Here’s an overview of the key steps you’ll need to take to start your own business in Kentucky.
The most common legal structures for a small business are a:
There also are special versions of some of these structures, such as limited partnerships and S corporations. You’ll want to consider which business entity structure offers the type of liability protection you want and the best tax, financing, and financial benefits for you and your business. Check Choose Your Business Structure on Nolo’s website for more information on how to choose the best ownership structure for your business.
For LLCs and corporations, you will need to check that your name is distinguishable from the names of other business entities already on file with the Kentucky Secretary of State (SOS). You can check for available names by doing a business organization search on the SOS website. You can reserve an available name for 120 days by filing a Reservation or Renewal of Reserved Name. You can also renew a name reservation. There are certain name requirements for LLCs and corporations (like including a word such as “L.L.C.” for LLCs or “Company” for corporations). See How to Form an LLC in Kentucky and How to Form a Corporation in Kentucky for more information.
If your business is a partnership that uses a business name that’s different from the surnames of the individual partners, you must file a Certificate of Assumed Name with the SOS. If your business is a sole proprietorship that uses a business name that’s different from your legal name, you must file the Certificate of Assumed Name with the county clerk in the county where you are a resident.
If you plan on doing business online, you may want to register your business name as a domain name. See Choose and Register a Domain Name for more information. In addition, to avoid trademark infringement issues, you should do a federal and state trademark check to make sure the name you want to use is not the same as or too similar to a name already in use. See How to Do a Trademark Search for more information.
Tax Registration. If you will be selling goods in Kentucky, you must register with the Department of Revenue (DOR) to collect sales tax. If your businesses will have employees, you must register with the DOR for employer withholding taxes. You can register for both types of tax, as well as other business taxes, online at Kentucky’s One Stop Business Portal.
EIN. If your business has employees or is taxed separately from you, you must obtain a federal Employer Identification Number (EIN) from the IRS. Even if you are not required to obtain an EIN, there are often business reasons for doing so. Banks often require an EIN to open an account in the business’s name and other companies you do business with may require an EIN to process payments. You can get an EIN by completing an online application on the IRS website. There is no filing fee.
Regulatory licenses and permits. Kentucky does not have a general business license issued by the state. However, many types of business either can or must get one or more licenses or permits. Kentucky sometimes refers collectively to all of these licenses and permits as “occupational.” Regulatory licenses and permits may cover particular types of business services, the sale of particular products, health and safety, and the environment, among other things. For help figuring out which state regulatory licenses and permits may apply to your particular business, check the Occupational Licenses/Permits section of the Kentucky One Stop Business Portal. For information about local licenses and permits, check the websites for any cities or counties where you will do business.
Professional and occupational licenses. These cover people who work in various fields. The Occupational Licenses/Permits section of the Kentucky One Stop Business Portal lists many—though not all—of these professions and occupations.
You’ll need to pick a location for your business and check local zoning regulations. That includes if you work from home. You may be able to find zoning regulations for your town or city by checking municode.com.
Kentucky taxes every kind of business. This includes a relatively unusual Limited Liability Entity Tax (LLET). SeeKentucky State Business Income Tax for more information on state business taxes in Kentucky.
Sole proprietorships. Pay state taxes on business income as part of their personal state income tax returns (Form 740).
Partnerships. Partners pay state taxes on partnership income on personal tax returns. In addition, Kentucky partnerships also must file some version of Form 765. Limited Partnerships and Limited Liability Partnerships are liable for the LLET.
LLCs. Members pay state taxes on their share of LLC income on personal tax returns. In addition, LLCs themselves have to file an additional state tax form. The specific form used will depend on how the LLC is classified for federal tax purposes. LLCs are liable for the LLET. Kentucky LLCs also are required to file an annual report with the Kentucky SOS. See Kentucky LLC Annual Filing Requirements for more information.
Corporations. Shareholders must pay states taxes on their dividends from the corporation. A shareholder-employee with a salary also must pay state income tax on his or her personal state tax return. Moreover, the corporation itself is subject to Kentucky corporation taxes and the LLET. And, finally, corporations must file anannual report with the Kentucky SOS.
If you have employees, you must also deal with state employer taxes.
And, apart from Kentucky taxes, there are always federal income and employer taxes. Check IRS Publications 334,Tax Guide for Small Business, and 583, Taxpayers Starting a Business, available at irs.gov.
Insurance is a good idea for most kinds of business. While insurance often is regulated at the state level, the types of business insurance available are usually similar across the fifty states. Check Obtaining Business Insurance for more information.