An LLC is a hybrid business structure. It shares characteristics of a sole proprietorship and a corporation. Owners insulate themselves from business debt, becoming a personal liability. No separate taxes pass through to the owner. There is a lot of flexibility with the structure of the organization.
Choosing a Name
Choosing a name for an LLC is among the most important things to do. There are guidelines
- The name uses only Arabic/Roman numerals and English letters
- It contains ‘limited company,’ ‘limited liability company,’ or the abbreviation ‘LC’ or ‘LLC.’
- ‘Limited company’ uses the abbreviation ‘LTD CO.’
- It is different than any name currently registered or reserved with the Secretary of State Office and any Federal or State agency.
The process of establishing a Kentucky LLC is rather straightforward. The number one reason for an LLC rejection in Kentucky is someone registers a name that is a duplicate of one already registered. The first step in filing an LLC is to do a Kentucky LLC search.
Search the Kentucky State records for any businesses that have the same name as the one you desire. Do so by contacting the Secretary of State Office at (502) 564-3400 or conducting an online search of business names already registered with the Secretary of State Office through the database provided.
An optional form, having a filing fee of $15, reserves a name for 120 days. Have some alternate names in case your choice is not available. When searching, check to make sure a relevant URL is available to ensure you have an appropriate domain name.
When you select a name that is not in use, you are ready to proceed to Step 1 of the filing. The cost is $40 to file. There is an Adobe PDF online that applicants can use to fill in the blanks. The form is available on the Secretary of State website. There are two pages. Fill out the first page with the necessary information. The second page contains instructions to complete the form. Read the instructions before filling out the form.
Filling Out the Articles of Organization Form
Some blanks on the application are worth pointing out. The representative of the LLC is the owner or someone else chosen to serve in that capacity. The State of Kentucky requires having a representative called the Registered Agent and a registered address for the agent.
1. Office and agent need a full street address, not a P.O. Box
2. Agent needs to be a Kentucky resident and able to transact business in the State
3. An address outside Kentucky is acceptable for the office location
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Attorneys or accountants are sometimes the Registered Agent. In the event of legal action against an LLC, this is the place and person used for serving the legal process. The Registered Agent is physical present in Kentucky and represents the physical lyaddress listed on the Articles of Organization form.
The Registered Agent is the person who gets legal notice. When the State asks the LLC for the yearly filing fees, the Registered Agent gets the notification. The address of the Registered Agent is where any legal contact begins. It is a choice of importance.
The advantages of not serving as your own Registered Agent include:
- Registered Agents maintain normal (nine-to-five) business hours
- Business run from home exposes personal address to the public
- Registered Agents keep up with important deadlines, dates, and notices
- Avoid legal notices served in front of coworkers or family
The principal office is the headquarters of the business. The answer to who will manage the company has two choices – either the owners have people who are the managers, or the owners are the designated managers. Box A says ‘Manager(s).’ Check that box if members elect several people from the businesses to be responsible for business affairs of the company in a manager-managed LLC. Box B says, ‘Member(s).’ This is the box for those owners or investors who are the managers. Members and owners mean the same thing. Member-managed LLCs afford all members equal decision making about the way a business runs.
The date of the business operation is usually no more than a month ahead. There is a space provided to put a delayed date or time. It cannot be before the application date and no later than 90 days after the filing date. If left blank, the application is effective upon filing.
The signature of the organizers means you and other members or investors sign the application. Each signs and prints their name, title, and address. Do not forget to date the form. The Registered Agent either signs the Articles of Organization on the indicated space on the form or provides a written consent to represent the LLC as an agent.
A set of filing instructions are part of the application. It is likely contains legal jargon that is difficult to understand. The filing fee is $40. After reviewing the form to make sure the information is accurate and complete, file the form. Articles of Organization go to the Secretary of State Division of Business Filings at the address listed at the bottom of the filing instructions. There is an option to file online.
