Many entrepreneurs already know that the Bluegrass State is a great place to start a business. Kentucky is an affordable place to live—housing is 23% more affordable than the national average. And Kentucky ranks 10th in the nation for the cost of doing business, in large part due to low labor costs.
But before you start your Kentucky business, there are a few things to consider. You’ll need a business plan, a name, funding, and a business structure. You may also need licensing, depending on the type of business you start. And to help your business succeed, you should look into things like tax credits and a good payroll solution.
Ready to learn about what you need to start a successful business in Kentucky? Follow along with our step-by-step guide.
1. Name your business
No great business is complete without a great name. Even more important, however, is making sure the name you choose for your new business meets Kentucky’s legal requirements. Here’s what you need to do:
- Search the Kentucky Secretary of State website to see if your chosen name is available.
- Check Kentucky’s statute on entity names to make sure your chosen name meets all the criteria.
- Search the US Patent and Trademark Office to make sure no one has trademarked your chosen business name.
- Lock in your name by submitting an application to reserve a business name, along with a $15 filing fee.
This is also a good time to grab a domain name and any social media profiles you may need that match your business name—so you can create a consistent online presence.
In some circumstances, you may also need to file a certificate of assumed name (also known as a DBA or “doing business as”). This is only required if you will be conducting business under a name other than your registered business name.
2. Explore your funding options
Business owners can fund their ventures in various ways—from bootstrapping companies with their own savings to seeking private investments and business loans. In Kentucky, you have many options to fund your new business. Here are a few to look into:
- Kentucky Cabinet for Economic Development: The Cabinet for Economic Development helps match entrepreneurs with grants, tax credits, and incentives to help them unlock the capital they need to grow their businesses in Kentucky.
- Kentucky Small Business Administration: The Kentucky branch of the federal SBA provides funding, counseling, federal contracting certifications, and more for small businesses in the Bluegrass state.
- Federal and local government grants: Federal, state, and local governments allocate funding each year to grants for local businesses. Learn more and start applying at usgrants.org.
3. Decide on your business structure
Whether you’re launching a mom-and-pop shop, a tech startup, or a nonprofit, you’ll need to choose the business structure that makes the most sense for your business needs. The structure you select will impact how you pay taxes, separate your personal assets from business resources, and other legal considerations. Below are the four most common types of business entities in Kentucky.
What is it?
Pros and cons
An unincorporated business with a single owner
✔ The owner has full control over the company.
✔ All income is considered the owner’s personal income, which streamlines accounting and taxes.
✘ The owner is liable for all taxes, lawsuits, and debts of the business.
Limited Liability Company (LLC)
A company that can have a single owner or be operated by two or more partners who agree to equal ownership
✔ Easy and straightforward to set up, while qualifying the business for many grants and loans.
✔ LLCs are eligible to be taxed as a pass-through entity.
✔ This structure provides liability protection for owners and their personal assets.
✘ Owners are still subject to self-employment taxes.
Limited Partnership (LP)
A business managed by a controlling partner (aka the general partner) who has at least one limited partner (the investing partner)
✔ Each partner is only liable based on the control they have over the business.
✔ Income is only taxed once.
✘ The general partner carries more liability for anything that might go wrong.
Limited Liability Partnership (LLP)
A business owned and managed by at least two people who share equal control of the business, but with limited liability
✔ Partners are not liable for each other’s actions, mistakes, errors, or even fraud.
✘ Partners who invest more into the business carry more liability and risk.
A business formation where the company is separate from the owners (shareholders), who elect a board of directors to oversee operations
✔ Protects owners from liability, since the corporation bears tax and legal responsibilities.
✘ Many corporations are “double taxed” at both the income and dividend levels.
4. Register your business in Kentucky
Now for the exciting part—it’s time to register your business!
If you’re setting up a sole proprietorship, there’s no need to register it with the Commonwealth. Otherwise, you’ll need to register your business with the Kentucky Secretary of State, submit formation documents, and pay a filing fee before you can start operating. Here’s what you need to know.
How to register
Limited Liability Company (LLC)
To start your Kentucky LLC, go to the Secretary of State’s online portal and answer the prompts. You’ll also need to submit your articles of organization and operating agreement.
Limited Partnership (LP)
To start your LP, go to the Secretary of State’s online portal and start answering the prompts.
Limited Liability Partnership (LLP)
To start your LLP, go to the Secretary of State’s online portal and fill out the prompts.
To start your corporation, go to the Secretary of State’s online portal and start answering the prompts. You’ll need to submit your articles of incorporation along with your online application.
5. Decide on a registered agent
Every business in Kentucky needs to have a registered agent—an individual listed on the business’s statement of information who can receive tax and other legal documents on its behalf.
Small business owners can serve as their own registered agents as long as they reside in the State of Kentucky. Otherwise, you can hire a professional registered agent service. Typically, the price varies depending on the length of the engagement and the services you want included—things like 24/7 service come with a higher price tag. In Kentucky, several providers offer registered agent services for around $100 a year.
