Before you form a limited liability company (LLC) in Kentucky, you should understand your potential costs. But determining what your expenses will be can be challenging, especially when the information you need is spread out on different websites.
This article will summarize the possible expenses associated with starting a Kentucky limited liability company.
Read on to learn:
- The costs of creating an LLC in Kentucky
- Some optional expenses that can improve your business
- How to pick the best formation process for your needs
By the time you get to the end of this article, you’ll know the basics of Kentucky LLC formation expenses.
Total Kentucky LLC Cost – Starting at $40
According to the Kentucky Secretary of State’s Fees, the lowest possible cost to form a Kentucky LLC is $40.
This only includes one item:
- Kentucky Articles of Organization filing fee: $40
New LLCs must register with the Kentucky Department of Revenue, but there is no charge to do so. Your company may also need professional and local business licenses, the costs of which vary.
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Kentucky LLCs – the Basic Costs
The total cost to start a Kentucky LLC depends on several factors. But the bare minimum cost is $40. We’ve explained your potential mandatory costs below.
Articles of Organization Filing Fee — $50
Articles of Organization are legal documents that are used to form new LLCs. To start an LLC in Kentucky, you must file articles of organization with the Secretary of State. While this might seem tricky, you only need to provide some basic details about your business.
The filing fee for your articles of organization will be $40. You can file online or submit a paper form.
State Tax Office Registration — Free
Kentucky requires all LLCs to register with the Department of Revenue to pay various state taxes. We recommend that you do this online. There is no fee to register.
Professional Licenses and Business Permits — Variable
Businesses in certain industries must get a state license or permit to operate legally. The Kentucky Business One Stop Portal’s Permits, Licenses, and Renewals page explains more about these rules.
You might also need a local permit or license. For instance, the city of Lexington requires companies to get business licenses.
Kentucky LLCs – Optional Costs to Consider
You may also want to invest in some additional expenses. Although not mandatory, these costs can make it easier to run your business.
Expedited LLC Filing Fees — N/A
Kentucky does not provide expedited LLC processing. However, articles of organization are typically processed the same day they are received. So, we suggest filing online if you want faster processing.
Registered Agent Fee — about $100 per year
Kentucky requires every LLC to name a registered agent to receive legal documents on its behalf. You will include details about your registered agent in your articles of organization for no additional cost. But, there is a $10 fee if you ever need to change your agent.
New LLC owners often appoint themselves as registered agents without understanding the commitment. For one thing, registered agents are required to be available to accept documents during normal business hours. Their addresses are also listed publicly online, which can lead to junk mail and other invasions of privacy.
That’s why we suggest using a professional registered agent service instead. These businesses only charge around $100 each year. Plus, they will manage all of the registered agent tasks for your LLC.
Check out our Best Registered Agent Services article for some of our recommendations.
Operating Agreement — Variable
Operating agreements are contracts that set the rules for LLCs and other businesses. They include vital terms like the LLC members’ rights and responsibilities and how they can join or exit the company.
Kentucky law does not require LLCs to create operating agreements. However, we strongly suggest that all LLCs have one. And while you are legally permitted to write your own, it’s typically not advisable unless you have the appropriate knowledge and experience.
You can hire a lawyer to draft your Kentucky LLC operating agreement. This will ensure your contract is complete, accurate, and thorough. But professional services cost more. So if you want to spend less, an LLC formation service will write one for as little as $39.
DBA Fee — $20
Business owners often decide to run their LLCs using “doing business as” or “DBA” names. A DBA is any name that a business is called besides its legal name. For example, many business owners remove the “LLC” from their company’s name so it will seem more casual.
In Kentucky, DBAs are called “assumed names.” If you want to use a DBA for your LLC, you must file a Certificate of Assumed Name with the Secretary of State. There is a $20 filing fee, and you must use a paper form.
Name Reservation Fee — $15
If you have chosen a business name for your LLC but aren’t ready to file your paperwork yet, Kentucky lets you reserve a name for 120-day periods. This will stop others from taking the name during this timeframe.
