How to start an LLC in Kentucky in 7 easy steps
It isn’t all fried chicken and racehorses in the Bluegrass State. Thousands of entrepreneurs start businesses in Kentucky every year, taking a spot in their unique winner’s circle. If you’re one of them, your path begins with forming an LLC.
A Limited Liability Company (LLC) is one of the most common business entities owners choose to get their businesses off the ground. It is a flexible format that lets owners limit their personal liability and protect personal assets separate from their businesses. It also allows them to choose how they want to pay federal and state taxes. It’s no wonder it’s such a popular structure for many new businesses.
If an LLC is suitable for your venture, forming one is straightforward. While there are some paperwork hurdles to leap and LLC insurance to complete your journey, you can have a registered LLC in Kentucky in no time. Just follow these 8 steps:
1) Check if your business name is available
Before you can register your business, you’ll need to do a bit of research to find whether another company is already doing business in Kentucky with your name. The Kentucky Secretary of State’s OneStop portal handles business name searches and name registration--and the agency only registers new companies with unique names.
First, list a few names you’d like for your new business and perform a search to see if someone has already registered that name in Kentucky. While you’re at it, check to make sure you can secure an internet domain and social media channels with your new business name.
There are some limits on the name you’ll be able to choose. Very similar names are not allowed. Possessive, hyphenated, or plural versions of your name will not cut it to make your name unique. For example, Frankfort’s Bourbon and Frankfort Bourbon are not distinguishable.
LLCs in Kentucky must also add the LLC designation to the end of their names. You can use:
- LLC or L.L.C.
- LC or L.C.
- Limited Liability Company
- Limited Company
- Ltd. Liability Company
You may not use the word “cooperative” without the office of the Secretary of State’s approval. There may be other limits on professional terms and associations.
You don’t need to use your LLC name when you’re doing business in Kentucky. You could choose a “doing business as” (DBA) name, also known as a trade name. Filing a DBA in Kentucky will let your LLC set up bank accounts, take payment, and prevent others from utilizing your DBA name.
To use a DBA name, fill out a Certificate of Assumed Name after logging into your account on OneStop. You must refile this registration every 5 years and pay the $20 fee. Checking both federal and state trademarks will further ensure you’re the only business in your industry using your business name. You’ll want to consider registering trademarks if you’re going to keep it that way.
If you’re not ready to form your LLC, you can reserve your name for 120 days by filing a Reservation or Renewal of Reserved Name form for $15 and filing through OneStop or mailing the form to the Secretary of State’s office in Frankfort.
2) Claim your name
When it’s time to register your business, you’ll file your Certificate of Organization with the Secretary of State. This deceptively short form is vitally important to LLC formation. It sets up your LLC in Kentucky. You’ll need to know:
- Your LLC Name
- Street address of your LLC’s initial registered office
- The registered agent at that office
- The mailing address of the LLC’s initial principal office
- Whether your LLC will be managed by a single manager or by its members
Pay the state fees of $40 and upload the signed form to OneStop or register via mail. You won’t need to renew your Articles of Organization.
A Kentucky registered agent will receive legal documents like service of process on behalf of an LLC located in Kentucky. They will also be the first point of contact for state updates about your business, regulations, and requirements. An LLC can name its owner or any employee as its registered agent as long as they are a resident of Kentucky over 18 years of age.
Kentucky LLCs need a registered office, which is not a P.O. Box, in Kentucky. This should be the same as your registered agent’s business office. However, you can always change your registered agent or office. Your LLC can also make use of a registered agent service. A professional agent will provide a physical address and be present during business hours to handle communication about your LLC. This is useful for part-time residents, businesses with unusual hours, or a foreign LLC owner.
3) Write your LLC operating agreement
The Secretary of State will not require you to file an operating agreement for your new Kentucky business, but experts recommend you make one anyway. An operating agreement is an internal document that you make to protect yourself and your interest in your Kentucky LLC.
Small LLCs often overlook this step because they see no use in making a contract with themselves. They may also feel confident in informal, verbal agreements with other business owners. In either case, putting your company’s policies in writing can protect you in multiple ways:
- It may be necessary if you’re seeking investment or a business loan
- It defines the roles of members and managersIt clarifies existing verbal agreements between members
- It strengthens liability protection and demonstrates that you intend your business to be a separate entity
- It communicates that your LLC will not always default to the rules of Kentucky if that’s what you want
- It allows you to state that you own your LLC and 100% of its profits and losses
What should you include? Think ahead and don’t limit yourself to these provisions. Instead, consider your specific business needs as you grow, hiring employees and courting investors:
- How investors are treated and what decision-making power they have over operations, hiring, etc.
