Steps to Starting a Business in Kentucky

Starting a business can be a daunting task. Not only do you have to worry about sales revenue and spending expenditures, but you have legal steps you have to take before you can start your business. And unfortunately, there are not a lot of concise resources out there to help you with it. These are some critical steps you need to take when you start a new business:


1. Write a Business Plan

This might seem like a step that is tempting to bypass, but having a written plan is critical. It gives you vision for your business, and lamp that will guide your path. It will give your business idea validation, or might open your eyes to the pitfalls you are about to jump into. There are plenty of business plan templates online that you can choose from. The SBA has a decent template that is very thorough, and you can find that HERE. I would recommend giving your local Small Business Development Center a call for free help with business planning and financial projections.

 

2. Select a Business Name and Legal Entity

A business name is a very important part of a business startup. If you are operating as a Sole Proprietor and want to be called something different than your own name, you can file an Assumed Name certificate (also called a Doing Business As, or Fictitious Name certificate). If you are an LLC or a Corporation, you will reserve your business name when you go through the legal process of registering your business with the Secretary of State. If you are an LLC or Corporation, you need to register your business with the Secretary of State through the OneStop Kentucky Business Portal. If you are a Sole Proprietor, you do not need to register your business through the Secretary of State.

 

3. Register Your Taxes

No matter what legal structure you are (Sole Proprietor or LLC), you need to register for your tax accounts with the appropriate sources. There are 3 main places you will need to go to register for your taxes: State Department of Revenue (State Tax), County Clerk (County Tax), and City Clerk (City Tax). You will also have to pay Federal taxes, but your tax account can figure that out when you file your annual taxes. You need to go to the County and City Clerks offices to register for the taxes, but the state taxes can be done through the OneStop Business Portal (this applies to both Sole Proprietorships and LLC/Corporations).

 

4. Obtain Business License

This is a common myth: there is no standard business license a business has to get in Kentucky. That being said, specific businesses must have certain licenses, such as general contractors. To see if your business category needs to obtain a specific state license, go to the OneStop Business Portal. Depending on what county and city you live in, there might be a business license you need to receive. But most times, a city or county "business license" is just referring to the local tax account. It is always recommended to visit your local county and city clerks whenever you start a business.

 

5. Obtain an EIN (Employer Identification Number) from the IRS.

This might not apply to everyone. If you are wanting to open a bank account, the financial institution might ask for an EIN. Also, if you plan on hiring any employees (full, part, or contract workers) you need an EIN. Good news is that they are free and can be registered for online at the IRS website.

 

6. Register any Trademarks or Service Marks with the Secretary of State

Most businesses will not need to worry about trademarks or service marks, but in the event that you are national company that is starting to make a name for yourself, you might want to look into it. Read my article HERE about trademarks if you want to learn more about them. You will want to get a lawyer to help you out with this process.

 

7. Visit Planning and Zoning for Any Storefront Businesses 

Before you purchase a building or rent a building, you will need to visit your local Planning and Zoning department. You do not want to sign a contract for a building or lease, and them come to find out you cannot operate business in that space. 

 

8. Complete Forms for Employees

If you have employees, you need to complete certain federal and state documents. A list of what you need to do before you hire an employee can be found on another article HERE.

 

What is a Registered Agent and Organizer?

The Kentucky One Stop Business Portal is a great resource to register your LLC, but sometimes there are words and terms used that you might not know. The most common terms that confuses people are the Registered Agent and the Organizer. These terms are important to understand before you register your LLC. 

Registered Agent

The Registered Agent is an "individual or a business, that is resident of Kentucky or is legally registered to operate in Kentucky (sos.ky.gov)." The Registered Agent is responsible for receiving legal documents on behalf of the business (like Service of Processes for lawsuits). The point of the Registered Agent is that you select a person or entity that will be at the provided address to receive important legal mail. Practically speaking, the Registered Agent does not really do much of anything, expect receive legal documents on behalf of the business.

The Registered Agent must be a resident of Kentucky, or whatever state you are registered the business in. It is common for a single-member LLC to put himself down as the Registered Agent. You cannot, however, put the LLC you are registering down as the Registered Agent. It must be the business owner, not the business itself. I would recommend the business owner be the Registered Agent, unless a professional lawyer suggests otherwise. Evergreen Small Business Blog suggest that, "[They] think you should be your own registered agent–or at least you should be the registered agent for your corporation or limited liability company in your home state."

Organizer

The Organizer is a Business Representative responsible for setting up the LLC and filing formation documents with the KY Secretary of State. There is not much written online on the KY Secretary of States website about Organizers, but according to other 3rd party sources, "the Organizer may be a Member of the LLC but does not have to be. Anyone authorized to act on behalf of the LLC may act as the Organizer. The Organizer is basically giving an oath that the information in the Articles [of Organization] is true and correct. (gettincnow.com)."

