If you’re here that means you’re thinking about forming an LLC in Kentucky. Congratulations! Whether you’ve already made the decision to start your LLC or you’d like more information about the formation process before you take that leap, I’ll tell you everything you need to know about forming an LLC in Kentucky. But before I get into the steps to form an LLC, I’m going to cover the basics, like what a Limited Liability Company (LLC) is and some of the reasons that small business owners choose LLCs over other business structures. With this information you can go forth confidently knowing that you have the knowledge to make an informed decision about forming an LLC.
(If you want to skip to the ‘how to form an LLC’ section, click here)
What Is A Kentucky LLC?
A Kentucky LLC is a Limited Liability Company formed in the state of Kentucky that is governed by the laws, regulations, and statutes of the state of Kentucky.
Why choose An LLC?
There are many reasons that a business owner may choose to form an LLC, and over the years you’ll likely discover some of the advantages that LLCs have over other business structures (like a sole proprietorship). Here are some of the reasons that small business owners most commonly cite for making the decision to form an LLC.
1. Limited Liability And Asset Protection
Forming an LLC in Kentucky provides you with a major advantage as a business owner. You get limited liability and asset protection. This means that if your Limited Liability Company (LLC) goes bankrupt or is targeted by lawsuits, the people or businesses to whom your LLC owes money can’t list your personal assets as a means of financial compensation in their legal claims. So, your house, car, personal finances, and any other personal assets you have acquired remain safe because of the LLC.
Americans have seen their share of disasters in the past couple of years (hurricanes, wildfires that swept through several states, winter storms that damaged our electrical grid, a worldwide viral pandemic, a nationwide quarantine, and economic distress just to name a few), and it’s been enough to highlight the fact that even the most well-prepared businesses can be toppled overnight by just one unexpected event. One of the few things that is consistent about our economy is that it’s volatile and ever-changing. A multi-billion dollar company that’s on top of the world one day can be out of business the next.
This is why the protection you get when you form an LLC in Kentucky is so valuable to small business owners. Even if your business were to fail, you would still be able to walk away from the experience with your personal assets because of your Kentucky LLC.
There is a way to start an LLC in Kentucky that will protect your personal information and keep it off the public record, which is another reason that business owners choose to go with an LLC structure, rather than another business structure like a sole proprietorship.
If you choose a different business structure, like a corporation, you’ll need to register your personal information (like your name and address) with the Kentucky Secretary of State. Any information listed for your business will be listed on the Secretary of State’s website, which is public record, which means anyone can access it by searching for your business name.
In recent years, online criminals and scam artists have become masters of their craft and they can now steal your identity with just a few clicks and access to seemingly unimportant information (like your name and address). The scary part is that they can do this so fast that you may not notice until later, once they’ve already amassed thousands or tens of thousands of dollars worth of debt in your name.
However, when you start an LLC you can avoid this conundrum and keep your information off the public record by using an LLC formation service. An LLC formation service is a type of professional service that will not only keep your personal information off the public record, but also help you gather, fill in and file all of the documents needed to start your LLC in Kentucky and get it established with the Kentucky Secretary of State. Rather than registering your information with the Secretary of State, they register their own, and you can breathe a little easier knowing that you’re safe from cyber crime.
Another reason to choose to form an LLC rather than another business structure (such as a corporation or sole proprietorship) is the tax benefits that LLCs enjoy. This is a great reason for a small business owner to choose to form a Kentucky LLC.
If you were to choose a corporation as your business structure, you would experience what is known as “double taxation”.
A corporation’s profits are taxed at corporate rates before they’re disbursed to shareholders in the form of dividends. Dividends are taxed as well, which means that the profits are taxed twice before the funds make it to the shareholders’ bank accounts. Thus, the term “double taxation”.
A Kentucky LLC entirely avoids “double taxation” however.
When a Kentucky LLC receives profits, they are taxed at company tax rates (which aren’t as steep as corporate tax rates) and can then be distributed to LLC members as personal income. Personal income is usually taxed, but it’s not taxed upon receipt the way that dividends are. So, as you can see, the profits of an LLC in Kentucky are taxed differently from the profits of a Kentucky corporation.
But if you’re interested in the tax benefits that Kentucky LLCs receive, it gets even better.
