The decision to start your own business can be overwhelming.
There are so many things to consider when deciding how you want to run your company, how much money you need in order to get started, and how long it will take before you find success.
One question that gets asked a lot is whether or not the owners should form an LLC.
For those of us who live in Kentucky, forming an LLC may be our best choice.
This article will help answer some of these questions and provide insight into how setting up an LLC works in Kentucky.
Why Start a Limited Liability Company?
There are many reasons why someone would want to start a limited liability company. Here are some of the top benefits:
- The ability to limit your personal exposure in case something goes wrong with your business
- Funding for growth and expansion opportunities without having to give up equity control
- Keep more profits and gains by paying less income tax
A Kentucky LLC features all of these benefits.
The LLC is one of the most popular business structures for entrepreneurs because it allows them to limit their exposure in case something goes wrong with their business while also having full control over all decision-making within the company.
This means that they can continue to grow or expand without giving up equity or voting rights.
Set up a Kentucky LLC the Right Way
In order to form an LLC in Kentucky, you must go through a couple of steps.
The first steps involve naming your business and filing the certificate of formation with the Kentucky Secretary of State.
You can file online or via mail. That goes for most of the legal documents necessary to start a business.
Here's everything you need to know about starting an LLC in Kentucky.
Step 1: Name Your Business
First, you need to name your business. There are a few ways to go about this, including filing the name with an official state agency or business association.
You can check whether your chosen name is available by checking business name databases.
This can be done online, and you should check periodically for availability because business names change hands frequently.
However, the surest way to secure a business name is by filing it as a "Doing Business As" (DBA) or with your county clerk's office in Kentucky, where you will operate your business.
It's also possible to reserve an LLC name by paying a $25 fee to the Kentucky Secretary of State.
The reservation lasts for 180 days, after which the business name becomes publicly available again.
You should also make sure your business name complies with any regulations, or other rules business associations may have for business names in Kentucky, such as restrictions on what terms are allowed and whether it is necessary to include a disclaimer about their purpose.
Step 2: Find a Registered Agent
A registered agent is an individual or business entity who will receive important legal and tax documents on your LLC's behalf.
They can also be contacted if you run into problems with the Kentucky Secretary of State during business operations, such as getting fined for not filing a form on time.
You should consider hiring your own registered agent to handle these responsibilities.
You could also hire a registered agent service to take care of the job for you. However, you won't be getting a registered agent service free of charge.
In order to work as a Kentucky LLC registered agent, an individual must meet certain requirements and file paperwork with the Kentucky Secretary of State.
For one, they need to have a physical street address in the state. They also need to meet certain age and citizenship requirements, as well as pass a background check conducted by the Kentucky Bureau of Investigations.
Step 3: Submit Kentucky Certificate of Formation
A certificate of formation is a document that is used to create a legal business entity.
A certificate of formation must include the name, registered agent's name and address, its effective date or creation date, a NAICS code, email address, and a signature of a LLC manager, member, or organizer.
A Kentucky certificate of formation must include all of that information along with a filing fee of $50.
The processing time is about 5 days. Once you get your Kentucky LLC certificate, you will need to file it with the Kentucky Secretary of State.
Step 4: Put Together an LLC Operating Agreement
While an operating agreement isn't required in Kentucky, it is highly recommended.
Not only will an operating agreement make your business more organized and professional, but the terms of the operating agreement are legally binding.
The first thing you need to do when creating a Kentucky LLC operating agreement is to determine who needs to be included in this contract. Operating agreements should include the following information:
- The name of the LLC and the address
- A statement about all members' shares, voting rights, and equity interests in the company.
- What happens if a member leaves or dies (a buy/sell agreement).
These are only some of the things that usually appear on an operating agreement. After you draft your operating agreement, make sure to keep it updated as changes occur.
Operating agreements should help business entities and owners conduct business without complications down the line.
You should consider hiring an attorney if you need help creating your operating agreement, but there are also many online resources that can guide you through the process.
Always get legal advice from a professional if you run into any issues during the LLC formation process.
Step 5: Get an Employer Identification Number
Finally, you can get a federal employer identification number (FEIN or EIN) by visiting the Internal Revenue Service website.
On the IRS website, you'll find the online application you need to fill in. It's free of charge.
You don't need an EIN if you have no employees or if you're the only member.
However, if you want to have your Kentucky LLC taxed as a corporation instead of a sole proprietorship or want to hire employees, you won't be able to do so without an EIN.
File LLC Annual Reports
Every LLC doing business in Kentucky must file an annual report with the Secretary of State.
Each LLC member is responsible for filing these reports, but you can create a management company to do it instead if you wish.
These annual reports are due by April 15th every year. There's no filing fee for Kentucky LLCs. In contrast, foreign LLCs need to pay a $250 fee.
You must have a state-issued business ID number, or EIN before you file the annual reports.
Get a DBA Name for Your LLC
DBA names are required in Kentucky if you want to do business under a name other than your LLC's registered name.
You should have this DBA, or "doing business as" document, even though it isn't technically necessary for LLC formation.
For example, banks and creditors may require that you provide one when applying for financing.
DBA name doesn't need to have the word "LLC" in it.
Open an LLC Business Bank Account
You need a bank account that's separate from your personal bank account.
Opening a bank account should be done as soon as possible after you've filed to form an LLC in Kentucky.
This is because banks probably won't do business with you until you have an EIN or establish that the company exists by filing the certificate of formation.
How Much Does It Cost to Get an LLC in Kentucky?
It costs $50 to file your certificate of formation with the Secretary of State.
It costs $100 to open an LLC bank account in Kentucky.
Can I Set Up an LLC on My Own?
Yes, you can set up an LLC in Kentucky without the help of a lawyer, but there are certain rules and regulations you must follow.
If you aren't sure about any part of the process, you should involve a professional.
Do I Need a Lawyer to Set Up an LLC?
No, you don't need a lawyer to set up an LLC in Kentucky.
You can do it yourself, but there are certain rules and regulations you must follow before filing your paperwork with the Kentucky Secretary of State.
If you aren't sure about any part of the process, you should involve a professional who is experienced with setting up businesses.
Is Forming an LLC Free?
No, forming an LLC is not free. There are fees that you have to pay when filing the necessary documentation.
How Long Does It Take To Get LLC Approved in Kentucky?
It takes approximately four to six weeks for an LLC in Kentucky to be approved.
However, this time frame can vary depending on the status of your application and how quickly you provide any additional information that is needed.
Is an LLC Easy to Start?
Yes, an LLC is relatively easy to start. All you have to do is file the necessary documents and pay any fees associated with forming a business in Kentucky.
What Taxes Does an LLC Pay in Kentucky?
LLCs in Kentucky need to pay federal taxes. They are required to pay both income tax and self-employment tax on their business profits on a quarterly basis.
If the LLC has employees, it is also responsible for withholding federal payroll taxes from their wages.
How to Dissolve an LLC in Kentucky?
To dissolve an LLC, you need to have a majority agreement of the members.
If you do not have this, then your LLC is considered as "dissolved" if it fails to file its required annual reports with the Kentucky Secretary of State within 30 days after they are due.
Forming an LLC in Kentucky is a relatively straightforward process that you can complete on your own without too much trouble.
However, it's always best to consult with a professional if you're not sure how to do something (or about any other legal matter).
A lawyer or tax advisor will be able to answer all of your questions and help ensure the formation process goes smoothly, so you don't have any issues down the road. If forming an LLC sounds like something you need assistance with, you should definitely ask for help.