intermingling money as a violation.
Separate accounts also make it easier to manage and track business expenses. You may want to look at some good accounting software, like Quickbooks, to help too. There are both free and paid versions of many types of accounting software available online.
Review LLC tax rules in Kentucky
For tax purposes, most LLCs are pass-through entities, so taxes are paid via the owner’s tax returns. The LLC itself doesn’t file tax returns, you’ll just file personal tax returns.
Kentucky has a 5% rate for corporate income tax. It ranks 18th on the 2022 State Business Tax Climate Index produced by Tax Foundation.org and that puts it as one of the best states to do business in as far as taxes are concerned.
The state does not charge a franchise tax.
Sales tax in Kentucky
The state also has a 6% sales tax but local governments have no sales tax in Kentucky.
The Kentucky Small Business Tax Credit program gives between $3,500 and $25,000 annually back to small businesses hiring and keeping at least one new job over the past year or purchasing at least $5,000 in qualifying technology or equipment.
The Kentucky Reinvestment Act offers tax credits for numerous businesses that invest in eligible equipment. Those investments start at $1 million and have qualifying conditions.
The state has many other tax incentive plans that small and large businesses can take use to put money back into the business. More information about all the state’s programs can be found here.
File an annual report
Kentucky requires all businesses to file annual reports. They can be filed online and have a June 30 deadline. The cost of filing an annual report is $15.
The state mandates that businesses file annual reports to keep the state updated on any changes made to the business, like a change in the registered agent or LLC members. Filing the report on time keeps you in good standing with the state.
Those who don’t file on time will be given a notice by the state that it has 60 days to file its report before the state dissolves or revokes its business registration.
Other states call an annual report a Statement of Information.
A Kentucky annual report can be filed online at the Kentucky Secretary of State’s website.
Get insurance for your LLC
Insurance is an important aspect of setting up a business. You need insurance to protect your LLC, its members, and yourself in case anyone sues, there is damage from weather or any other unexpected issue.
Kentucky doesn’t require commercial liability insurance. However, given Kentucky’s laws regarding blame and relief, every business should have it. Kentucky is a comparative negligence fault state. That means someone suing can still recover money even if that person is mostly to blame. Kentucky has no personal injury caps so a business can go bankrupt if sued unless it has insurance.
Kentucky is a state that’s strict about worker’s compensation insurance. Any business with one or more employees must have it. Family members working for you are not exempted. Businesses formed outside Kentucky that are doing business in the state must have Kentucky worker’s compensation coverage.
Other types of insurance a business should have are auto insurance if it has company vehicles, and property insurance to cover the cost of the building and its equipment in case of theft, vandalism, or weather damage.
Kentucky requires auto insurance coverage but doesn’t require other types of insurance. However, a landlord may require you to provide proof of insurance for your rental building and equipment as part of a lease agreement. It’s always safer to have insurance to cover any possible loss.
Additional resources to help you set up a business in Kentucky
Kentucky has several resources that contain valuable information for anyone starting a business. Some of the resources include:
Is Kentucky considered a good state to start a business?
CNBC ranks Kentucky as 26th in the country for doing business. It cited the state’s innovative tax incentive programs as a reason for the ranking. The state offers flexible financial assistance to many businesses choosing to either locate or expand in the bluegrass state.
What does Kentucky consider a small business?
Kentucky defines a small business as a company with fewer than 500 employees.
What is the LLET tax?
LLCs in Kentucky are required to pay a Limited Liability Entity Tax (LLET). The LLET is figured by using either the gross receipts or the gross profits, whichever is lesser. The minimum tax is $175 regardless of the method.
How do you pay corporate taxes in Kentucky?
The easiest way is to pay your Kentucky taxes using e-filing. You can pay your taxes using a credit card or directly from your bank account. You will need to register to use the service and provider fees apply. You can also mail your payment to the Kentucky Department of Revenue.
What are some good businesses to start in Kentucky?
Data suggests that those who plan on going into logistics and distribution could do well. Other opportunities exist in food sales and restaurants, bourbon sales and production, and farming. One area of need is daycare. Working mothers need places that are safe to place their kids.
What jobs are most in demand in Kentucky?
The hot jobs in Kentucky now are home health aide, physical therapist assistant, operations analyst, and physical therapy aide.
What jobs pay well in Kentucky?
Some of the higher paying jobs are machinist or mold maker, some sales manager positions, registered nurses, and visual merchandisers. Senior payroll administrators and personal bankers also have higher than median salaries in Kentucky.
What are the best places to start a business in Kentucky?
The bigger, more well-known cities are going to offer the best chance at success for startups. That includes Louisville, Lexington, Owensboro, and Bowling Green where businesses are already doing well and the population has a higher income level.
What is the average salary of someone self-employed in Kentucky?
The average salary for those owning and working at their incorporated business was $48,527 in 2017, which is the last number available. Those who own unincorporated companies make less with a median salary of $21,749, according to figures.
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