Forming an LLC in Kentucky
A limited liability company (LLC) is a type of business structure often chosen by small business owners because of the liability protection, tax treatment, and convenience it offers.
If you think an LLC's limited personal liability, simplicity, and pass-through taxation is the best option for your business, you can create a Kentucky LLC by following the simple step-by-step process below.
Steps to Form an LLC in Kentucky
Name Your LLC
You need to choose a business name that complies with the Kentucky Business Entity Filing Act. Your Kentucky LLC 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. If you have a name in mind but aren't ready to officially form your business, you can file a business name reservation with Kentucky Secretary of State. The fee is $15.
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.
Get a 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 Kentucky registered agent cannot have a P.O. Box address. They must have a physical street address within the state and 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.
File Your Articles of Organization
To formally start your Kentucky LLC, 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 need to provide basic company details such as:
- LLC's name
- LLC's registered office address
- LLC's principal office address
- 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.
Draft an 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.
Get an EIN
Unless you have a single-member LLC with no employees, you will likely 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 your business for federal tax purposes. 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 through the IRS website. This is free and easy to do.
Set Up Business and Tax Accounts
Your tax and licensing requirements will depend on the type of business you operate and your location. You can set up an online account with the Secretary of State to make it more convenient to maintain your business.
You can also set up an account with the Kentucky Department of Revenue's One Stop Business Portal to register for any necessary state taxes. The tax forms you need to file depend on the type of business you operate and your business structure. Below, we cover the tax requirements for a Kentucky LLC in more detail.
As a new business in Kentucky, you may have to file several types of business taxes. Here are some possibilities, depending on the type of business you open.
State Business Tax
Kentucky imposes a gross receipts tax, known as the Kentucky Limited Liability Entity Tax (LLET) on every business that is protected from liability by state law, including LLCs.
LLCs with total gross receipts or total gross profits of $3 million or less qualify for a small business exemption and just pay the minimum $175 LLET. Other businesses pay a rate based on a sliding scale.
State Employer Tax
All Kentucky businesses with employees must pay state unemployment taxes. Unemployment taxes are paid on each employee's wages up to a maximum annual amount, known as the taxable wage base. For 2022, the wage base is $10,800 per employee. All new businesses in Kentucky pay a SUTA rate of 2.7% in their first year. After that, rates range from 0.3% to 9.0%.
Sales and Use Tax
Kentucky charges a sales and use tax at a rate of 6% of the purchase price. The sales tax applies to retail sales of tangible personal property, digital property, and certain services. The use tax generally applies to property purchased outside the state for storage, use, or consumption within Kentucky. There are no local sales or use taxes in the state.
Business Licenses and Permits
Kentucky doesn't have a statewide business license, but certain types of businesses may need to have a special license or permit. To determine whether you need a special license or permit, search the occupational license/permits database on Kentucky's One Stop Business Portal.
If you think you may need a federal business license, you can learn more about this on the Small Business Administration (SBA) website. There, you will find a full list of business activities that require federal licenses.
Registration in Other States
If you are an online seller in the e-commerce space, you may need to collect and pay sales taxes in other states. If you're doing business in states outside of Kentucky, you also need to register in those states, probably as a foreign LLC.
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 Formation FAQs
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