To reserve your LLC name, you must file a Reservation or Renewal of Reserved Name with the Secretary of State. There is a $15 fee, and you must fill out a paper form.
Domain Name — about $20 per year
These days, most businesses have a website. If you want to make a website for your LLC, you will need to get a domain. Luckily, domain names are inexpensive and easy to get.
It’s vital that you get your domain as soon as you can. Otherwise, someone else can take the name first. For instance, “domain squatters” often buy up a new LLC’s domain names to resell them for a profit.
You can buy a domain name from GoDaddy.com or a similar service for around $20 to $50 per year. These businesses often offer discount rates, so you can usually get one even cheaper.
Getting an Employer Identification Number (“EIN”) — Free
EINs are 9-digit tax ID numbers given to companies by the Internal Revenue Service. In other words, an EIN is like a social security number for a business. While some LLCs are legally required to apply for an EIN, others don’t have to do so.
Still, we suggest that every LLC get an EIN, even if it is not mandatory. Most banks require you to use an EIN to open a business bank account. Plus, an EIN can also prevent identity theft by keeping your SSN private.
You can apply for an EIN online or by mailing Form SS-4 to the IRS. No matter how you get your EIN, it will always be free. You don’t have to hire anyone to get an EIN. You can just do it yourself.
Read More: How to Get an Employer Identification Number in Kentucky
Foreign LLC Qualification Fees — about $100 per extra state
If you plan to expand your company outside Kentucky, be sure to budget for some additional costs. You won’t have to start a new LLC wherever you want to do business. But, you must register as a foreign limited liability company in each state.
Foreign LLC filing fees differ between states but are typically about $100.
Writing Formation Costs Off
You can usually deduct your LLC formation costs from your federal income taxes as business startup expenses. The IRS offers a significant amount of guidance on this topic, so check out the IRS website for more details.
LLCs are typically classified as “pass-through” tax entities. This allows LLC owners to deduct up to $5,000 of startup costs from their federal taxes in the business's first year.
Patty decides to start a single-member LLC and open a clothing boutique in Lexington, Kentucky. Her formation costs are as follows:
- Kentucky LLC Articles of Organization: $40
- Lexington Business License Initial Fee: $100
- Operating Agreement: $40
- Kentucky Registered Agent service Fees: $100
- DBA Fee: $20
- Name Reservation Fee: $15
- Web Domain Costs: $25
Since the LLC is a pass-through entity, the business itself doesn’t pay income taxes. Rather, Patty must report her earnings and any deductions on her personal state and federal income taxes.
Patty’s total formation expenses were $340. Before deductions, Patty’s total taxable income was $42,000. But by deducting her costs, Patty drops her taxable income to $41,660. This will decrease her 2023 federal income taxes from $4,989 to $4,914.
While this is not a large drop, LLC owners who commit to deducting their expenses can save a lot of money over time.
Cheapest Way to Start an LLC in Kentucky
When you are trying to decide on an LLC formation approach, make sure you keep your specific needs in mind. We’ve explained the most common formation methods below to assist you with your choice.
Formation Service – $39 + state fees
One option is to hire an LLC formation service. Although these businesses aren’t staffed by attorneys, they specialize in creating LLCs and other types of legal entities.
A business formation service is a solid option for most LLCs. The advantages of this approach include:
- They’re easy. In most cases, a formation service will have helped hundreds of people through the exact process you are struggling with now. They have all the documents, information, and expertise you need right on hand.
- They don’t cost much. Because formation services have such a large volume of business, they don’t have to charge their clients that much money.
- They’re reliable. All of the formation services’ products and procedures have been tested hundreds of times over in the real world. That kind of experience should give you peace of mind and confidence going forward.
- They’re fast. Formation services have seen almost every business formation situation already. Chances are, they have many solutions for you that are ready right now before you even know you need them.
Still, formation services aren’t the right fit for every business. The drawbacks to this method include:
- They’re not the best solution for complex LLCs. If you are forming a complicated company or one in a heavily regulated industry, you will have concerns that probably need more focused expertise in that area of business.
- Even if a formation service is a good fit, you can expect upselling. Formation services have to make money too, and some of them may pressure you to buy formation products or business services you don’t need. Even when you are using a formation service, you need to be a smart and informed consumer.
