How to Incorporate in Kentucky vs. How to Start a Kentucky LLC
A Guide to Choosing the Best Business Entity in Kentucky
If you’re starting a business in Kentucky, but you’re unsure if you should form a Limited Liability Company (LLC) or start a corporation, this is the Kentucky guide for you! Throughout this Kentucky-specific incorporation and LLC formation guide, you’ll discover exactly how to form either an LLC or corporation in Kentucky, and learn the disadvantages and advantages of each business type.
Once you decided which business structure best meets your needs, you can hire Active Filings and have our professionals streamline your incorporation process. We’re confident you’ll see in no time why Active Filings is America’s most reliable business incorporation service.
Hire us to form your LLC or Corporation in Kentucky!
LLCs vs. Corporations
When it comes to choosing between forming an LLC and incorporating your business, regardless of which state you start your business in, you can typically base your decision off one of the following factors:
- Maintenance
A corporation will require a high level of maintenance to remain compliant. Corporations are strict, and have legal obligations on duties like electing a board of directors, holding shareholder meetings, and maintaining internal records such as meeting minutes and stock issuance. On the flip side, LLCs only require a minimal amount of maintenance. LLCs require little paperwork, have flexibility in decisions, and low annual upkeep. An LLC will be the ideal choice if you have a small to medium-sized business and will need a low amount of maintenance. - Tax structure
An LLC requires a manageable amount of tax-related paperwork for smaller businesses, since its not a separate taxable entity from its owners and members. LLCs are pass-through tax entities, where income and losses pass through the business and onto the members to report on their personal income tax return. For higher income LLCs, the tax rate is usually lower than a corporation. Corporations default to a tax structure called a C corporation, but can potentially elect an S corporation tax status if it’s more beneficial. The C corporation is known for what’s called double taxation, where a business’s net income is taxed initially by a corporate tax, and then taxed again on personal income, after shareholders receive their profits and losses (dividends). C corporations are typically taxed at a lower rate on profits, have tax deductibles such as health care and travel, and and can retain its earnings to be reinvested into the company’s growth. When you elect an S corporation tax status, your corporation becomes a pass-through entity, and is allowed tax advantages such as dividends not subject to self-employment tax. - Investors
Corporations are exceptionally better at gaining investors. Investors are more comfortable handing money over to a familiar and reputable business structure like a corporation. Investors don’t have to worry about complicating their personal taxes when they invest in a corporation, and only get taxed on profits actually distributed to them. Investors view corporations as a dependable business structure that will provide them with a return on their investment. Having a corporate structure will profoundly impact the ability to raise investment money. In contrast, investors can own a percentage of an LLC. Owners of LLCs will have to pay taxes on their distributive shares, even if they haven’t received a distribution on those profits, and can’t issue stock, which is a turn-off for many investors. Consider a corporation if you are serious about gaining investors. - Prestige
Having the “LLC” or “Inc” ending on your business name gives it a level of prestige and status. These endings show permanence and encourage trust from potential investors or clients. The appearance of a business starts with its name, and while both entities provide a level of prestige, incorporating provides a higher level of prestige for your business, since the corporation is the oldest and most traditional entity type. Keep in mind the LLC has surpassed corporations in popularity in most states, and their prestige can only continue to grow.
Note that whether you form an LLC or a corporation, you’ll need to file a Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN) once your company is officially formed with the state of Kentucky. This report provides the federal government with identifying information about your company and those with the most control over profits and business operations. However, unlike state filings, the information shared in your report does not go on the public record and there is no filing fee. (Though if you don’t want to file this on your own, we offer BOI filing service for just $25.)
KY LLCs vs. KY Corporations
Now that we’ve covered the main characteristics between all LLCs and corporations, next is to discuss the specifics of why a Kentucky LLC or Kentucky corporation should be chosen for your business. Each state has its own set of statutes and tax laws that govern how its businesses operate, and these details should be considered when choosing your business entity. The information in this section will provide these specifics for the Kentucky LLC and the Kentucky corporation.
- Kentucky Corporate Income Tax
Kentucky’s corporate tax rate is fairly low compared to other states. The state uses a flat rate of 5%, which also has the advantage of simplicity around tax time for corporations. - Kentucky Personal Income Tax
Much like the corporate tax rate, the personal income tax rate in Kentucky is a flat rate of 5%, providing the advantage of simplicity around tax time for LLCs due to their default pass-through taxation. - Kentucky Limited Liability Entity Tax (LLET)
While Kentucky doesn’t impose a franchise or privilege tax on their businesses, Kentucky does have the Limited Liability Entity Tax (LLET) on the gross profits of the sale of tangible (concrete) property. The tax rate is $950 per $1 million of Kentucky gross receipts and $7,500 per $1 million of Kentucky gross profits, with a minimum tax of $175. This tax is fairly low, if it even affects limited liability entities at all.
