Form a Kentucky LLC in 6 easy steps

A limited liability company is a mechanism to legally set up a business. It combines the limited liability that a corporation provides with the adaptability and absence of formality that is offered by a partnership or sole proprietorship.

Why you should start a Limited Liability Company

Any business owner wanting to reduce their personal liability for business debts and legal actions related to their company, i.e., if they want to keep their personal assets separate from business assets, then they should consider founding a limited liability company or an LLC. The most crucial choice the founders must make when launching a new company is selecting the type of corporate entity. Forming an LLC is usually the best choice for most small businesses that have more than one founding member.

A little bit about LLCs

An LLC is a simple business structure that offers business owners legal protection by isolating their personal assets from their company's liabilities. Nevertheless, LLCs sometimes pay fewer taxes than corporations do. Yet, forming an LLC might be challenging depending on where you are located because each state has a different procedure, filing cost structure, and ongoing legal requirements. Kentucky's standard LLC organization process and some of the lowest filing costs in the nation make it very simple to form an LLC.

Below is the six-step process to start an LLC in Kentucky

1. Select a name for your LLC

• First, the Kentucky LLC you'll form needs to have a business name distinct from that of other companies registered with the Kentucky Secretary of State.
• Secondly, according to the Kentucky LLC naming guidelines, the name of your Kentucky Limited Liability Company must include one of the following terms or acronyms: "Limited Liability Company," "Limited Company," "LLC," or "LC." It is possible to shorten the phrase "Limited Company" to "LTD CO."

How to reserve an LLC name, and how much does it cost?

By searching the Kentucky Secretary of State's company name database, you can determine whether the Kentucky LLC business name you choose is available.

By submitting a Reservation or Renewal of Reserved Name with the Kentucky Secretary of State, you can reserve the name you choose for up to 120 days. You can make the reservation via mail or online. The filing fee for an LLC’s name reservation in Kentucky is $15.

2. Select a registered agent service

In Kentucky, as in every other state in the union, incorporating an LLC necessitates the selection of a registered agent service to take care of state and federal legal paperwork and service of process on the company's behalf.

Requirements

The individual or business entity acting as your registered agent must either have a Kentucky street address and be a resident of the state, or if they are headquartered out of state, they must have a Kentucky business office. The registered agent must be reachable at their physical street address during regular work hours. A person at least 18 years old or a business offering registered agent services can serve as the registered agent.

What do the registered agents do?

The duties of your registered agent extend beyond simply receiving court documents and other correspondence on your behalf. The registered agent is also responsible for ensuring you receive the paperwork on time. Generally, registered agents accept any legal or limited liability entity tax paperwork on behalf of the business. You risk losing a case by default or facing legal consequences for disobeying a subpoena if your registered agent fails to accomplish this. This is why selecting a trustworthy agent with experience acting as a registered agent is crucial.

Can you act as your own registered agent?

You can choose to act as your own registered agent or choose a member of your Kentucky LLC or an employee as the registered agent. LLCs are not allowed to operate as their own registered agent. You may also appoint someone or a business entity to serve as your registered agent if required.

How much will it cost you to hire a registered agent?

The normal charge range for registered agent services is $40 to $300; on average, a registered agent service fee is about $100. To make sure your money will be properly spent, carefully read reviews and be sure to ask questions before hiring a professional registered agent service.

3. Articles of Organization

You need to file your Kentucky LLC's Articles of Organization with the Secretary of State in order to establish your Kentucky LLC.

The Articles of Organization you’ll file should contain the following information:

1. The name you’ve chosen for your Kentucky LLC.
2. The street address of your Kentucky LLC.
3. Your registered agent’s name and address.
4. The mailing address of your LLC’s main office.
5. You’ll be required to mention whether your LLC in Kentucky is manager-managed or member-managed.
6. The date when the Articles of Organization for your LLC in Kentucky would come into effect.
7. The size of your Kentucky LLC and its nature of business.
8. The registered agent’s and the LLC’s organizers’ signatures.