6. Apply for an Employer Identification Number
Before you can hire your first employee, you’ll need a federal Employer Identification Number (EIN). You’ll also use this when you open a business bank account, pay your taxes, or apply for a loan: It’s like a social security number for your company.
Getting your EIN is fast, easy, and free. All you have to do is fill out Form SS-4 and submit it to the Internal Revenue Service (IRS). Within a few weeks, they’ll assign your EIN.
7. Get up to speed with Business Tax Credits
While Kentucky businesses enjoy relatively low corporate tax rates, it’s still not a bad idea to look for ways to reduce your tax burden. Luckily, Kentucky offers a few attractive tax credits for business owners statewide. Here are some to consider:
- The Kentucky Small Business Tax Credit Program (KSBTC): The Kentucky Small Business Tax Credit program offers between $3,500 and $25,000 for small businesses that create new jobs and spend money on qualifying technology in the local economy. Most businesses with 50 or fewer full-time employees are eligible.
- Kentucky Selling Farmer Tax Credit: For small farmers who sell qualifying agricultural assets to beginning farmers, the state offers income tax credits of up to 5% of the purchase price, up to $25,000 per calendar year.
- Angel Investment Tax Credit: Angel investors can receive a tax credit of up to 40% of their investment in startup companies in counties with high unemployment rates—or up to 25% in all other counties.
8. Stay on top of filing requirements and taxes
The Secretary of State and Kentucky Department of Revenue require all businesses in the state to file an annual report. The report needs to be filed between January 1 and June 30 each year along with a $15 annual filing fee.
In addition to yearly filing, businesses are required to stay on top of their state and federal tax returns. The state tax you pay will depend on the business structure you choose—you may be liable for income tax, sales tax, payroll tax, and more. Learn more at the Kentucky Department of Revenue website.
9. Find a payroll solution
Hiring employees or contractors in Kentucky means sorting through a new set of requirements. First, you have to make sure you’re classifying them correctly to avoid penalties and fines. Then, you have to make sure you’re following the right local laws and regulations when it comes to minimum wage, overtime, and work hours. For example, in Kentucky, all employees are owed 1.5 times their normal hourly wage if they work more than 40 hours per week.
The easiest way to keep track of it all is with payroll software. A solution like Rippling removes the tedious manual work of running payroll—all while ensuring your employees and contractors are paid effectively. With Rippling Time & Attendance, you can automatically track your employees’ hours and receive alerts when they approach overtime. Just click “Submit” once, and Rippling handles the rest—including calculating taxes and net pay.
And if you’re hiring globally, Rippling has that covered, too:
- Pay your entire company—across different tax regions and even different currencies—in a single pay cycle.
- Include hourly and salaried employees, as well as contractors.
- Manage your workforce, data, and systems in one place.
10. Support and scale your growing business with Rippling
As your business expands, you’ll need an HRIS (Human Resource Information System): software that takes over administrative tasks like recruiting, onboarding employees, running payroll, administering benefits, and much more.
An HRIS makes it much easier to scale—especially if you’re looking to expand outside the US. And with Rippling, you get everything you need to run a global workforce in one system:
- Hire and pay people around the world, including employees and contractors, no matter what currency they use.
- Bring all your benefits—from 401(k) to health insurance—into a single system that automates the busy work, like enrolling new hires, updating deductions, and administering COBRA.
- Stay one step ahead of federal, state, and local compliance requirements.
- Automate every step of the hiring process. And effortlessly keep your recruiting data up to date.
- Manage your HR policies, data, and analytics all on one platform.
FAQs about setting up a business in Kentucky
Do I need a business license in Kentucky?
It depends. Kentucky doesn’t require a general business license, but some types of businesses do need licenses or permits. Some examples include:
- Businesses that will produce air emissions, withdraw water from a stream or groundwater, generate hazardous waste, dispose of waste on site, etc.
- Businesses that will produce, manufacture, or sell alcohol or alcoholic beverages
- Financial institutions
- Businesses engaging in construction or manufacturing
You can learn more in the guide to permits and licenses here.
Do I need a business bank account when launching a business in Kentucky?
If you’re a sole proprietor, you don’t necessarily have to have a dedicated business bank account. But, some business structures require you to separate personal and business expenses to maintain your liability protection. It’s always a good idea to get separate business credit cards and bank accounts to avoid commingling your business and personal finances.
Do I need to get business insurance?
The answer to this depends on your business structure and needs. For example, if you provide professional services, you might consider professional liability insurance to protect yourself and your business. Or, if you hire employees, the state may require you to provide workers’ compensation insurance.
What are Kentucky’s state payroll taxes?
All employers in Kentucky pay State Unemployment Tax Act (SUTA) taxes ranging from 0.3% to 9.0%.
Employers must also withhold income tax from their employees’ paychecks. Kentucky has income tax reciprocity laws with Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, and Wisconsin. This means that if an employee lives in one of these states and works in Kentucky, their employer must withhold income tax for their state of residence.
Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.