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Last Updated on October 26, 2021

How to Start a Business in Kentucky

Kentucky can be a great place to do business, thanks to a combination of low labor costs, low costs of doing business, and a low overall cost of living. The state also has a low corporate tax rate, making it an attractive home base for both local and out-of-state entrepreneurs. 

Are you interested in joining the ranks of Kentucky entrepreneurs? This guide will show you how to start a business in Kentucky, and help you check all the boxes necessary to start the company of your dreams.

First and foremost, you’ll need to decide what kind of business you want to start. Chances are you already have something in mind, but if not, here are some things to consider:

  • What are you talented or naturally skilled at? Could this talent make you well suited to a certain type of business?
  • What business does your community need? Have you talked to people to find out?
  • What are you interested in? Can you combine any of your passions with a business idea?
  • Is this going to be a full time business, or more of a side hustle?

These are questions to ask yourself when deciding on a business idea. Once you have decided, move on to the next step.

Now it’s time to start planning. This means coming up with a business plan, naming your business, researching locations, and more. There’s a lot to cover here, so let’s break it down:

Select a business name

The first step is to choose a name for your new KY business. You should take your time with this process because you want to choose a name that is a good fit for your company. The name should be relevant to your business type, and memorable for your clients or customers. 

Also, the name must be unique. It must be distinguishable from the names of other companies registered in KY. This means you may not get your first pick of a business name if it’s already been taken by another firm. To see if a name is available, use the Kentucky business entity search database. You can use this to search all businesses that are currently registered in the state. 

Choosing a unique name is important, but it’s not the only Kentucky business naming rule that you’ll need to comply with. You should also ensure that you meet these requirements: 

  • The name must be unique from other businesses already registered in the state
  • LLC names need to contain “limited liability company”, or approved abbreviations like “LLC” or “L.L.C.”
  • Corporation names need to contain “corporation”, or approved abbreviations like “corp” or “inc”
  • To use certain restricted financial-related words, like “bank” or “trust”, you may need additional written permission
  • Other rules may apply. 

When you have found a name that you like and that meets all the rules, you can move on to the next step.

If you’re not quite ready to form your new company, you can also reserve the business name for a period of 120 days, by paying a $15 filing fee. This allows you to reserve the name for a few months while you think about it. 

Kentucky trade names

Kentucky allows for the use of assumed names, otherwise known as trade names or DBAs. These are secondary business names that can be added to existing business registrations, and used for branding purposes. Essentially, if you register a Kentucky DBA, you can then legally operate under that new DBA name.

For sole proprietors, trade names are filed on the county level. Contact your county clerk for details.

For LLCs and corporations, trade names are filed with the Secretary of State. Business owners must file the Certificate of Assumed Name in order to file for a KY DBA. 

Register a domain name

Once you choose a name, you should immediately register a domain name for your new business. In most cases, getting a .com domain name is ideal, but there are many other extensions (.biz, .net, etc.) that are worth considering. 

You can use a tool like Namechk to search for an available domain name and find a great deal on the registration cost. You may find that your desired names are taken, so you may need to get creative. 

Complete market research

Once you have an idea, you’ll want to do some market research. You want to gain a better understanding of who your customers – and competitors – are. You can achieve this by conducting online research, running focus groups, sending out surveys, and more. There are also companies that can help you complete market research, for a fee. 

Select a business location

Unless you plan to run a remote/virtual business, you will need to find a physical location for your company. Research commercial property in your area, and take note of typical costs. For customer-facing businesses (retail and some services), location is very important, so take your time in selecting the right area for your business. 

Create a business plan

You will now need to create a detailed business plan for your new venture. This plan is helpful for your own purposes, and will also be necessary in order to obtain funding from a bank. A good business plan should contain these elements:

  • Finances: How much funding does the business need to get started? How many sales does it need each month to break even on expenses?
  • Product: What do you plan to sell? Is it a product or a service? What problem does your business solve, and how is it distinct from your competitors?
  • Marketing: How will you drive sales? What marketing and sales efforts do you plan to employ? How much money will you set aside to fund marketing efforts?
  • Staff & Partnerships: How many people will you need to hire, and what skill sets do they need to have? Will you have any partnerships or arrangements with other local businesses? 

If you need help, you can find business plan templates online that will help walk you through the steps you need to take to draft a detailed business plan. If you plan to seek funding, you may also wish to call your bank to see what they require in terms of business plans. 

Before you form your business as a legal entity, you will need to decide which business structure you will use. There are a few different types of businesses, each with its own pros and cons.

Sole proprietorship

Sole props are single-person operations. Examples include freelancers, gig economy workers, and consultants. A sole proprietorship business is very easy and inexpensive to form, and tax reporting is also fairly simple. As a sole proprietor, your business taxes are reported as part of your personal tax return.