Kentucky LLC or Kentucky Corporation? Final Answer.
In order to make your decision between a Kentucky LLC or Kentucky corporation, consider the size of your business, level of maintenance you require, priority of investors, and the most beneficial tax structure for the future of your business.
The Kentucky LLC is the user-friendly solution for small to medium-sized businesses. LLCs in this state are less expensive and tedious to form and maintain than corporations, and provide easy management, flexibility and liability protection. Kentucky LLCs stay true to character in their low maintenance and simple tax structure. If investors are not one of your top priorities, and you’re looking for liability protection for your business, the LLC is your solution.
The Kentucky corporation is the solution if your business will be growing substantially and investors will be key for that growth, and you have the means for the amount of paperwork required. A Kentucky corporation remains true to design in its extra paperwork, steps to start and maintain, and involved yet beneficial tax structure.
How to Incorporate in Kentucky
To incorporate a business is to form a corporation. To learn how to form a corporation in Kentucky, follow our Kentucky incorporation guide below:
Kentucky Articles of Incorporation Requirements
To incorporate in Kentucky, you must complete a document called the Articles of Incorporation, Profit Corporation (PAI). You can complete the Articles of Incorporation on the Kentucky Secretary of State’s website, or you can complete a paper version and mail it (this is more of a hassle, though, so we recommend filing online or hiring us to do it for you).
To complete the Kentucky Articles of Incorporation, you must include the following information:
This where you put your corporation’s name. One of the added benefits of forming online is that whatever name you enter will be run through the Kentucky database and cross referenced to make sure it’s available. The corporate name must contain the word “corporation,” “incorporated,” “company,” or “limited,” or any of the following abbreviations: corp., inc., co., or ltd.
Indicate the classes of shares and the number of shares of each class the corporation is authorized to issue. If you issue more than one class, you’ll need to create your own articles and not use the state form. This may require that you hire an attorney to draft your articles for you. Additionally if you’re going to issue more than 1000 shares, you’ll need to contact the Kentucky Secretary of State for the proper filing fee. Because of all that, we recommend you only issue one class of stock and issue 1000 shares or less.
Indicate the name of your registered agent [link this text to the registered agent page] and their office address. If you hire Active Filings to form your Kentucky corporation, we’ll provide a year of registered agent service for no additional charge and track all required maintenance filings to keep your corporation active, as well as provide a bevy of free online tools in your online Active Filings account.
If filing online, you simply check a box that the registered agent has consented to be the registered agent for your corporation. If filing by paper, the registered agent must sign at the bottom of the articles. And if you hire us, we’ll take care of everything for you.
Indicate the address where the business is located. This is the address where all correspondence from the Kentucky Secretary of State will be sent. One additional perk of hiring us to form your corporation is that we’ll list our address here and any communication from the state will be scanned and uploaded to your online account. This also helps to reduce junkmail as our address gets listed in the state database, so solicitors will contact us, not you.
The incorporator is the person authorized to create your corporation. They do not need to be affiliated with the business in any other capacity. If you form the corporation, your name and address goes here. If you hire us to do so, we’ll sign here. The state just wants to know who completed the form.
It’s not mandatory that you complete the questionnaire at the end of Kentucky’s Articles of Incorporation, but you certainly can if you wish. You’ll need to indicate in what county the corporation is being formed; if it’s a large or small business; minority, veteran, or woman owned; and what business sector the company operates in.
Name and date.
Filing the Kentucky Articles of Incorporation
Once you’ve completed the Articles of Incorporation, you must submit the completed document to the Kentucky Secretary of State. If you’re filing online, simply enter your credit card information and hit submit. If you’re filing by paper, attach a check for $50 (assuming you’ve issued 1000 shares or less; if not contact the Kentucky Secretary of State for the proper filing fee) and mail the articles to:
Alison Lundergan Grimes
Office of the Secretary of State
P. O. Box 718
Frankfort, KY 40602-0718
How much does it cost to incorporate in Kentucky?
The Articles of Incorporation filing fee is $50 if you authorize 1000 shares or less. If you issue more than 1000 shares, you need to contact the Kentucky Secretary of State for the proper filing fee.
How to Start an LLC in Kentucky
To learn how to start a Kentucky LLC, follow our guide to LLC formation below:
Kentucky Articles of Organization Requirements
To form an LLC in Kentucky, you must complete a document called the Articles of Organization. You can complete the Articles of Organization on the Kentucky Secretary of State’s website, or you can complete a paper version and mail it (this is more of a hassle, though, so we recommend filing online or hiring us to do it for you).
To complete the Kentucky Articles of Organization, you must include the following information:
This is where you put your LLC’s name. One of the added benefits of forming online is that whatever name you enter will be run through the Kentucky database and cross referenced to make sure it’s available. The LLC name must contain the words “limited liability company” or “limited company” or the abbreviation “LLC,” “LC,” or “LTD CO.” The name must be distinguishable from names existing on record with the Kentucky Secretary of State.