When the Tax Cuts and Jobs Act was first introduced in 2017, it brought the Qualified Business Income Deduction (QBID) with it. QBID is a 20% tax discount that is exclusive to LLCs, which is a great reason to form an LLC because you won’t benefit from this tax discount if you choose another business entity.
LLCs also have the option to be taxed as a corporation in the event that corporate tax rates would be more desirable.
How To Start An LLC In Kentucky
Now that I’ve explained what a Limited Liability Company (LLC) is and some of the reasons that business owners choose to form a Kentucky LLC instead of another business entity, I can begin to tell you about the steps to form an LLC in Kentucky. Here are the five steps you’ll need to complete to form your Limited Liability Company (LLC) in Kentucky.
*IMPORTANT* If you’re inexperienced with the process of forming a Kentucky LLC or simply want assistance with formation, there is a type of professional service available to you to make the process easier. It’s called an LLC formation service and they’ll not only make sure that your personal information remains private, but they will also help you fill out and submit all of the formation documents needed to establish your LLC in Kentucky with the Kentucky Secretary of State.
An LLC formation service can cost as little as $0 plus the state filing fee. However, my favorite LLC formation service is Zenbusiness, and they charge $49 plus the state filing fee.
If you’d like to learn more about how to choose an LLC formation service to simplify the formation process and keep your personal information private, check out my article on the best LLC formation service.
1. Obtain Articles Of Organization Form
The first step you must complete to form a Kentucky LLC is to obtain a copy of the Articles of Organization form from the Kentucky Secretary of State.
You can get your Articles of Organization form here. It’s a PDF form that you can print and fill out.
The Articles of Organization form is the main LLC formation document in the state of Kentucky, so the rest of the steps on this list will all be related to this form.
2. Choose Your Business Name
One of the first sections you’ll have to fill out on your Articles of Organization form is the LLC name. It’s no simple task to name your LLC, however. You can’t just register the first LLC name you think of with the Kentucky Secretary of State.
Every Kentucky LLC and business in Kentucky is required to have a name that is unique to it and differentiates it from other businesses. It’s easy to find out if the name you’ve chosen is available though. Just search the name on the Business Name Database from the Kentucky Secretary of State, which you can find here.
If the name you’ve chosen isn’t available, you can add suffixes to your LLC name. It’s worth noting that any Limited Liability Company (LLC) in Kentucky must contain the words “Limited Liability Company” or “Limited Company” in its name, but you can use abbreviated words such as: “LLC”, “L.L.C.”, “Ltd.” or “Co.”.
Once you’ve found a version of the LLC name that you want that’s available, you must file a Reservation or Renewal of Reserved Name form with the Kentucky Secretary of State. This will reserve the name for 120 days with the Secretary of State. The filing fee is $15 and you can file it online or by mail.
If you’re not happy with the official LLC name you’ve had to register with the Kentucky Secretary of State, you can always use what is known as a trade name, fictitious name, or DBA (“Doing Business As”) name. This is the business name you’ll use on your website, in ads, and on signs. To do so in the state of Kentucky, you’ll need to file a Certificate of Assumed Name form, which you can find here. You can file online here. The filing fee for an assumed name is $20 and your assumed name will be registered for 20 years.
3. Choose A Kentucky Registered Agent
One of the most important bits of information you’ll need to add to your Articles of Organization form is the name and address of your Kentucky registered agent. Every Kentucky LLC is required to have a registered agent.
A registered agent is a Kentucky state resident or professional service that will accept mail, service of process, and legal documents on behalf of your Kentucky LLC. A registered agent in Kentucky must have a physical street address in the state of Kentucky. This is also sometimes referred to as an “agent for service of process”, which is basically an antiquated way to describe a Kentucky registered agent. You have a couple of options when it comes to choosing the registered agent for your business in Kentucky. You could take on the role of a Kentucky registered agent yourself, or you could use a professional registered agent service. But if you choose to become the registered agent for your business, there are risks involved with that role that you should know about.