So technically, the Organizer is not the business owner or the LLC members. But I recommend that the Organizer be the owner or one of the owners of your LLC. A reason you may want someone other than the owner to be the Organizer is if you want to keep ownership names secret. But the ownership names are not secret for very long, because when you file the required Annual Report with the Secretary of State (sos.ky.gov), you must list the current owners or members. 


This is a very brief overview of the two terms, and there may be other terms that you run across on the One Stop Portal. The best advice I can give you is when in doubt, call the Secretary of State's office. Their phone number is listed below, and ask for the business filing department. They are easy and great to talk to and are happy to answer any questions you have in regards to online registration. I cannot speak highly enough about the quality of service I received from them. If you have any other questions, leave a comment on this article and we will try and direct you to the correct answer. 

Phone: (502) 564-3490

Address: Office of the Secretary of State; Business Filings, 700 Capital Ave. P.O. Box 718, Frankfort, KY 40602

How to Hire Employees

Hiring employees can be a daunting task, especially for a small business. There are many things you have to do as an employer to hire an employee, and failure to do these things could result in legal consequences. Luckily, there is a lot of information online (from government agencies) that help you with this process. This article will provide direction to hiring employees and provide reputable links to online sources. Note, this is not an exhaustive list. 


1. Receive an EIN number from the IRS

EIN Number: You might already have this number from when you started your business, but if you don't, you will need to get one. It is FREE from the IRS website. Do not let an individual or business convince you to pay them money to get you an EIN number. Click on the link below to register for an EIN number.

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Apply-for-an-Employer-Identification-Number-(EIN)-Online

 

2. State Tax Forms

Form K-4: You must have your employee sign the appropriate state tax forms, which lets you know how much tax to withhold from your employees. According to the KY.gov Employee Withholding Handbook, "All employees subject to withholding must complete an Employee’ s Withholding Exemption Certificate, Form K-4, Form K-4E or Form 42A809. These forms are used by the employer to determine the amount of tax to be withheld and should be on file immediately after an employee begins to work." The Kentucky Employee Withhold Handbook is linked below.

http://revenue.ky.gov/NR/rdonlyres/67A11A87-94CE-4255-862A-7B3D44B0A43E/0/42A003408.pdf

 

3. Federal Tax Forms

Keep Employment Records: Before you look around at the forms your employees need to complete, you must resolve to "keep records of employment taxes for at least four years (IRS.gov)," according to the IRS. You need to have a system in place to keep track of payroll and taxes withheld. You can do this yourself, but there are many professional payroll specialists companies in Kentucky that can do this for you (at a very reasonable fee).

Form W-4: Every employee must provide an employer with a signed withholding exemption certificate (Form W-4) on or before the date of employment. The employer must then submit Form W-4 to the IRS. See below for a link to Form W-4. Also, Turbo Tax has a good article HERE on what exactly a W-4 is

https://www.irs.gov/pub/irs-pdf/fw4.pdf

 

4. Employee Eligibility Verification 

Form I-9: "All employers must complete and retain Forms I-9 for every person they hire for employment on or after Nov. 6, 1986, in the United States as long as the person works for pay or other type of compensation (uscis.gov)." This must be completed and signed by the employee within 3 days of hire. According to the SBA website, "Employers do not need to submit the I-9 form with the federal government but are required to keep them on file for three years after the date of hire or one year after the date of the employee's termination, whichever is later." Click below for the I-9 form.

https://www.uscis.gov/sites/default/files/files/form/i-9.pdf

 

5. Register with Kentucky's New Hire Reporting Center

Report Employee Hires: "Federal and State law requires employers to report newly hired and re-hired employees in Kentucky to the Kentucky New Hire Reporting Center (ky-newhire.com)." This can be done by a simple phone call to (800) 817-2262, or by going to their website and registering online. See link below.

https://ky-newhire.com

 

6. Obtain Workers' Compensation Insurance

Purchase Worker's Comp: "All Kentucky employers with one or more employees are required to maintain workers’ compensation coverage (insurance.ky.gov)." Workers compensation can be purchase by any private insurance agent in KY, or it can be purchased through a KY state fund. It is recommended that the state workers comp fund be the last resort, if you cannot find a private insurance broker. The link to the state workers comp program is below.

https://www.kemi.com

 