The downsides to a sole prop are that you cannot hire employees, and you don’t have the legal liability shield that something like an LLC or corporation would provide. 100% of the debts and liability of a sole proprietorship go to the sole owner: you. 

Partnership

A general partnership is an unincorporated business structure similar to a sole proprietorship, except with two active owners/participants. Partnerships do not have liability protection. 

Limited Liability Company (LLC)

A limited liability company, or LLC, is a popular choice for business owners because it provides liability protection to the owners. It separates the business from the owners, which means the personal assets of owners will not be at risk if the company gets sued or goes into bankruptcy. 

LLCs are also a bit easier to form than corporations. Even so, there is definitely more work involved with an LLC than there is with a sole proprietorship. 

Corporation

A corporation is owned by its shareholders and is a separate entity. There are a few different types of corporations (C-corp, S-corp, etc), with the main differences being the way they are treated tax-wise. 

Corporations are more regulated than LLCs, which makes them more attractive to outside investors. For this reason, most large companies are corporations. The downside is that it takes more effort, and more paperwork, to form a corporation. 

Nonprofit

A nonprofit is a legal entity that is set up with charitable status, meaning that its goal is not to make a profit, but rather to address a certain cause. Nonprofits are funded by donations, rather than investors, and are subject to many regulations. They are exempt from most forms of taxation, although tax returns must still be filed. 

Next, the time has come to actually register your company and form a new business entity. You will need to work with the Kentucky Secretary of State, either through the Kentucky One Stop Business Portal or through the mail. 

There are two broad options that you can take when forming your company:

  • Do the work yourself, or
  • Use a professional business formation service

Services like Northwest Registered Agent, ZenBusiness, and Incfile provide low-cost services to help you start your new company. These services walk you through each step of the process, ensuring that everything is handled correctly and efficiently. You will pay a bit extra to use one of these services, but the time you save will be well worth it. 

If you decide to do the work on your own, the basic steps include:

  1. Choosing a name for your Kentucky business
  2. Choosing a Kentucky Registered Agent for your business. The registered agent is tasked with receiving legal documents on behalf of your company. More information here.
  3. Filing formation documents with the Kentucky Secretary of State 
  4. Applying for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS)
  5. Applying for other necessary permits or licenses

There are different steps necessary depending on the type of business you plan to form. Here are specifics for the most common types of businesses formed in Kentucky:

Form a Kentucky sole proprietorship

Follow these steps:

  1. Decide if you will operate under your legal name, or use a trade name
  2. If you use a name other than your own, you may need to register an assumed name
  3. Apply for a business license and/or other necessary permits from local governments (city/county)
  4. More information here

Form a Kentucky LLC

Follow these steps:

  1. Name your LLC 
  2. Choose a Kentucky Resident Agent (or use a service such as Northwest Registered Agent)
  3. File the LLC Certificate of Organization online, and pay the $40 filing fee. You can also file the form by mail
  4. Draft an LLC operating agreement
  5. Apply for an EIN with the IRS

Form a Kentucky corporation

Follow these steps:

  1. Decide on your desired corporate tax structure (S corp or C corp) 
  2. Name your new corporation 
  3. Choose a Registered Agent
  4. Hold an organizational meeting and appoint directors
  5. File the Kentucky Articles of Incorporation online, and pay the $50 filing fee. You can also file by mail
  6. Apply for an EIN from the IRS

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Registering your business and forming an LLC or corporation is an important part of starting your business – but in order to operate legally, you will likely also need to obtain certain permits and/or business licenses

The specifics vary depending on the type of business you are running, as well as your location. For example, restaurants will need health permits, bars will need liquor licenses, and medical service providers will need various professional licenses and federal permits. You will need to research the specifics that relate to your business type.

There are different requirements at each level of government:

  • Local: Cities and counties may require certain business licenses or permits. Contact your county clerk for details.
  • State: Kentucky may require additional permits and/or licenses in order to operate legally in the state. Check the Kentucky One Stop Business Portal for details. 
  • Federal: Federal permits/licenses may be required for certain regulated industries, such as construction, medicine and legal services. Check the Small Business Administration (SBA) guide for more details. 

At this time, you should also apply for an Employer Identification Number (EIN). An EIN is a federal tax ID that is required to hire employees. You can apply for an EIN online with the IRS – the application is free and quick. 

For most businesses, some startup funding will be necessary in order to get started. In step #2, you should have calculated your funding needs while drafting a business plan. Use this information to determine how much funding you need to raise.

For bootstrapped companies, you may be able to get by with your own personal savings, or some seed investments from friends and family. If your funding needs are small, this is likely your best route.