A Kentucky registered agent must be available during normal business hours on business days to accept service of process, mail, and legal documents on behalf of your Kentucky LLC. The problem with this, if you decide to take on the role of registered agent yourself, is that most Kentucky LLCs also operate during normal business hours on business days and you can’t be in two places at once. Furthermore, if you’re the registered agent for your Limited Liability Company (LLC) and you miss a service of process, you could be sued without the ability to defend yourself and the Kentucky Secretary of State may decide that your Kentucky LLC is no longer compliant with Kentucky state laws regarding Kentucky LLCs having a registered agent service, which means that your LLC may no longer be able to do business in the state of Kentucky. In my opinion, the only upside to being your own registered agent is that you won’t have to pay any Kentucky registered agent fees.
If you choose a Kentucky registered agent service, it’s guaranteed that your mail, service of process, and legal documents will be received and delivered to you. Your personal information will remain secure, and you will remain compliant with the Kentucky Secretary of State. The fees of a Kentucky registered agent typically run between $99-$299.
Because of all the risks involved with an LLC owner also taking on the role of registered agent for the company, I always recommend that new Kentucky LLCs use a registered agent service. The fees that a registered agent charges are well worth it just for the peace of mind they provide.
You can click here to read my article on the best registered agent in Kentucky.
4. Choose Your LLC Address
The next important bit of information you must add to your Articles of Organization form is your business address. This is just as important as your LLC name because it’s registered with the office of the Secretary of State in the same manner and your business address will be listed on public record on the Secretary of State’s website.
If you’ve decided not to use a Kentucky registered agent service, you’ll need to list the physical street address of your business. If your business doesn’t have a physical street address, you’ll be forced to list your home or personal office address, which isn’t ideal because if you list your personal information on the public record it can leave you vulnerable to cyber crime, identity theft, and hackers. But whichever address you choose to use, it’s important to note that you can’t use a PO box address for your Kentucky LLC.
If you’re using a registered agent service, you won’t have to worry about which address to list. They will list their own address on the Articles of Organization form, which will be an address that can’t be traced back to you or your home.
5. Sign And File Your Articles Of Organization
Once you’ve completed the first four steps, the last step is to sign and file your Articles of Organization with the Kentucky Secretary of State. Before you file the form, make sure that the information you’ve added to it is complete and correct. Some of the information required to file the Articles of Organization form in the state of Kentucky are:
- Your LLC name,
- A street address in the state of Kentucky for your business,
- Your registered agent’s name and address,
- Your initial principal office’s mailing address,
- If your Kentucky LLC will be member-managed or manager-managed,
- The effective date of your LLC in Kentucky,
- Boxes checked to indicate your LLC’s size and purpose, and
- Your LLC Organizer and registered agent’s signatures.
Once you’re sure all of this information is included on your Articles of Organization form and that it’s accurate, you can sign and file it. Of course, signing and filing the Articles of Organization with the Kentucky Secretary of State yourself will lead to your information being put on the public record. But if you’re using a Kentucky LLC formation service, they will sign and file the Articles of Organization on behalf of your Kentucky LLC.
You can file the Articles of Organization form for your Kentucky LLC online or by mail, along with a payment for the state filing fee. The filing fee is $40. To file by mail, send the form and the payment to the following address:
Division of Business Filings
P.O. Box 718
Frankfort, KY, 40602
Once you’ve filed the Articles of Organization for your Kentucky LLC, the Secretary of State will contact you by mail or email once they’ve processed the formation documents and your filing fee payment. This typically takes between 1-3 days.
Other LLC Activities
After your Articles of Organization has been filed and processed, you still have a few other things to do in order to ensure your Kentucky LLC stays in good standing with the Secretary of State.
First, all Kentucky LLCs are required to file an annual report by June 30th of the year after their formation. Annual Reports can be filed as early as Jan 1st, however, if your LLC’s annual report is not filed by the deadline of June 30th, this results in your LLC receiving an automatic status of “bad standing” which can cause involuntary shutdown or dissolution of your Kentucky LLC.
If you're worried about forgetting to file your annual reports, some registered agent services offer compliance reminders for important filing events like this. The Kentucky Secretary of State also sends an annual report postcard reminder to each Kentucky LLC every January, and filing the report is as simple as filling out and returning the annual report postcard along with a filing fee of $15. If you would prefer to file an annual report for your Kentucky LLC online, you can do so via this link.