Filing fee

You can file the Articles of Organization of your LLC online, or you can file it by mail. To file the Articles of Organization for your LLC in Kentucky, you’ll be required to pay a $40 fee.

4. Draft a Kentucky LLC Operating Agreement

Although it is highly recommended, having an LLC operating agreement is not legally mandatory for your LLC in Kentucky. It is a vital step in the LLC formation process.

What is an operating agreement, and why is it necessary to have one?

Operating agreements are internal documents that lay out how Kentucky LLCs will operate. An operating agreement should define the individual roles and responsibilities of LLC members, explain the LLC's corporate structure, and describe how the LLC will be operated. By demonstrating that your LLC in Kentucky is really a separate legal organization from other businesses, an operating agreement can also aid in maintaining your restricted liability.

The limited liability company's members are legally bound to the operating agreement's conditions after signing it. If you do not form an operating agreement for your Kentucky LLC, state LLC legislation will control its operations. Operating agreements must be stored with essential business documents.

5. Get an Employer Identification Number or EIN from the Internal Revenue Service

The Internal Revenue Service (IRS), which is a federal government agency, requires that all newly created LLCs in the US obtain a federal Employer Identification Number, also known as Federal Tax Identification Number or FTIN. Although, single-member LLCs need not go through this process.

If you establish a one-member LLC, you only need to obtain an EIN from the Internal Revenue Service if you have plans to hire employees or choose to tax it like a corporation rather than a sole proprietorship.

What is an EIN used for?

Similar to a social security number for businesses, the nine-digit EIN is required to pay income taxes, file federal and state taxes, open a business bank account, and carry out a number of other crucial tasks. You can also use your EIN to get a business credit card. No filing cost is required to apply for a federal Employer Identification Number online through the IRS website.

6. File your Kentucky LLC’s annual report

By June 30 of each year, all LLCs conducting business in Kentucky are required to submit an annual report to the Kentucky Secretary of State.

What should be included in your LLC's annual report?

When submitting your first annual report, you must include the addresses of LLC members and managers, the principal, the registered office or agent, your signature, and the date. The same material must be confirmed in succeeding yearly reports.

Filing requirements

The first annual report must be submitted between January 1 and June 30 of the year after the LLC was created. The Secretary of State shall receive subsequent annual reports between January 1 and June 30 of the following calendar years.

Filing options

You have three options for submitting the annual report: online, by mailing the annual report postcard your LLC will get in January, or by printing it out and mailing it. The annual report filing fee for a Kentucky LLC is $15.

Forming a Foreign LLC in Kentucky

A Kentucky LLC created outside of the state with plans to conduct business there must register with the Kentucky Secretary of State. They must also adhere to the Kentucky LLC naming requirements and use the Kentucky FastTrack Business Organization Lookup to confirm that the LLC name is available for usage in the state. After that, they must designate a Kentucky registered agent and submit a Certificate of Authority online or by mail to the Kentucky Secretary of State. For a foreign LLC, the filing fee is $90.

Forming a professional LLC in Kentucky

You must create a professional limited liability company if you wish to form an LLC and offer a licensed professional service in Kentucky (PLLC). Architects, lawyers, dentists, certified public accountants, and other professionals are examples of professional services that can form a PLLC.

Broadly speaking, you are a professional service if you offer goods or services that necessitate the acquisition of a Kentucky state license in order to practice. LLCs can be created to offer professional services under Kentucky law.

All LLC owners must have a license or registration to practice the professional service for which the LLC was formed, and only one specific type of service may be offered.

You may need to register with the Kentucky Department of Revenue

Many Kentucky LLCs, particularly those with employees and those collecting sales tax on retail goods and services, must register with the Kentucky Department of Revenue. Registration can be done online, or you can choose to submit a paper application.

Do Kentucky LLCs have to file federal taxes?

By default, only the members of LLCs are required to pay federal taxes and not the LLCs themselves.

However, Kentucky charges LLCs with more than $3 million in revenue or earnings a Limited Liability Entity Tax (LLET). The Kentucky Department of Revenue must receive payment of the tax, which is based on the same receipts or profits. Pay this tax by using DOR Form 720.

