The first big decisions that an entrepreneur makes can affect the company throughout its existence. For instance, the business entity structure that is chosen will have an impact on the taxation treatment and obligations of the company. Since there are various structures to choose from for a Kentucky company, it may be hard to figure out what to select. The best way to decide is to weigh the pros and cons of all options. Then, go for the one that offers the most benefits for the company and is suitable for its circumstances. Will it be a Kentucky C Corp or LLC?
Doing Business in Kentucky
The state of Kentucky has many strengths that make it a good place to start a business. Generally, it has a business-friendly environment. It also offers various incentives and programs that aim to help businesses.
- Ideal location – Kentucky is in the middle of multiple states. That means having access to different facilities, goods, materials, and consumer markets.
- Good logistics – The state is home to two international airports and three global shipping hubs. It also has a good transportation network. So, moving products and packages is easy.
- Cost of doing business – Generally, maintaining a Kentucky business entity is affordable. The state also offers multiple innovative tax incentive programs.
- Competitive workforce – With the Workforce Innovation and Opportunity Act in place, the state offers training assistance programs for workers free of charge. That means getting access to skilled employees.
- Business incentives and programs – Qualified companies can also benefit from the various programs of the state. Some of these are the following:
- Tourism Development Act
- Business Investment Program
- Direct Loan Program
- Small Business Loan Program
Choosing a Business Entity Structure
Two of the options that many entrepreneurs choose are a Kentucky C Corp and limited liability company (LLC).
- C Corporation – This structure is the traditional corporation that most people are familiar with. If this structure is selected, the company will be considered a separate legal entity. That means it can enter into contracts, buy or sell properties, file lawsuits, and get sued. The owners of a C corporation are called shareholders. They are the ones who will elect the members of the company’s Board of Directors.
The shareholders of a corporation enjoy limited liability protection. That means even if the company ends up incurring debts, it will not affect the owners’ personal assets.
- LLC – The LLC is often referred to as a hybrid business structure. That is because it combines the asset protection that a C corporation offers and the pass-through tax treatment of a partnership. Similar to a corporation, an LLC is also a separate entity. The owners, who are known as members are not responsible for the company debts and liabilities but will report business profits in their individual tax returns.
Both the Kentucky C Corp and the LLC offer many benefits. The two structures also offer limited liability protection. The difference between them lies in the formation, ownership, taxation, and governance.
- Corporation – To form a corporation, be sure to file the Articles of Incorporation with the state. The company should also have a Board of Directors that will oversee the business operations. Additionally, the board needs to adopt bylaws to govern the procedures of the company.
- LLC – LLCs have to file a completed Articles of Organization with the state. To set out the business procedures and management of day-to-day operations, you may create an operating agreement.
- Corporation – The owners are called shareholders or stockholders since they own shares of stocks in the company.
- LLC – Members of LLCs have an equity interest in the company’s assets based on the investment they have made when they joined the business.
- Corporation – Corporations have a high level of maintenance requirements to ensure compliance. They have strict and legal obligations, such as electing the members of the Board of Directors, holding shareholder meetings, and maintaining detailed records like the minutes of meetings and stock issuances.
- LLC – On the other hand, LLCs do not have to observe the same practices. There is no need to elect a Board of Directors or maintain minutes of meetings.
- Handling Profits and Losses
- Corporation – The profits of the company will be taxed at a corporate level. The income that the shareholders get from the business will also be taxed. In short, a corporation experiences double taxation.
- LLC – By default, LLCs are pass-through entities in terms of taxation. So, they will not be taxed at a corporate level. All profits and losses are passed through to the members.
- Self-Employment Taxes
- Corporation – Shareholders are not self-employed. So, they will not have to pay these taxes.
- LLC – Members of LLCs are considered to be self-employed. So, they have to pay these taxes on their share of the business profit.
What To Do
Once the appropriate business entity structure has been decided on for the company, make sure that the operations in the state are legal. To do this, complete the formation process.
- Step 1: Choose an appropriate name. The name of the company will represent the business. So, come up with a name that will reflect the vision and values of the company. Additionally, make sure to comply with the naming guidelines of the state. Be sure to include a proper designator depending on the business entity structure.The business owner should also ensure the distinguishability of the company name. That means doing a business entity name search to find out if the desired name is still available. If another Kentucky entity is already using the name, it can no longer be used.
- Step 2: Select a registered agent. Like other states, Kentucky also requires all businesses to have a registered agent to serve as the general point of contact of the company with the state. They will accept legal correspondence and business mail on behalf of the company. Read this article to help find the best registered agent.You can appoint an individual, as long as s/he:
- is a resident of the state,
- maintains a physical street address in Kentucky,
- is at least 18 years old, and
- is always available in the registered office during regular business hours.
You also have the option to nominate a company. They should:
- be a corporation, non-profit corporation, or LLC authorized to do business in the state, and
- is available during regular business hours.
- Step 3: Submit the appropriate formal paperwork. The form that will be used will depend on the structure that is chosen. LLCs have to submit the Articles of Organization to the Secretary of State. The filing fee for this is $40. Meanwhile, corporations have to file the Articles of Incorporation and pay a minimum filing fee of $50.
- Step 4: Complete other compliance obligations. Depending on the activities of the company and the location of its primary place of business, it may have to obtain certain business licenses and permits. The business may also need to get an Employer Identification Number (EIN) from the Internal Revenue Service (IRS).If a Kentucky C Corp is selected, then be sure to create the company’s bylaws, appoint members to the Board of Directors, hold an initial meeting, and issue stock.The company will also have to file an Annual Report on or before June 30 of every year. The filing fee for this is $15.
Whether you choose to form a corporation or an LLC will depend on the needs and circumstances of the business. Make sure to understand both options to come up with a well-informed decision.
After that, you can proceed to the business formation process of Kentucky. The requirements and paperwork will depend on the structure selected. But, both of them involve the completion of multiple steps. If you need help in handling the tasks, contact a reliable third-party organization like DoMyLLC. Our team of experts can provide a personalized solution to make sure that the service is suitable for all the specific needs of the company.
Business Filing Section