The Limited Liability Company (LLC) is a popular business entity choice structure for many businesses starting in Kentucky. The LLC provides personal liability protection and has the potential to save money on taxes. With our guide, you can learn how to form an LLC in Kentucky without an attorney.
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.
Steps to Form a Kentucky LLC
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.
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
Every LLC in Kentucky is required to 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 company like Northwest Registered Agent to be the Registered Agent will reduce unwanted phone calls and mailings.
Step 3: File the Kentucky Articles of Organization
Estimated Cost: 40 USD
Turnaround Time: It normally takes one business day when filing online or about one week when filing by mail for the state to process the LLC paperwork.
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 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.”
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.
You don't have to form your LLC by yourself or pay an attorney!Forming an LLC is a little intimidating, especially when it’s your first time. Professional entity formation services help guide you to make sure it’s done right. Check out our reviews of popular LLC formation services to learn more.
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.
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
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.
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.
File Annual Reports
LLCs are required to file an annual report with the Kentucky Secretary of State. The annual report and $15 filing fee is due between the 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.
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, there is a minimum $175 Limited Liability Entity Tax 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.
Do I have to pay to hire a registered agent?
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.
If I have an LLC, is a business license required?
It’s sometimes thought that the LLC and business license are the same, 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.
What is a Foreign Limited Liability Company?
A foreign LLC refers to an LLC that is physically operating in states outside of the state where it was formed. Physically operating means having a presence, such as having an office or employee. The LLC will need to register as a foreign LLC in each state that it plans to operate.
What is a Professional Limited Liability Company?
Businesses that requires 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 the LLC.