Fact checked for accuracy by Billie Anne Grigg, a bookkeeper and Mastery Level Certified Profit First Professional.
One of the most important steps in starting a business in Kentucky is legally registering it with the state. Forming an LLC in Kentucky ensures your business is legal and follows all state guidelines. Business owners can officially start their business and form an LLC in Kentucky with the following steps.
Step 1: Choose a Name to Represent Your Company
First, choose a company name. The name you register with Kentucky will be your legal company name, including the one you use on all legal documents. Kentucky has specific requirements for choosing a name, including:
- The name must include the phrase “limited liability company” or “LLC” or “LC”.
- The name must not be in use by an existing business.
- The business’s name must not include words that connect it to a government agency, like the FBI or State Department.
- The LLC application may require additional steps if the name includes any restricted words, like Bank or University.
Step 2: Choose a Registered Agent for Your Kentucky LLC
Kentucky requires a registered agent when filing for an LLC. A registered agent is a person or business entity who claims responsibility for receiving legal documents. This is your business’s primary point of contact with the state on all legal matters. For some, this may be the business owner. However, it doesn’t have to be the business owner. You may also decide to use a Registered Agent service instead.
Step 3: File Your LLC Articles of Organization
Registering a business with the state of Kentucky requires that you file LLC Articles of Organization. Articles of Organization are formal legal documents that determine things like:
- Member rights
- Member powers
- Member duties
- Member liabilities
- Other obligations of each LLC member
You can file your Articles of Organization by mail or in person by visiting the Kentucky Secretary of State. You can also file online. When submitting these documents to the state, there is a $40 filing fee.
It’s important to note that if you’re expanding an existing business to include Kentucky, you’ll have to create a Foreign LLC.
Step 4: Create an Operating LLC Agreement
Kentucky doesn’t require an operating LLC agreement. However, it can be beneficial to use one when forming a new LLC. An operating agreement is a legal document that discusses individual ownership rights and procedures of the LLC. This agreement helps all LLC members agree on important points and legal issues related to the business.
An operating agreement should include the following:
- The legal name of the company.
- Any names that the company goes by besides its legal name.
- The legal address of the company.
- The percent of ownership for each LLC member.
- The LLC management structure, including specific roles and responsibilities.
- The decision-making process.
- The required process if a member decides to leave the LLC.
- The necessary steps if the LLC members decide to close the business for good.
LLC operating agreements don’t need to be too long or too in-depth. If there are only one or two members in the LLC, an operating agreement may not be necessary. However, if an LLC includes multiple members, being more specific can help the group manage disagreements or situations when someone may want to exit the LLC partnership.
Step 5: Receive Your Kentucky LLC EIN Number
All businesses who file an LLC in Kentucky will receive an Employee Identification Number (EIN). An EIN is a nine-digit number from the Internal Revenue Service (IRS) used for tax purposes. In some cases, an EIN may also be referred to as a Federal Tax Identification Number (FEIN).
An EIN is useful for a variety of purposes, including:
- You will need one to open a bank account for your business.
- You will need one to file both Federal and Kentucky State taxes.
- You will need one to hire employees.
Kentucky requires all LLCs to get a new EIN, even if you have EINs for other businesses or if you’re converting from a sole proprietorship. You can easily get an EIN from the IRS website. Keep track of this number because you will need it for completing legal or tax documents.
Step 6: Review Licensing Requirements
Not all business industries require professional licensing to open in Kentucky. However, it’s important to review licensing requirements to decide if they are needed for your type of business. If you plan on selling alcohol or offering regulated services like hair care, you may need to apply for licensing.
Cost to Start an LLC in Kentucky
There are a few costs involved with starting an LLC in Kentucky. It can be helpful to review these costs ahead of time, so you know what to expect. These are some of the most common costs of starting an LLC in Kentucky:
- The filing fee for the Secretary of State: $40
- Name reservation fee: $15
- Third-party fee: This fee varies depending on the third-party provider you use. It usually ranges between $25 and $200.
- Limited Liability Entity Tax: A minimum of $175, or the lesser of $0.095/$100 of gross receipts or $0.75/$100 of gross profits.
- Annual report fee: $15
The cost of starting an LLC in Kentucky is usually deductible as an expense. Because it’s necessary to do business in Kentucky, it can reduce tax liability.
What to Do After Forming Your LLC in Kentucky
The first step to legally starting a business in Kentucky is filing for your LLC. Once you have your LLC and EIN, there are a few other steps you may complete:
Set Up a Bookkeeping Process
It’s important to track income and payroll as a business owner because you’ll be responsible for reporting these costs at the end of the year. Setting up a bookkeeping process now can help you focus on important business tasks and ensure that you accurately file your taxes at the end of the year.