Do you need to provide Workers' Compensation Insurance?

Any company in Kentucky with one employee or more must offer workers' compensation insurance. Both full-time and part-time employees are included in this. Almost all companies in Kentucky's public and private sectors are required by law to offer workers' compensation insurance to their staff. Generally speaking, employees must be covered by their employer's workers' compensation insurance, although there are certain exceptions:

1. If you run your business alone. Yet, if you have staff, you are required to offer workers' compensation.
2. If you are a firm partner.
3. If you are an eligible LLC member.

A workers' compensation coverage can provide benefits to all of the aforementioned. Since medical expenses are high and your health insurance provider may reject a claim for a work-related injury, it is typically a smart idea. In Kentucky, an estimated $0.97 is paid by the employer for every $100 of covered payroll.

What is General Liability Insurance, and do you need to get it for your LLC in Kentucky?

Common business hazards, including customer injury, customer property damage, and advertising injury, are all covered by general liability insurance. It helps you qualify for leases and contracts and shields your small business from the hefty costs of lawsuits. If a customer slips and gets hurt while visiting your establishment or if you accidentally cause damage to someone's property, this business liability insurance coverage will cover the costs of the lawsuit. Libel and copyright infringement are examples of personal and advertising damage that are covered by this policy.

General liability insurance is frequently necessary for small business owners to meet the lease, loan, or contract criteria. General liability insurance is a cost-effective risk management strategy for small organizations.

Kentucky LLCs are not required by law to obtain general liability insurance, with the exception of construction and a few other industries. Even if you own or rent an office or other commercial space, most businesses nevertheless need this insurance.

General liability insurance is advantageous for small companies dealing directly with clients and customers. In the event that a client or rival sues you, this insurance policy can keep your business financially stable. Most significantly, having this insurance gives your bank, client, or property manager peace of mind knowing they won't be forced to cover the costs of a lawsuit against your business.

When do Kentucky LLCs have to pay taxes to the Internal Revenue Service?

In some circumstances, LLC owners elect to have their company handled for tax reasons like a corporation. Making this decision entails submitting IRS Form 2553 to the IRS. In contrast to the usual pass-through tax scenario, when an LLC chooses to be treated as a corporation, the business itself is required to submit a separate tax return for its business income.

Kentucky levies corporate income taxes, much like practically every other state. The corporation income tax in Kentucky is calculated at a limited range of marginal rates and is applied to taxable net income. For tax payments, use DOR Form 720.

Obtain business licenses

Your LLC might require additional regional and state business licenses, depending on the nature of its business and the location of its operations. For information on obtaining local business licenses, contact the city clerk in the region where the LLC's main business place is. Check out the Kentucky One Stop Business Portal's Occupational Licenses/Permits section for more on obtaining a state business license.

Should you hire a lawyer to start an LLC in Kentucky?

Your goals and financial situation will determine whether or not hiring a lawyer would be worthwhile. A lawyer may make sense if money is not a concern, you want to save time and get in-person, expert help for filling, and want expert solutions regarding legal issues.

Indeed, hiring a lawyer can save the time spent doing research, and they could offer extra guidance regarding the formation of your firm. Although it is not required to do so, hiring a lawyer can be advantageous when you start an LLC.

The following are some potential benefits of hiring a lawyer to create your LLC.

1. A lawyer can assist you in determining the availability of a business name.
2. They can assist in organizing the required paperwork.
3. A lawyer can also assist you in creating an operating agreement for your company.
4. They can help you prevent filing errors.
5. They are able to maintain records and accurate documentation of the procedure.
6. If necessary, they can offer assistance and advice with extra business formalities.
7. You will receive continuing legal counsel if you engage a lawyer to help you form an LLC.

Conclusion

You should consider establishing an LLC if your company is just off the ground or if you have previously operated as a sole proprietor. LLCs provide a great deal of flexibility when it comes to ownership, management, and taxation of the business while limiting an owner's personal liability for corporate debts and lawsuits.