Kentucky LLCs aren’t just required to file an annual report; you’ll also want to ensure you pay all of your appropriate state taxes and obtain any relevant business licenses in order for your business to operate smoothly and legally. To see what the business license requirements are for your business, check with the city or county offices where your LLC is located. For state licensing requirements, you can visit the Occupational Licenses/Permits section of the Kentucky One Stop Business Portal here.
If your LLC is operating from outside the state of Kentucky then you’ll need to file a Certificate of Authority (Foreign Business Entity) application. This can be filed online via the Kentucky Online Gateway here, or by filing the form via postal mail. The filing fee for this application is $90.
If your Kentucky LLC plans on collecting sales tax or hiring employees, you’ll also be required to register your business with the Kentucky Department of Revenue. If your company collects sales tax, you can register online or by mail.
If all of this annual report filing and business license application seems overwhelming, consider hiring a professional service or subscribing to online legal aid. You can get assistance with your annual reports through a Kentucky PEO service and other online legal services that can assist you with reducing your overall filing workload.
Kentucky LLC Fee Summary
How much does it cost to start an LLC in Kentucky? It’s a legitimate concern to wonder about the cost to form an LLC if you’ve never done it before or are considering forming an LLC in a different state. Here is a breakdown of some of the tax obligations and filing fees you can expect to pay when you form a Kentucky LLC so that you can answer the “how much does it cost?” question.
Articles of Organization filing fee: $40
Name Reservation filing fee: $15
Registered Agent Fee: $99- $299 per state per year
Annual Report filing fee: $15
State Personal Income Tax: 5%
State Corporate Income Tax: 5%
After Starting Your Kentucky LLC
Congratulations! You’ve filed your Articles of Organization and finished all of the steps to form your Kentucky LLC, so there’s definitely time to celebrate. Go out for a night on the town with your friends or business partners, take a weekend trip, or perhaps treat yourself to a fancy dinner. But don’t take too much time off, because there are still a few things you’ll need to do.
The following three steps will help your LLC build strong business foundations and stay in good standing with the Kentucky Secretary of State.
Step 1. Create An Operating Agreement
Your Kentucky LLC isn’t legally obligated to draft an Operating Agreement, but it’s still in the best interest of your LLC to do so. Operating Agreements are the difference between a well- structured and organized LLC that’s optimized for growth and a chaotic mess that may struggle to keep daily operations orderly.
Your LLC Operating Agreement should serve as a rulebook and guide for the operations of your business, regardless of what industry you operate in. A well-written operating agreement makes growth and success easy and natural. A poorly written agreement (or a lack of agreement entirely) can cause you to experience difficulty and struggle to expand your business.
To better explain how important operating agreements are, think of your Kentucky LLC as a computer. The LLC is like the outer casing, protecting the vital components of the computer and giving it structure. The Operating Agreement is like a computer’s operating system, which is what tells the parts of the computer how to respond to input. A good operating system is user-friendly and makes operating your computer easy and simple. Likewise, a well-written Operating Agreement allows your business to grow and thrive without placing any undue stress or frustrations on you.
*IMPORTANT* Before drafting the Operating Agreement for your LLC, it’s important that you decide if your LLC will be a single-member LLC, a multiple-member LLC, or a manager-managed LLC. In a single-member LLC system, one member will make all of the decisions for your business in Kentucky. A multiple-member system means that a handful of LLC members will vote on each decision for your business, rather than one member.
Your LLC’s Operating Agreement will also serve as a contract between LLC members, outlining their share of the structural, financial, operational, and managerial responsibilities of the LLC. A well-written operating agreement will explicitly list what each LLC member is responsible for, what their share of the profits are, who they answer to, and who answers to them. The Operating Agreement should also include clear instructions for how each department of your LLC will interact with the others. If you don’t include clear instructions, this can create confusion and result in an unclear and frustrating workplace hierarchy that may hinder your business’s growth and success.
Poorly written Operating Agreements often leave these rules or guidelines too vague or unclear to be of any actual use and this can lead to infighting amongst LLC members if your business begins to experience unprecedented growth. Without a clear division of responsibilities in the Operating Agreement, your LLC’s departments may also experience difficulty coordinating with each other which can also cause problems for your Kentucky LLC; therefore, it’s paramount to ensure your LLC adopts a well-written Operating Agreement with clearly set rules and guidelines if you want your business to be able to grow with ease.
