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Step-by-Step Guide to Starting an LLC in Kentucky [2022]

Kentucky LLC Quick Facts

Kentucky LLC Costs

Initial Cost:
– State LLC Filing Fee: $40

 

Recurring Costs:
– Annual Report Filing Fee: $15
– Limited Liability Entity Tax: $175 (minimum)

Kentucky LLC Processing Time

– Filing Online: 1 business day
– Filing by Mail: 1 week

Not sure about filing an LLC yourself?

Want an LLC, but not sure about filing the paperwork yourself? Let Zenbusiness, IncFile, or IncAuthority help guide you through the LLC formation process, so you know everything was done right.

IncFile and IncAuthority are both currently running a special where you only pay state fees for your LLC formation!

Overview

Guide to Starting an LLC in Kentucky

When you’re ready to take the plunge and start your own business, there are a few basic steps you’ll need to take in order to get started. In this article, we’ll walk you through how to start an LLC in Kentucky. We’ll cover what an LLC is, the paperwork you’ll need to file, and the taxes you’ll need to pay. So if you’re ready to become your own boss, keep reading!

What is an LLC?

The Limited Liability Company (LLC) is a popular business structure for many startups in Kentucky.  The LLC provides personal liability protection and has the potential to save money on taxes.

Related: How does an LLC protect you?

Unlike a sole proprietorship or partnership where the small business owner can be held personally liable for lawsuits against the business, the LLC is a separate legal structure, protecting the business owner’s personal assets.

Besides the liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.

Related: Guide to starting a business in Kentucky

Steps to Form a Kentucky LLC

While it can be unnerving to form an LLC for the first time, with a little research and patience, you can learn how to form an LLC in Kentucky without an attorney.

Let’s break down the steps to complete the Kentucky LLC formation process.

Total Time: 10 minutes

Step 1: Choose a Name for the LLC

The first step in forming a Kentucky Limited Liability Company is to make sure the name you want is available.  

It’s critical to do a name search before registering an LLC name, as the name of each LLC must be distinguishable from other entity names registered in the state of Kentucky. The Kentucky Secretary of State makes it easy to search and verify if your LLC name is available.  Here is more information on how to do a Kentucky LLC name search. 

In addition to the name being unique, the entity designator (identifier used at the end of the business name) must be either:
– Limited Liability Company
– Limited Liability Co.
– LLC
– L.L.C.

If there is a name you want to register but are not ready to form the LLC, an optional Name Reservation form is available.  The Name Reservation will hold a name for 120 days with a filing fee of $15.

Before finalizing the LLC name, you may also want to see if a domain name is also available to have a matching website address.

Step 2: Appoint a Kentucky Registered Agent

Kentucky law requires that every LLC operating in the state have a Registered Agent. A Registered Agent will act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.

The basic requirements to be a Registered Agent in Kentucky include:
– The agent must be a Kentucky resident at least 18 years of age or a commercial Registered Agent service with a registered office in the state.
– The agent must have a physical address in the state (PO Boxes aren’t allowed).
– The agent must generally be available during normal business hours at the address provided to receive service of process.

Learn more about the requirements for a Registered Agent in Kentucky

Any individual meeting the requirements can be the agent; however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed.  Hiring a commercial Registered Agent service like Northwest Registered Agent will help keep the owner’s names from being publicly listed.

Step 3: File the Kentucky LLC Articles of Organization

The paperwork to officially create an LLC in Kentucky is called the Articles of Organization. To submit the paperwork, either file online through the Kentucky OneStop Business Portal or download and mail the Articles of Organization to the Kentucky Secretary of State.

Related: How to fill out the Kentucky Articles of Organization

Estimated Cost: 40 USD

When filling out the Articles of Organization, a few sections and terms can be confusing. Let’s go over a few of these sections to help get your LLC started right.

Principal Office Address – In this section, enter the physical street address, city, state, and zip code of the initial principal office.  This address can be the LLC’s physical address, or it can be the address where the business records are stored.  This does not have to be an address in Kentucky, but you may not use a PO Box for the designated office.

Member-Managed or Manager-Managed – This section asks if the LLC is Member-Managed or Manager-Managed.

  • Member-Managed LLCs have members (owners) that are active in the day-to-day operations of the business.
  • Manager-Managed LLCs have managers hired by the LLC members to run the LLC, similar to a CEO of a corporation.

Most LLCs are member-managed.  Select the one that applies and click on “Next.”

Related: What is the Difference Between a Member-Managed LLC and Manager-Managed LLC?

Business Representative – This section asks for information about the business representative.  If one of the members is filling out the Articles of Organization, most will select “Individual” from the first box and LLC Organizer from the second.  An additional menu will pop up, asking for contact information.  Once entered, click on the “Next” button to continue.

Delayed Effective Date – The next step asks about the effective date of the LLC.  By default, the LLC is effective on the date submitted.  If you prefer to have the LLC officially start at a later date, up to 90 days in the future, you can enter the start date.