It can be helpful to hire an accountant to keep track of these expenses. You may decide to hire an accountant solely for tax season, or you may choose to have one manage your income and payroll all year long.
Create a Business Plan
Creating a business plan before starting can help you establish business goals and define steps to achieve them. Spend a few hours using an online template to create a detailed business plan that outlines things like key performance indicators and estimated budgets.
Buy Business Insurance
Business insurance can protect you against unexpected problems that arise. Business insurance can help cover costs like car accidents, negligence, or security breaches. Business insurance may not be a requirement in Kentucky, but it can protect you and your business if something unexpected occurs.
Open a Business Bank Account
A business account can help you keep track of customer payments and employee payroll. Legally, you shouldn’t co-mingle personal and company expenses. Many Kentucky bank accounts offer free business accounts. It can be helpful to review your options, look at interest rates, and then choose the one that best meets your business needs.
Some businesses may also decide to open a business credit card for business expenses. Of course, it’s always a good idea to consider the business needs and how a credit card may fit them. It’s also important to look at the interest rates or borrowing agreements of any business credit cards that you’re considering.
Plan for Taxes
It’s never too early to begin planning for taxes. Begin tracking your income and expenses immediately. This includes keeping receipts to use them when deducting expenses during tax season. This is another beneficial reason to work with a tax accountant, as they can help you develop a system to track these important expenses.
Create a Business Strategy
As soon as you file for an LLC and receive your EIN, you’re ready to conduct business services. Creating a business strategy can help you reach customers. Setting up a website is an excellent idea for businesses that target customers online. You may create a website using a free or low-cost web hosting platform. You may also decide to pay a professional designer to build a business website.
This is also a good time to consider marketing strategies. Consider your target customer and how you’ll best reach them. Some businesses may find success with publishing a press release.
How to Keep Your LLC Compliant in Kentucky
Once you go through all the requirements of forming an LLC in Kentucky, you’ll need to do certain things to maintain your compliance. Kentucky requires the following:
- File an annual report with the state that includes an updated list of members.
- Maintain all requirements of any necessary licenses.
The LLC Annual Report is an important requirement in Kentucky. Doing so requires that you update the names and addresses of all members, confirm the registered agent and their location, and sign and date the form. The state charges a fee of $15 each year.
In addition to these things, it can also be beneficial to update federal and state tax returns and reports and include any copies of financial statements.
Tax Filing Requirements for LLCs in Kentucky
Owning or being a member of an LLC can make your tax liabilities more confusing. An LLC in Kentucky is a pass-through tax entity which means that tax filings are dependent on individual LLC members. An LLC is not liable for taxes, and instead, the responsibility falls to the LLC members.
Kentucky does require a Limited Liability Entity Tax (LLET) on LLCs with greater than $3 million in profits. Some LLC members may request that their business pay taxes as a corporation, but this requires a special filing status.
Kentucky LLC owners and members are liable for both federal and state taxes. If you sell goods to customers, you’ll also have to keep track of sales taxes.
If your LLC does business in any other state other than Kentucky, you may have to also register an LLC in those states.
Frequently Asked Questions
Below are some related questions concerning how to form an LLC in Kentucky.
How long does it take to register an LLC in Kentucky?
The exact time frame for registering your LLC in Kentucky will depend on Kentucky’s many applications and if you have all the information you need to file already.
Registering an LLC in Kentucky can be done in as little as 24 hours. If you have all the information you need already, including the business name and your Articles of Organization, all you need to do is file the paperwork with the Secretary of State. If you file online, you can expect a response in 24 hours. If you file your LLC form by mail, it can take longer, sometimes between 2-4 weeks.
What tax structure should I choose for an LLC in Kentucky?
The best tax structure depends on different elements of your business, including how many members it has and where it receives its funding.
Most LLC owners and members in Kentucky choose to complete taxes as a sole proprietorship. A sole proprietorship is a single-member LLC. You may also file as a partnership if you have multiple members in the LLC. If you receive funding from outside investors or other LLC members, you may choose to be taxed as a corporation.
If you’re not sure about the best tax filing status for your business, it can be helpful to discuss it with a tax accountant familiar with Kentucky tax laws.
Should you hire an LLC formation service in Kentucky?
Whether or not you hire an LLC formation service in Kentucky depends on how comfortable you are with handling the process yourself.
Using a service to form your LLC can be faster and more efficient but can lead to higher business costs. It’s possible to form your LLC in Kentucky, especially since the state doesn’t have strict requirements.
However, if you’re short on time or not familiar with the exact paperwork you need, you may decide to go with a service instead. If you’re interested in using a service, check out our recommendations for the best LLC services of the year.
Filed under: Kentucky Business Guides