Deciding to pursue a business venture takes courage. You have to be ready to face challenges and handle various responsibilities. But before you take that big step, you have to make two important decisions. You have to choose what business entity structure to register and where to form your company.
How To Form A Kentucky LLC
For many new business owners, the most obvious choice is the limited liability company (LLC). This structure offers liability protection and allows flexibility in taxation. That means the assets of the owners, who are called members, will have protection in case the company incurs debts. You can also choose how the Internal Revenue Services (IRS) will tax your business.
The IRS will treat a single-member LLC as a sole proprietorship for tax purposes. Meanwhile, if it has multiple owners, then the IRS will treat it as a partnership. However, you can also choose to be taxed as a corporation or an S-Corp if you think that it is best for your company.
Doing Business In Kentucky
Location plays a huge role in business. It will determine the obligations that your company has to comply with and the processes you need to complete.
While most people think that it is best to organize the business in their home states, it is not a requirement. You can select a state that will provide your company with the most benefits.
One of the states that you can consider is Kentucky. Various factors make it a business-friendly state. For instance, the cost of doing business in Kentucky is low. You can also expect great infrastructure.
Here are other advantages you can enjoy when you form a Kentucky LLC:
- Tourism Development Act – The Kentucky Tourism Development Act (KTDA) is meant for startup companies in the state that promote or support tourism projects. If your LLC qualifies for this program, you can get sales tax credit incentives.
- Business Investment Program – This program aims to give Kentucky businesses income tax credits. It is open to new and existing companies alike. You can earn tax credits in various areas, such as non-retail technology or services, energy-efficient alternative fuel, and manufacturing.
- Direct Loan – The Kentucky Economic Development Finance Authority (KEDFA) initiated this program to offer long-term financing for certain industries, which includes tourism, agribusiness, and industrial ventures. Companies that qualify for this program can enjoy below-market interest rates.
- Small Business Loan – KEDFA initiated this program to help small companies acquire funding to start or grow their businesses. If your LLC qualifies for this program, you can get financing for up to 100% of the cost of the project.
How To Form A Kentucky LLC
Generally, forming an LLC in Kentucky is affordable. But, like other states, Kentucky also has its regulations. You have to complete a multi-step process to ensure that your operations are legal.
Step 1: Choose a name for your LLC.
After deciding what kind of business you are going to form, you have to think of what you will call the company. Make sure that the name you choose is distinguishable. To do this, you have to conduct a name availability search on the state database. You also need to follow these naming guidelines:
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- The company name should have the phrase “limited liability company” or any of its abbreviations.
- You cannot use any word that could confuse your company with a government agency.
- If you add any of the restricted words, such as “bank,” “attorney,” or “university,” your LLC will have to submit additional paperwork. You also need to have a licensed individual in the company.
Step 2: Nominate a registered agent.
Like in other states, Kentucky also requires all companies to have a registered agent. It can either be a Kentucky resident or a company authorized to transact in the state that will be responsible for accepting legal documents and correspondence on behalf of your LLC. It will be your point of contact with Kentucky. Make sure that your registered agent has a physical street address in the state and that they are available during normal business hours.
Step 3: Register your LLC.
Before starting your operations in Kentucky, you have to register your company with the state. You have to submit the Articles of Organization to the Division of Business Filings. It comes with a $40 filing fee. You can file by mail, in person, or online.
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- To complete the form, you have to provide the following information:
LLC Name - Name And Address Of The Initial Registered Agent
- Mailing Address For The Principal Office
- Management Style
- The Effective Date
- Signature, Name, And Title Of The Organizer
- To complete the form, you have to provide the following information:
The management style will depend on who will handle the day-to-day operations of the business. There are two types: member-managed and manager-managed. If all LLC members plan on sharing the responsibility of running the business, then it will be member-managed. Meanwhile, if you opt to appoint one or more members or hire people to serve as managers, then the LLC will be manager-managed.
Step 4: Obtain an Employer Identification Number (EIN).
You can get the EIN from the IRS. Your company will need this number for hiring employees, filing taxes, and opening a business bank account. Requesting an EIN is free. If you choose to get the services of a third-party organization like DoMyLLC, you can ask to include an EIN application in your business filing package.
Step 5: Create an operating agreement.
Kentucky does not require LLCs to have an operating agreement. However, having one is advisable. This internal document will prevent possible conflicts in the future. It will set the rights and responsibilities of the LLC members. At the same time, it explains the way your business functions. You can also include clauses regarding the process of closing the business in case you decide to dissolve the company. Read our article on operating agreements to learn more.
Step 6: Check the local requirements.
Depending on your company’s location, you may have to acquire certain business licenses and permits. While there is no general business license in the state, some counties and cities require local licenses. Check local offices to find out if you need any.
Step 7: Find out your company’s tax obligations.
Your Kentucky LLC may also need to file taxes. Find out what applies to the industry you are in or the activities you are planning on doing. If you are looking to sell physical products, you may have to register for state sales tax. The rate is 6%.
If you are thinking of hiring employees in the state, then you have to register for Unemployment Insurance and Employee Withholding taxes.
Personal income tax rates also apply to LLC members. Here are the rates:
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- $0 – $2,999: 2%
- $3,000 – $3,999: 3%
- $4,000 – $4,999: 4%
- $5,000 – $7,999: 5%
- $8,000 – $74,999: 5.8%
- $75,000 and up: 6%
The state also imposes a Limited Liability Entity Tax (LLET), which is something that applies to gross receipts. It is for corporations and other pass-through business entities. The minimum is $175 for gross receipts under the amount of $3 million.
Property taxes are among the lowest in the country. The average is 0.72% of the assessed value of the property.
Step 8: Ensure ongoing compliance.
Your obligations to the state do not end once you successfully form your Kentucky LLC. You will have to file a report and pay $15 every year. This annual report will update the state with the ownership information and contact details of your LLC. Failure to submit on time can lead to the revocation of your business registration or LLC dissolution.
Understanding the process can help you form a Kentucky LLC. However, the whole ordeal requires attention to detail and patience. You may need to spend more time than expected. If you want to focus more on other aspects of starting a business, you can get help from a third-party organization like DoMyLLC. Our team can handle the preparation and filing of paperwork for you. We can also serve as your Kentucky registered agent and help ensure compliance with the state.