If your business plan indicates that substantial funding is needed, you will likely need to apply for a loan and/or a grant.

  • Small business loans are offered by banks, credit unions and other lenders. They can range from as little as a few thousand to hundreds of thousands. Specifics will depend on your business, as well as your personal creditworthiness. Most small business loans are issued in a lump sum, and paid back on a monthly basis, with interest.
  • Small business grants are offered by government agencies and some nonprofits. They are essentially business loans that don’t need to be paid back – but they usually have substantial fine print. It’s worth looking into, however, as there may be grants available, particularly for businesses serving an important social need, or for underprivileged entrepreneurs starting their first business. 

Beyond securing funding, there are other routine tasks that you need to take care of to get your business’ finances in order. This includes:

  • Opening a business checking account. You should have a separate business bank account that you use solely for business purposes. You can open this account at most banks, credit unions and financial institutions. Call ahead to see what documents will be required to open this account.
  • Open a business credit card or line of credit. This is not strictly necessary, but most businesses can benefit from having a business credit card, and/or a business line of credit. This can be used for day-to-day expenses and purchases, and may also earn you some rewards. 
  • Set up your accounting system. As a business owner, you will need to keep very detailed records about all revenue and expenses. To do this, you’ll want to set up the proper foundation from day one. This could be investing in an account software such as QuickBooks or Xero, hiring a bookkeeper, or at the very least establishing a spreadsheet to track everything. If you do not have any accounting experience, it’s wise to hire a professional to help. 
  • Purchase business insurance. Most businesses should have some form of liability insurance, and potentially other forms of business insurance as well. Insurance policies can help protect your equipment and buildings from costly damage, and help shield your company from liability if a worker or customer is injured or otherwise harmed. Speak with a local business insurance provider to get started. 

In this day and age, having a solid web presence for your business is very important. And social media profiles, while important, are no replacement for an actual website. You will want to build a professional business website that you can use to drum up business, inform your customers, and stay connected with your clientele. 

The simplest way to build a website is to use a website builder from a web hosting provider. When you register a new domain name, look for a provider that also offers web hosting and a site builder, so that you can purchase everything at once and get your site set up quickly. 

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Unless you plan to operate a solo business (with you as the only worker), you will likely need to hire employees. To do this, you will need a federal employer identification number (EIN), which is a free tax ID number issued by the Internal Revenue Service (IRS).  

Once you have your EIN from the IRS, you can legally hire employees. You’ll also need to satisfy certain state requirements, however. You should ensure that the people you are hiring are legally able to work in the state and that they hold all the necessary professional licenses or permits needed for their roles (food service workers will need food handler’s permits, for instance).

The state of Kentucky requires that employers in the state report new employees to the Kentucky New Hire Reporting Center. Employers will also need to register for (and pay) unemployment insurance tax, as well as withholding tax. There will likely be other tax reporting requirements, as well. 

At this point, you also should look into setting up your payroll system – whether you handle it yourself, or use a payroll service. 

Now it’s time to get down to business and engage with the day-to-day activities that are sure to bring your business success. This means marketing your products and services, maintaining good relationships with your return customers, and setting yourself apart from the competition.

Still have questions about running a business in Kentucky? Here are some answers to frequently asked questions.

What are some business resources in Kentucky?

There are many good resources available for Kentucky entrepreneurs and business owners. A great place to start is the Kentucky Small Business Development Center (KY SBDC). This resource provides free business advisor services, webinars and training, and many other useful resources. Other good resources include the SCORE Louisville and the US Small Business Administration (SBA).

What is the minimum wage in Kentucky?

The Kentucky minimum wage is $7.25 per hour, which is the same as the official federal minimum wage. There may be exceptions for certain employees. See this page for details.

Keep in mind that individual cities and counties are able to impose their own minimum wage laws. Check with your local city/county governments to ensure that you are compliant with all local laws.

What business taxes does Kentucky have?

There are a variety of taxes that KY businesses must pay. Any business that sells taxable goods or services must pay the Kentucky sales tax (currently 6.0% on the state level), and taxable goods that are used or consumed by the business may be subject to use tax.

Many businesses will also be subject to corporate income tax, unemployment insurance tax, withholding tax, and potentially others. See the Kentucky Department of Revenue’s website for details.

How do I dissolve an LLC or Corporation in Kentucky?

If you close a business in Kentucky, you will need to “dissolve” it. To do this, you will need to file voluntary dissolution paperwork with the state of Kentucky. At this time you should also take steps to close your business tax accounts and file any outstanding tax returns. There will likely be additional requirements as well.

It can be complex to close a business, so it’s best to work with a certified public accountant (CPA) or lawyer for this process.

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