How to Form an LLC in Kentucky
A limited liability company (LLC) is a type of legal structure for businesses. Small business owners often choose LLCs because of the liability protection, tax treatment, and convenience they offer.
If you would like to take advantage of personal liability limitation, simplicity, and pass-through taxation, you should create a Kentucky LLC by following the six simple steps below.
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Step One: Choose a Unique Name For Your LLC
Before you can file paperwork to create your LLC, you need to choose a name for your company. To comply with the Kentucky Business Entity Filing Act, your name must:
- Be unique: You must choose a name that no other Kentucky business has registered with the state. To find out if your name is available, you should conduct a name search on the Kentucky Secretary of State's business entity database. If there are any matches, you will need to choose a different LLC name.
- Make it clear that your company is an LLC: Your name must include the words “limited liability company," “limited company," the abbreviation “LC," or “LLC." If you would like to shorten the “limited liability company" designation, you may abbreviate the word “limited" to “Ltd." You can abbreviate the word “company" to “Co.," too.
Next, you should perform a simple internet screening search to see if another business is using your desired name. To do this, type your name into your favorite search engine. If there are no matches for your name, you should also make sure that your name isn't trademarked by another company.
The U.S. Patent and Trademark Office (USPTO) offers a searchable database to make it easy to check for registered trademarks. If there are any matches on this database, you should choose a new name. Otherwise, you could face legal trouble for trademark infringement.
Finally, you should check for domain name availability. This is a good idea even if you don't want to start your website immediately. Starting your website will be a lot easier if you have a memorable web address ready to go when the time comes.
Step Two: Choose a Kentucky Registered Agent
Under Kentucky law, you must have a registered agent for your LLC. A registered agent is an individual or business entity that agrees to accept legal paperwork on behalf of your company. This will include service of process if someone sues your company.
Your registered agent must be one of the following:
- An individual who is a resident of Kentucky
- A business entity that's registered to do business in Kentucky
Your registered agent cannot be a P.O. Box. They must have a physical street address within the state and they must generally be available at that address during standard business hours. Further, they must either sign your articles of organization or a Statement of Consent. This statement makes it clear that they accept the responsibility of acting as registered agent.
Many LLCs choose one of their members to act as the company's own registered agent. However, if none of your LLC members are willing and able to perform this task, you should consider a registered agent service. With a registered agent service, you pay a small fee to another business or individual. In exchange, they agree to receive your LLC's legal papers on your behalf. You can easily find many registered agent service options by conducting a quick search on the internet.
Step Three: File Your Articles of Organization
To formally start your Kentucky LLC, you will file your articles of organization with the Secretary of State. The articles of organization form a legal document that contains the fundamental information about your company. You can think of it as a formal charter that establishes your LLC as a legal entity. This is not a difficult document to create. In fact, Kentucky offers a fill-in-the blank form for this purpose. To complete the form, you will need to provide basic company details such as:
- Your LLC's name
- The LLC's registered office address
- Your LLC's principal office address
- The registered agent's name, address, and signature
- Whether your LLC will be member-managed or manager-managed
It may seem redundant to require a registered office and a principal office, but there is a difference in the Kentucky articles of organization. Your principal office is the one where the Secretary of State will send your business correspondence. This can be in Kentucky or out-of-state. You must also list a registered office, which has to be located in the state of Kentucky to receive legal notices.
Step Four: Create an LLC Operating Agreement
Although it is not required by law, it's a good idea to create an operating agreement. An operating agreement is an important legal document for every LLC. Similar to corporate bylaws, an operating agreement forms key agreements among members on essential issues.
You can use your LLC operating agreement to make a record of ownership percentages, members' rights and responsibilities, profit and loss allocation, rules for adding and releasing members, and any other agreements that are important to your business. Putting these agreements into writing is an important step to prevent future conflict among LLC members.
Single-member LLCs should have operating agreements too. Financial institutions typically require an operating agreement before opening a business bank account for an LLC. Accountants and lawyers may also ask to see this document before providing professional services to your company.
Step Five: Comply With Tax and Licensing Requirements
Your tax and licensing requirements will depend on the type of business you operate and your location.
The Kentucky Department of Revenue offers a one-stop business portal where you can learn about your state tax obligations and licensing requirements. Through this portal, you will be able to register for any necessary state taxes and learn about your federal taxes.