Using a professional LLC formation service can be a great way to set up a business. Check out our Best LLC formation services article for some of our suggestions.
You can also choose to retain an attorney to form your LLC. This approach gives you the benefits of working with an expert in business formation. Just keep in mind lawyers are pricey. They often bill for their services at a rate of several hundred dollars per hour.
Despite the expense, there are significant advantages to working with a lawyer:
- Lawyers help you manage risk. If you are starting a business with complicated legal issues, hiring a lawyer would be the best choice.
- Lawyers offer more customization when you need it. Do you need specific things put in an operating agreement? Is your company going to have a unique ownership structure? You may need an attorney to make sure these issues are handled properly.
Still, the drawbacks to this method often outweigh the benefits for many LLCs:
- Lawyers cost more than any other option. The price tag alone should convince you that if you don’t need a lawyer, it’s not worth hiring one.
- Finding a lawyer takes a long time. Getting a lawyer who specializes in what you need, costs what you’re willing to pay, and can work with you well is a tall order.
- Lawyers also take longer to form a business than a formation service. Because lawyers are also very careful people, they will generally take much longer to form your company than non-lawyers would. Fortunately, most people don’t need a lawyer. In 90% of cases, a formation service will do just fine.
Do it Yourself
Finally, you can choose to start your LLC yourself. But be sure to consider the value of your time when evaluating the pros and cons of this option. The time you spend forming an LLC may be better spent on other elements of your company.
The advantages of a DIY formation approach include:
- Personal knowledge. A DIY business owner will learn a lot about the process while forming their own business, and they probably will retain that knowledge for years to come.
- It costs less upfront. If you don’t account for the value of your time, a DIY solution is the cheapest option.
Just make sure you also consider the disadvantages:
- You’re losing money when you consider how much time it takes to DIY. If you figure out that your time is worth $30 per hour, and you take 20 hours to complete your business formation, you have essentially spent $600 on business formation.
- There’s the risk of making a mistake. DIY business owners can easily make a mistake with all the paperwork that can cost them even more time and money.
- It’s a headache. State workers are very helpful, capable people. But they will also tell you that the laws and rules governing business formation are not easy, and they follow those rules for a living. It’s going to be even harder for you.
Annual Kentucky LLC Fees: How Much Will it Cost to Maintain your LLC?
Kentucky requires LLCs to submit an annual report to the Secretary of State. You can file your Kentucky annual report online or use a paper form. There is a $15 filing fee.
You also may need to periodically renew your LLC’s business licenses and permits.
Additionally, some optional expenses must be paid every year. For instance, some of your ongoing costs include:
- Registered agent service fee: approximately $100
- Domain name registration: $20 to $60
How Much are LLC Taxes in Kentucky
Because they are “pass-through” entities, LLCs are not subject to corporate income taxes (unless you elect for your LLC to be taxed as a corporation). Instead, you must report your income from the LLC on your personal income taxes.
However, your LLC may be required to pay Kentucky’s Limited Liability Entity Tax.
Kentucky LLC Formation Costs Quick Links
- Kentucky Online Filing
- Kentucky Fees
- Kentucky Secretary of State
- Kentucky Department of Revenue
- IRS — apply for an EIN online
- IRS information regarding the federal tax treatment of LLCs
Kentucky LLC Formation Costs FAQs
How much does it cost to start an LLC in Kentucky?
The bare minimum cost is $40. But, it can cost more based on your LLC’s industry and location.
What is the cheapest way to start an LLC in Kentucky?
A do-it-yourself approach is the cheapest in terms of money spent. However, when you account for the value of your time, the most cost-effective method is usually an affordable LLC formation service.
Do I need to hire an attorney to form an LLC in Kentucky?
No. Most LLC formations won’t require a lawyer. For the average LLC, a DIY method or an LLC formation service will suffice for the average LLC.
Can I pay to form an LLC more quickly in Kentucky?
No. Kentucky does not offer expedited processing. However, documents are usually processed the same day they are received, so you should file online if you want to speed up the process.