Once drafted, your LLC Operating Agreement serves as the rulebook for how your Kentucky LLC will operate. As previously stated, you aren’t under any legal obligation to adopt an Operating Agreement in Kentucky, but without one your LLC will be governed solely by Kentucky state LLC laws and regulations; this can result in your limited liability status being more vulnerable and create obstacles on your LLC’s path to success.
If you’ve never written an LLC Operating Agreement before, there are professional services available to help you.
Northwest Registered Agent offers a free Operating Agreement template, and online legal services are available to help you ensure everything in the Operating Agreement is worded and formatted correctly. Many Kentucky LLC formation services, such as ZenBusiness, will also assist you with drafting an Operating Agreement for your LLC as part of their business resources.
Step 2. Apply For An Employer Identification Number
In addition to drafting an LLC Operating Agreement, your Kentucky business may be required to obtain an EIN.
Both single-member and multi-member LLCs that plan on hiring employees will be required to obtain an Employer Identification number in order to operate in Kentucky. Single-member LLCs that do not plan on hiring employees only need to obtain an EIN if they elect to have their LLC taxed as a corporation.
An Employer Identification Number (EIN) allows your LLC to apply for specific permits and licenses that it wouldn’t qualify for without one. Even single-member LLCs that don’t have employees may need to obtain an EIN to qualify for some of these licenses, depending on the type of business they do.
An Employer Identification Number (EIN) functions in a similar fashion to a Social Security Number, in that it serves as the unique tax ID for your business the same way a Social Security Number identifies people. You can obtain an EIN from the Internal Revenue Service (IRS) website here and there is no filing fee. EIN applications can be submitted online via the Internal Revenue Service website Monday-Friday from 7 am-10 pm.
Step 3. Open A Business Bank Account
The last step to ensuring your LLC has a solid business foundation is opening a business bank account.
Many first-time LLC owners (and even some experienced LLC owners) neglect this important step. It’s easy for them to assume that having one bank account for their personal finances as well as business finances will simplify things, but this is a huge misconception. Unless you plan on keeping a detailed ledger of your transactions and expenses, allowing your personal bank account to serve as the bank account for your LLC can create more problems than it will solve.
For starters, it can become quite difficult to distinguish personal transactions from business transactions when it’s time to file your state and federal tax returns. Having a dedicated account for your business makes obtaining a record of your business transactions incredibly simple and easy when filing state and federal tax information.
You also risk leaving your personal finances vulnerable in the event of legal action. If you use your personal bank account as the account for your LLC, then you could lose the valuable limited liability and asset protection you gain from forming an LLC.
So in order to experience the full benefits of forming an LLC and keep your information protected, you need to open a business bank account.
To open a business bank account, you’ll need what is referred to as a “bank kit”. A bank kit is a collection of certified copies of all of your LLC formation documents, which should include:
- Your Kentucky LLC’s Articles of Organization,
- A copy of the LLC Operating Agreement,
- Your LLC’s EIN (if applicable), and
- An initial resolution for your LLC.
You can gather the copies for all of these documents yourself, but many LLC formation services in Kentucky offer bank kits as a part of their offerings.
Congratulations! You’ve filed all the papers, drafted the Operating Agreement, and completed all the steps to ensure your Kentucky Limited Liability Company (LLC) has a rock solid business foundation.
If you’ve made the decision to form your Kentucky LLC without the aid of an LLC formation service (which can charge fees as low as $0 plus state filing fees), then you’ll need to follow these five steps to form your Kentucky LLC today:
- Obtain the Articles of Organization form,
- Name your LLC,
- Choose your Registered Agent,
- Choose your LLC address, and
- Sign and file your Articles of Organization.
All of the paperwork and filing can be overwhelming, but if you can make it through the jungle of legal jargon, paperwork, bureaucracy, and red tape then you’ll be able to bask in that feeling of pride and accomplishment knowing that you launched your Kentucky LLC the right way. It’s worth the effort to be able to enjoy the feeling of establishing your Kentucky LLC without any help.
Congratulations again on your decision to form a Kentucky LLC and on taking on the task of establishing your LLC with confidence!