If you think you may need a federal business license, you can learn more about this at the Small Business Administration (SBA) website. There, you will find a full list of business activities that require federal licenses.
Unless you have a single-member LLC with no employees, you will need an Employer Identification Number (EIN). An EIN is a unique number that the Internal Revenue Service (IRS) issues to businesses to identify them for tax purposes. You can think of an EIN as a Social Security Number for businesses. You will need to use your EIN for:
- Employee payroll
- Opening a business bank account
- Applying for a company credit card
You can apply for an EIN by mail, fax, or online with the IRS. This is free and easy to do.
Step Six: File Annual Reports
To maintain your LLC's good standing, you need to file a yearly report with the state of Kentucky. You need to file your first report between January 1st and June 30th of the calendar year following your LLC's formation. You must file another report every year thereafter between January 1st and June 30th. The annual report is a simple document to complete. You will need to provide:
- Your company's name and address
- The registered agent's name and address
- Names and addresses of LLC managers
This information will likely confirm the details you gave in your articles of organization. You will probably find it easy to complete this form. You can file your LLC annual report online at the Secretary of State website.
Kentucky LLC FAQs
Why should I create an LLC?
One of the main reasons business owners create LLCs is for the advantage of personal liability limitation. This feature protects LLC owners' personal assets from their company's liabilities. In other words, your cars, home, and personal accounts will not be on the line if someone sues your LLC or collects business debts. You do not receive this benefit with all business entities. With a sole proprietorship, for example, your personal assets could be in jeopardy if your business becomes unable to pay its debts.
Further, LLCs have the benefit of pass-through taxation. With pass-through taxation, LLC members pay taxes on the company's profits through their own personal income tax returns. This is similar to partnership business taxation. Pass-through taxation can be preferable to the way corporations are taxed, which can result in double taxation. Double taxation occurs when a corporation pays taxes on its profits at the corporate level and then stockholders pay taxes on their dividends.
Finally, the LLC structure is simpler and more flexible than that of a corporation. You will find that there are fewer formalities with an LLC, and that it is easier to maintain. Unless you plan to have many investors or issue stocks, an LLC is often a good choice for small businesses. If stockholders and multiple investors are an issue, you may need to incorporate.
Are articles of organization the same as an operating agreement?
No. Articles of organization are the legal document you file with the state to establish your business as an LLC.
An operating agreement is an internal company document that you use to form key agreements among your LLC members. You do not file your operating agreement with the state. But you should keep it on record with your important company paperwork. You may need to show your operating agreement to certain professionals like accountants and lawyers before obtaining services.
Can I reserve my LLC name?
Yes. If you have a name in mind but you are not quite ready to start your LLC, you can reserve the name with the Secretary of State. You will just need to submit a form by mail along with a $15 fee. Once the Secretary of State processes this form, it will reserve your name for 120 days.
What does it cost to form a Kentucky LLC?
LLC formation comes with a few state filing fees in Kentucky. The fees are as follows:
- Articles of organization: $40
- LLC name reservation: $15
- Annual report: $15
You will not necessarily need to pay the LLC name reservation state fee. You will only pay this if you would like to reserve your LLC name before formally starting your LLC.
Can I do business under a different name?
Yes. You can do business under a name other than your LLC's name, but you need to register this name with the Secretary of State. In Kentucky, this is called an assumed name. You may hear people refer to it as a fictitious business name or a dba (“doing business as") name in other states. These terms all mean the same thing.
Businesses commonly use an assumed name when they would like to offer a different type of product under a new name or branch into another line of business. As with your LLC name, your assumed name must be distinguishable from all other registered Kentucky business names.
To legally operate under an assumed name, you need to file your Certificate of Assumed Name with the office of the Secretary of State and submit a $20 filing fee.
Get Help to Start Your Kentucky LLC
Fortunately, forming an LLC in Kentucky can be a straightforward process with FindLaw's Business Formation Service. If you have any business formation questions, or would like further guidance starting your Kentucky LLC, it's best to speak with an experienced business organizations attorney near you.
Forming an LLC in Kentucky: Related Resources
For more information and resources related to this topic, please visit the links listed below.
Note: State laws are always subject to change through the passage of new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.
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