7. Hang Certain Posters and Notices

This can be the most difficult thing to do when hiring employees, because there seems to be so many posters you "have to" hang in your business. Be careful: there are many individuals pretending to be legit companies trying to scam you into buying posters. Click on the link below to read a statement KY Attorney General Jack Conway about this. He lists the common required federal and state posters in his address. 

http://labor.ky.gov/dows/oshp/Documents/ATTY%20GENERAL%20-%20POSTER%20RELEASE.pdf

 

 

Choosing the Right Legal Structure

When you first start a business, one of the first, if not the first, things you will do is decide what legal structure you would like the business to be. This is a very important decision that might your business in the short and long-term. Here are the most common legal structures in Kentucky, with reasons why you might decide to choose that particular structure:


Sole Proprietorship

This is the most simple and easiest business to form, because the business and the business owner are one. Most people that operate a small business on the side are sole proprietors, weather they realize it or not. Sole proprietors are the least expensive and the least complicated. In the eyes of the public and of the law, the business owner and the business are the same. The implications are that your assets are a part of the business, so there is no protection if something legally happens to you (liability protection). There are no business registration documents that you have to file. All you have to do is be responsible for taxes on the Federal, State, and Local level. If you are going to be using a different business name other than your own personal name, you may need a DBA (Doing Business As), which can be bought for under $40 at the County Clerks office. This is an ideal structure if you are just starting out your business, do not deal with the general public very much, and do not have many personal assets that you want protected.

Partnership

A partnership is very similar to a sole proprietorship, except that instead of 1 owner, there are multiple owners. The business and the owners are one in the same; there is not difference in the eyes of the public and the law. Because of this, there is not liability protection for a partnership. There are not any registration documents that you need to file to become a partnership, except for your Federal, State, and Local taxes you need to register for. I would recommend seeing your tax accountant to help you with your taxes. With a partnership, it is important to have a Partnership Agreement, which is a legally binding document that lists how decisions will be made, how profits will be shared, how a partner can get out, etc. I would recommend seeing a lawyer to help you draw up a Partnership Agreement. 

A partnership can take many forms, so it is important to dictate the form of the partnership on the Partnership Agreement. For instance, you could have a General Partnership, where all owners divide the responsibility and profit/loss equally. There is a Limited Partnership, where some owners have limited rights, responsibilities, and liability protection. This form of a partnership is more complicated and may require formal legal documents to be filed. Lastly, there is a Joint Venture, which is like a General Partnership but only for a limited time. If the owners want to continue their venture after that allotted time, they will be recognized as a General Partnership. No matter what kind of partnership is formed, it is recommended that you see a lawyer to help you get set up legally. 

Corporation

There are many types of corporations, but they are all charted by the state when the business is headquartered. Corporations are considered a unique entity by law. That means the owners and the business are separated. The business has an identity and can be taxed, sued, enter into contractual agreements, etc. Instead of using the term owners, the people who own the business are called shareholders. These shareholders own either public or private stock of the business, and elect a Board of Directors to oversee policy and strategic decisions. If the shareholders (owners) die, the business lives on. Another person can purchase the shares of stock and become a shareholder in that person's place. Corporations are a very complicated business structure and must adhere to strict guidelines and legal requirements. A lawyer is a must have if you are thinking about creating an corporation. 

Limited Liability Company/Partnership (LLC/LLP)

Like the simplicity of the sole proprietorship but hate how it doesn't have liability protection like a corporation? Well, you are in luck because the LLC is a business structure designed to provide benefits of other structures. The LLC is owned by members or managers, which can be 1 person or multiple people. The members of the LLC make strategic decisions for the company and they have to renew their LLC every year with the state. An LLC gives members liability protection, so their personal assets are protected. BUT taxes are still flowed down to the individual. If you are a single member LLC, your assets are protected, but your taxes will flow down to you personally. This means you are responsibility for paying your tax bracket, as well as the self-employment tax the Federal Government requires. The LLC can choose to elect to be taxed as a corporation, which is called a S-Corporation. Talk with your tax accountant to see if you would benefit from having your LLC elected to be taxed as a S-Corp. 


To help you decide what legal structure is best for you, you really need to know your company vision and mission. Here are a few things you need to consider in helping you decide what legal structure is best for you:

  • Your vision for the future of the company and its' size.
  • The business' vulnerability to lawsuits.
  • Expected sales revenue, profit, and loss of the business.
  • The level of control you wish to have.
  • The value of your personal assets.
  • The amount of time spent dealing with the public.

As with all the advice on this site, I encourage you to speak to an account or lawyer about legal or financial matters before you make a decision. There is not worse thing in business than making an uninformed, bad decision. Spending time thinking about legal structures, because it will have an impact on your business and your plan for future growth.