Indicate the name of your registered agent and their physical office address. If you hire Active Fillings to form your Kentucky LLC, we’ll provide a year of registered agent service for no additional charge and track all required maintenance filings to keep your corporation active, as well as provide a bevy of free online tools in your online Active Filings account.
If filing online, you simply check a box that the registered agent has consented to be the registered agent for your LLC. If filing by paper, the registered agent must sign at the bottom of the articles. And if you hire us, we’ll take care of everything for you.
Indicate the address where the business is located. This is the address where all correspondence from the Kentucky Secretary of State will be sent. One additional perk of hiring us to form your LLC is that we’ll list our address here and any communication from the state will be scanned and uploaded to your online account. This also helps to reduce junk mail as our address gets listed in the state database, so solicitors will contact us, not you.
Choose whether your LLC will be managed by managers or managed by its members.
The filing date is the default date the LLC will be effective. If you’d prefer a different date in the future (within 90 days after the filing date), specify it here.
It’s not mandatory that you complete the questionnaire at the end of Kentucky’s Articles of Organization, but you certainly can if you wish. You’ll need to indicate in what county the LLC is being formed; if it’s a large or small business; minority, veteran, or woman owned; and what business sector the company operates in.
Name and date.
Filing the Kentucky Articles of Organization
Once you’ve completed the Articles of Organization, you must submit the completed document to the Kentucky Secretary of State. If you’re filing online, simply enter your credit card information and hit submit. If you’re filing by paper, attach a check for $40 addressed to “Kentucky State Treasurer” and mail the articles to:
Alison Lundergan Grimes
Office of the Secretary of State
P. O. Box 718
Frankfort, KY 40602-0718
How much does it cost to form an LLC in Kentucky?
The Articles of Organization filing fee is $40.
Kentucky Annual Report Requirement
In order to keep your LLC or corporation in Kentucky in good standing, you do need to complete a couple tasks with the state to keep your business entity up and running.
1. File Your Annual Report
2. File Your Kentucky Business Taxes
Below, you’ll find instructions and resources to help you accomplish all your maintenance and tax related upkeep.
What is a Kentucky annual report?
A Kentucky annual report is a report that every active LLC and corporation in the state of Kentucky must file in order to maintain good standing. Fortunately for those who are required to file, the Kentucky annual report is pretty simple compared to other state annual reports.
How do I file an annual report in Kentucky?
You can file an annual report online, in person, by postal mail, or returning the annual report postcard you receive via the United States Postal Service.
How much does it cost to file an annual report in Kentucky?
It costs $15 to file an annual report in Kentucky.
When are Kentucky annual reports due?
Kentucky annual reports are due by June 30 of each year. Reports can be filed any time between January 1 and June 30.
Can I file my Kentucky annual report online?
Yes, you can file your Kentucky annual report online by going to the Kentucky Secretary of State Online Services page.
Kentucky Business Taxes
Business taxes are confusing, but Kentucky business taxes are especially weird for LLCs. In most states, you simply file your annual report or franchise tax for an LLC. But in Kentucky, each entity type has its own tax return to file and pay a special tax called the Limited Liability Entity Tax (LLET).
The filings are complicated and you may need the help of a tax service or CPA to complete these requirements, but regardless of your accounting skills, we’re here to help get you started.
Take a look at our Kentucky business tax FAQ below:
What is the Kentucky Limited Liability Entity Tax (LLET)?
The Kentucky Limited Liability Entity Tax (LLET) is a tax on the Kentucky gross profits of the sale of tangible property for non-exempt corporations and limited liability entities, such as a limited liability company or an S corporation, doing business in Kentucky.
How is the Kentucky LLET calculated?
The tax rate is $950 per $1 million of Kentucky gross receipts and $7,500 per $1 million of Kentucky gross profits. There is a minimum tax of $175 on each corporation and limited liability entity.
Who has to pay the Kentucky LLET?
Non-exempt corporations and limited liability entities such as a limited liability company or an S corporation, doing business in Kentucky have to pay the Kentucky LLET.
Okay, so what tax forms do I need to file for an LLC in Kentucky?
If you own a single member LLC in Kentucky, you need to file Form 725.
If you own a multi-member LLC in Kentucky, you need to file Form 765.
If you own an LLC in Kentucky that is taxed as an S Corporation, you need to file Form 720s.
What tax form does a Kentucky corporation need to file?
A corporation in Kentucky is required to file Form 720.
What’s the Kentucky corporate tax income rate?
Kentucky’s corporate income tax rate is a flat 5%.
What’s the personal income tax rate in Kentucky?
Personal income tax in Kentucky is flat 5%.
When are my business tax returns due?
Business tax returns in Kentucky are due by the 15th day of the 4th month after the fiscal year ends.