- Percentage of members’ ownership
- How you can add new members
- Voting rights and responsibilities
- The roles of members and managers
- The distribution of profits and losses
- Procedures for succession in the case of member buyout or death
- Rules for the dissolution of the LLC4
4) File your Annual Report
Kentucky requires you to file an Annual Report, sometimes called a Statement of Information, about your company’s activities during the previous year. Filing on time is vital to keeping your business in good standing in Kentucky. Luckily, it’s a simple process you can complete online or mail and pay the $15 filing fee. When you file online, processing your report is instant. Because there is no set processing time if you file by mail, doing the paperwork online is preferable.
You must file your annual report between January 1 and June 30 every year. If you don’t file, the state will send you a notice that you are delinquent. If you don’t heed the warning and file within 60 days, you risk the dissolution of your LLC.
An annual report will ask your business name, registered agent, updated names, addresses, titles, and signatures. Each year, you’ll renew this information.
5) Pay your taxes
By default, an LLC is a pass-through entity. That is, your LLC will not pay business tax, but its members will file state and federal tax income tax returns with the Internal Revenue Service (IRS) on their earnings. For example, an LLC with a single owner will file taxes like a sole proprietorship.
While there is no separate filing requirement for an LLC at the federal level, Kentucky does have an additional state filing requirement. LLCs here pay state tax, called a Limited Liability Entity Tax (LLET), which you may calculate one of two ways. There’s a minimum $175 LLET tax regardless of the calculation method. Even single-member LLCs are required to file.
LLC owners who file like sole proprietors on their federal taxes will pay self-employment tax on their earnings. However, filing as a corporation means you’ll be able to declare some of your income as salary. LLC owners should check with an accountant or tax lawyer to see if their business could benefit from filing as a corporation.
It starts by applying for an Employer Identification Number (EIN) which works like a Social Security Number at tax time. Use the IRS form 2553 to register your LLC as a corporation for tax purposes, and if approved, you’ll pay tax as an S-corporation or a C-corporation.
Your LLC will begin filing its tax returns using the corporate tax schedule in Kentucky. Kentucky’s corporate tax applies to net income, and checking the marginal rates can also help determine if this is the right approach for you. You’ll need to make this determination quickly after forming your business.
6) Wrap up other regulation and sales tax requirements
Does your business sell physical products? You may need to collect and remit sales tax and remit it to the Kentucky Department of Revenue. Kentucky sales tax is collected at the point where a good is purchased. You’ll levy sales tax if you sell:
- Tangible goods, with exceptions including medicines and farm equipment
- Digital property
- Some services. You can see a list of nontaxable services in the Kentucky tax code to see if your service is taxable
Kentucky also has a use tax. It is similar to sales tax, though it applies mainly to goods purchased outside the state for use or storage within Kentucky. It is imposed on tangible personal property, digital property purchased for storage.
When you collect sales tax, cities and counties may levy additional taxes, so you’ll need to check rates. You can register for your sales tax license at OneStop or use the paper 10A100 form. You’ll need a federal Employer Identification Number for your LLC first. You will also include your date of organization, Kentucky Commonwealth Business Identifier, and legal business name, so it’s advantageous to have your LLC.
If you’re unsure if your business needs to collect tax and what exemptions you might have, the 10A100 form is helpful. It communicates what taxes apply to your company and how you’ll collect sales tax and covers various industries, from retail to coal mining.
Sorting out your tax obligations can make your business start to feel real and highlight the need for accounting systems to help you keep track of expenses and profits.
One step in making that happen is opening a business bank account using your EIN. Your LLC will be able to accept payment, open a credit card, and start building its financial reputation. You’ll also keep business transactions separate from personal ones, making your financial obligations at tax time more straightforward.
7) Get LLC insurance in minutes by following these steps
Unless you’re starting a fortune-telling business, you won’t be able to predict when a crisis could sideline your operations. Fires? Power outages? An injured employee? They all happen. But you can be prepared by learning about the different types of small business insurance that can protect you in a disaster--and why it’s a great idea to buy online.
Here’s what to do:
- Check out Huckleberry.com and click the “Instant Estimate” button.
- Enter your industry, state, and email address. You’ll need to provide some quick details about your business needs.
- You’ll get a quote with lots of small business options in less time than it takes to brew your morning coffee.
- Still not convinced? Use the quick rate estimator. It can help you gauge a ballpark rate for your business in seconds.
Setting up your LLC in Kentucky is a significant achievement. Remember that a successful business is a long-term commitment through thick and thin. To keep your business running and your employees protected even when unforeseen disasters strike, take out a quality insurance policy with Huckleberry. Small business insurance is one way to guard all your hard work for years to come.