Kentucky Business One Stop Portal

As a business owner, the Kentucky Business One Stop Portal is something that you want to become very familiar with. The Kentucky Business One Stop Portal is "an easy-to-use environment where Kentucky's businesses can find the requirements and tools they need to own and operate a business in Kentucky (OneStop.ky.gov)." The whole purpose of One Stop is to provide a user friendly tool that streamlines many processes to promote economic wealth in Kentucky. Kentucky is 1 of 11 states that have an online portal such as this. 

It was created in 2011 by the Secretary of State, Alison Lundergan Grimes, as a partnership with the Office of the Secretary of State, the Finance and Administration Cabinet, and the Cabinet for Economic Development and the Commonwealth Office of Technology. 

So, what is the point of this? What can you, as a business owner, gain from this online portal? If I had to sum it up in a few bullet points, One Stop allows you to:

  • Register your business for cheap (including an LLC, S-Corps, Partnerships, etc.)

  • Acquire and renew business licenses and permits (including the Sales and Use Tax number)

  • Register and file Kentucky business taxes

There are many other features, small and big, that will make your life as a business owner easier. It is not perfect, but it is a big step toward streamlining processes that used to tie up hours for business owners. Creating an account is free, and I would encourage everyone to get a One Stop account and see what benefit it could provide for your business. 

Getting a Trademark in KY

This article is taken directly from the KY Secretary of State's website and is all about trade/service marks. If you are interesting in getting a trademark, I encourage you to talk to a legal professional about it. This is just to get your started and thinking in the right direction.


What is a Trademark?

A trademark is any word, phrase, symbol, design or combination thereof used to distinguish the source of goods of one party from that of another. All dealing with trademarks on a state level are handled through the KY Secretary of State.

 

What if I Sell a Service?

There is a trademark for service based industries called a Service Mark. A service mark is the same as a trademark, except it identifies and distinguishes the source of a service rather than a product. The services must be offered or provided to a party other than the applicant. The general terms "mark" and "trademark" may be used to describe both trademarks and service marks.

 

Do I Need a Trademark, Copyright, or Patent?

Patents protect inventions and improvements to inventions. Copyrights cover literary, artistic and musical works. Trademarks are brand names and/or designs that are applied to products or used in connection with services. Patents and copyrights are governed only by federal laws. Information for Patents and copyrights can be found at www.uspto.gov.

 

How Do I Acquire a Trademark?

Trademark rights are actually not acquired through the registration process. A trademark is acquired by a business through use of it in normal courses of business. You can register for your trademark, but it is not necessary.

 

Why Would I Register My Trademark?

Remember, registration does not establish rights. But there are two main benefits of registration: Primarily, registration provides conclusive notice throughout the state regarding your claim to ownership of the mark. This benefits both the owner seeking exclusive use of a mark and a trademark user who seeks to ensure that his or her mark does not conflict with a mark already in use. Secondly, registration may provide the trademark owner with procedural advantages should it become necessary to judicially enforce trademark rights. For more information regarding enforcement of trademark rights, you should consult legal counsel.

 

Does Registration with the Kentucky Secretary of State Protect My Mark in Other States?

No. Registration of a mark in this office applies only to Kentucky. This office does not cross-reference marks registered in other states or marks registered at the federal level.

 

Can I Register My Mark Federally?

For information regarding federal trademark registrations, contact the United States Patent and Trademark Office at www.uspto.govor (800) 786-9199, or by mail at Commission of Patents and Trademarks, Washington, DC, 20023.

 

When Can I Use Symbols?

These symbols, ™ and SM, which represent "trademark" and "service mark," respectively, are not used to indicate state registrations; use of these symbols indicates a claim to rights to the mark associated with the use of the symbol. There is no symbol that denotes a state registration. You can use the ™ and SM symbol when you start operating your business and using the mark. The symbol (R) can be applied only to federally registered marks.

 

How Do I Register?

You can download a Trademark/Service Mark application, or contact the Secretary of State office at (502) 564-3490 to request one by mail. You must completely and correctly fill out the application, provide three specimens showing actual use of the mark, submit a drawing of all elements of the mark and pay a fee of $10.00 per mark per class. The application must be signed in the witness of a notary public and returned to: Secretary of State, Trademarks/Service Marks, 700 Capital Ave., Ste. 152, Frankfort, KY 40601 You can download the forms here: http://www.sos.ky.gov/bus/tmandsm/Pages/Forms.aspx. You can check availability and search registered marks here: http://apps.sos.ky.gov/business/trademarks/

 

What Are The Fees for Registering a Trademark?

New Filing: $10.00 per class. Assignment: $5.00. Renewal Filing: $5.00 per class