Business Administrators – One business administrator must be assigned to the Limited Liability Company.  Many will select the checkbox to appoint the business representative to be the administrator. 

Consider using an LLC formation service like Zenbusiness, IncAuthority, Northwest, or IncFile to guide you through the LLC formation process, so you know everything was done right.

IncAuthority and IncFile are currently running a special where you only pay state fees for your LLC formation and they do the rest!

You have a Kentucky LLC! Now what???

Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.

Prepare a Kentucky LLC Operating Agreement

The operating agreement is a document that governs the framework of an LLC.  This document covers items like ownership rights, member responsibilities, how profits and losses are distributed, and more.

Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:

  • The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
  • Member’s personal liability protection may be diminished.
  • Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.

Related: Kentucky operating agreement template

Obtain an EIN

The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, or Federal Tax Identification Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, register for business licenses and permits, file tax returns, and more.

There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.

Related: How to Apply for an EIN

Elect the LLC’s Form of Federal Income Taxation

One of the significant benefits of the Limited Liability Company is the tax flexibility it provides.  When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:

  • Sole proprietorship
  • Partnership
  • C-corporation
  • S-corporation

While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.

Related: How can an LLC be taxed?

By default, the taxation of an LLC is called pass-through taxation, which means the profits or losses of the LLC flow through to the members.

Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can also elect to change the taxation to a C-corporation or an S-corporation.

Multi-member LLCs will, by default, be taxed as a partnership. The members can also elect to change the taxation to a C-corporation or an S-corporation.

In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership is that the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership.  As a result, the owner will pay self-employment taxes on all business profits.  As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes.  Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.

Before electing how your LLC will be taxed, consider talking with an accountant to assess which one will be best for you, as some entities, such as the C corporation, may not be the best for many people due to double taxation.

Open an LLC Bank Account

Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.

Several documents will be needed to open a business bank account, such as:

  • A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
  • Copies of the original formation paperwork from the state showing the creation of the LLC.
  • Driver’s licenses of the members.
  • In some circumstances, a Kentucky Certificate of Good Standing may be needed to prove the LLC is active and in good standing with the state.

Related: How to Open a Business Bank Account for your LLC

Apply for Business Licenses and Permits

Depending on what your business does and where it is located, there will likely be various business licenses and permits needed before starting. Some common registrations include:

  • Business License – Some cities require businesses to obtain licensing before they can start.
  • Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed.
  • Sales Tax Permit – To sell products and certain services, registration with the Kentucky Department of Revenue will be necessary.

Related: What Business Licenses are Needed in Kentucky?

File Annual Reports

LLCs are required to file an annual report with the Kentucky Secretary of State.  The annual report and $15 state filing fee are due between January 1st and June 30th each year.

Additionally, there is a Limited Liability Entity Tax (LLET) that is based on the gross profits of corporations and Limited Liability Companies. The tax is based on the percentage of sales, with a minimum tax of $175.

Related: How to File a Kentucky LLC Annual Report

Common Questions To Starting An LLC In Kentucky

How much does it cost to start an LLC in Kentucky?

There is a filing fee of $40 to start an LLC in Kentucky.

Is there a yearly fee for an LLC in Kentucky?

Each year, a Kentucky LLC will need to file the Annual Report and pay the $15 annual fee. In addition, a minimum $175 Limited Liability Entity Tax is due each year.

How long does it take to start an LLC in Kentucky?

It normally takes one business day when filing online or about one week when filing by mail for the state to process the Kentucky LLC paperwork.

Who can be a Registered Agent in Kentucky?

Anyone can act as a registered agent, provided they are at least 18 years old, reside in the state, and are generally available to receive documents during normal business hours.

Related: What are the responsibilities of a Registered Agent in Kentucky?

Where do you check if your Kentucky LLC name is available?

Available Kentucky LLC names can be searched on the Kentucky Secretary of State’s entity search website. 

Does an LLC need a business license in Kentucky?

It’s sometimes thought that the LLC and business license are the same in Kentucky, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business. A business license is an approval from a government entity to legally operate.

Related: What business licenses are needed in Kentucky?

What is a Foreign Limited Liability Company?

A Kentucky foreign LLC is an LLC that was formed in another state but wants to physically operate in Kentucky. Physically operating means having a presence, such as having an office or hiring an employee.

Related: What is a foreign LLC?

What is a Professional Limited Liability Company?

Businesses that require occupational licensing in Kentucky, such as accountants, architects, veterinarians, etc., will want to file for a Professional Limited Liability Company (PLLC) instead of an LLC. Filing for a PLLC is very similar to that of an LLC.

Related: What is a Professional Limited Liability Company?

Is an LLC the same as a corporation?

The LLC is one of four main types of business entities. You can learn more about each here:
What is a sole proprietorship?
What is a general partnership?
How to form a Kentucky corporation

Should I use an LLC formation service or do it myself?

Following our guide, most people will be able to form an LLC on their own, however, LLC formation services like IncFile and IncAuthority will guide you through the process and guarantee it’s done right – and it doesn’t cost any extra to do so!

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