Draft an LLC Operating Agreement
Before starting business, there are several steps to take. The first is for the LLC members to draft an Operating Agreement. An Operating Agreement is not a necessity, but is highly advised when forming an LLC in Kentucky. The agreement outlines:
1. The role of each member
2. How to add new members and remove existing ones
3. Voting rights
4. Allocation of profit and loss
5. Capital contribution from each member
6. How to amend the Operating Agreement
Because the agreement is not a filing requirement, the LLC Registered Agent keeps it one file.
Obtain an IRS Employer Identification Number
An LLC with multiple members needs an IRS Employer Identification Number to use for proper Federal and State tax payments. Apply online, call the IRS at (800) 829-4933, or complete and mail Form SS-4 to the address given on the form. Wait for the submission and approval of the Articles of Organization before applying for your Employer Identification Number.
The EIN is basically the social security number of the company. Federal and State agencies use it to track a business activity. The company needs it when opening a bank account, filing State and Federal taxes, and hiring employees. The online application is free and the most efficient method. Using mail, fax, or phone is also possible.
Open a Bank Account
You want to have a bank account separate from accounts of its members and managers. Maintain the protection of personal assets by using dedicated credit and banking accounts. Mixing business and personal assets put your personal property such as cars, home, or other valuables at risk if there is a lawsuit against the LLC. Using personal assets in business is called ‘piercing of corporate veil.’ Banks vary in their requirements needed to open an account. At the very least, you need an EIN and a copy of the Articles of Organization.
Obtain Needed Permits and Licenses
When starting an LLC in Kentucky, acquire any permits or licenses, your LLC needs to conduct its business from the City or County Clerk’s Office that has jurisdiction over the location of the LLC. These offices can tell you if you need additional licenses or permits. Businesses regulated by the Office of Occupation and Profession has licensing requirements also. Check with the agency if you engage in activity under their jurisdiction.
File with the Appropriate Local, State, and Federal Agencies
Depending on the purpose of the business, filing additional related LLC forms is sometimes necessary. Consult the local Chamber of Commerce or the U.S. Small Business Administration website for advice.
Register with Kentucky's Department of Revenue
State law requires LLCs to register with the Department of Revenue for tax purposes. Go online or obtain Form 10A100. Mail the completed form of complete the online form. If filing by hand, send to:
Kentucky Department of Revenue
P.O. Box 299, Section 20
Frankfurt, KY 40602-0299
Thoroughly read the instructions if filing the form by hand.
File an Annual Report
State law requires every LLC in Kentucky to submit a report every year to the Secretary of State Office as a condition to operating as a Kentucky LLC. The primary purpose is to ensure the information filed in the Articles of Organization is currently correct.
The report is due June 30, of each year. It has a $15 filing fee. There are three ways to submit the report:
- Return the annual report postcard received in January at the LLC Kentucky principal office
- File online
- Print an annual report and return it to the Secretary of State Office in person or by mail
Obtain Business Insurance
Business insurance helps manage risk and focuses on growing the business. There are two types of business insurance – general liability insurance and professional liability insurance. Genera liability protects the company from lawsuits. Professional insurance is for those providing professional services such as accountants or consultants. It covers malpractice claims and other business errors.
Reduce the LLC’s liability of being non-compliant with employment laws.
1. Verify employees have permission to work in the U.S.
2. Report new people hired to the State
3. Withhold employee taxes
4. Print compliance posters and place them in visible areas of the workplace
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Forming an LLC in Kentucky is possible an individual. It is a recommendation to enlist the help of an attorney or professional LLC formation services that know how to form an LLC in Kentucky. Creating an LLC has many challenges before the business is up and running.
The suggestions above shed some light on how to protect business and personal assets, keep a company compliant, and make running the business easier. Fines and automatic dissolution are possible when improper handling of business occurs. Owners risk losing limited liability protection. Check out our next Louisiana LLC guide.