Business Startup Overview
Learn About Running a Business in Kentucky
Steps in Kentucky Small Business Startup – list of practical and legal tasks to take when starting a business in Kentucky. Includes tasks involved in the business planning, business formation, and employee hiring stages.
Running a Kentucky Small Business – list of legal and tax-related tasks to maintain good standing for a Kentucky business, file necessary changes and amendments, and meet other business needs.
Foreign Business Operating in Kentucky – list of legal tasks required of out-of-state companies conducting business in Kentucky.
Importance of Proper Business Startup – this article sets forth the added liability and taxation concerns if business activity is undertaken without planning and observation of legal requirements.
Recommendations for Small Business Owners on Setting a Reasonable Salary – this article provides a summary of the four federal taxation methods and the opportunities for tax savings through taxation as a C-Corp or as an S-Corp. It describes the importance of setting a reasonable salary for business owners and general recommendations on how to do so.
Kentucky Business Financing and Tax Credits – this article describes the difference between grants, loans, and venture capital and lists some of the financing programs available to Kentucky businesses.
Limited Liability Protection and Piercing of the Corporate Veil – this article defines the “corporate veil” and under what conditions it may be “pierced.” It also provides general recommendations on how to avoid such an outcome so that a business’ liability shield may remain intact.
About Our Firm’s Business Services
How many business ideas go unrealized? It is impossible to say for sure, but it is our firm’s belief that many more businesses would form if would-be entrepreneurs knew:
- What legal tasks must be completed to form a business
- How much does it cost to complete these tasks
We’ve structured our firm and our website to answer these questions as simply as possible. On our website you will find articles and individual service pages that provide free information about business formation in Kentucky, with citations to verify our content. Clients may gain a basic knowledge about business law and contact our attorneys or purchase services directly through our website.
Startups require legal assistance but rarely have sufficient capital to pay in-house counsel and can’t stand the idea of an uncertain amount of legal work billed at hourly rates. The solution as we see it is to offer flat fees for services described in detail so clients know exactly what they are getting and how it will advance their business goals. By doing this, business formation becomes less complicated and startup costs can be more easily predicted.
It is also our belief that entrepreneurs should focus on running their business and leave “the business of the business” to outsiders: lawyers, accountants, insurers, etc. More often than not, clients are excited about their business idea and managing the business itself but not about the critical tasks to get their business up and running, keep it in legal compliance, reduce potential liability, etc. Our firm has the knowledge of Kentucky business law and has established procedures to complete these behind-the-scenes tasks as efficiently and economically as possible. We offerbusiness startup packages which include all legally-required startup tasks for a single flat fee.
As small business owners ourselves, we know what it is like to have a vision to run your own company. These business aspirations should not die because the startup process is too complicated or costly. Our goal is to simplify the startup process so would-be entrepreneurs don’t have to settle for unrealized dreams. As our clients’ businesses thrive, we hope to remain their legal partners for continued success.
Frequently Asked Questions
- Are business formation legal services tax deductible?
- Yes. Section 162 of the Internal Revenue Code provides for a deduction of ordinary and necessary business expenses. A business owner may deduct up to $5,000 of business startup costs and $5,000 of organizational costs, both of which may be incurred before the business has officially been created. Business startup costs are amounts paid or incurred for creating an active trade or business or investigating the creation or acquisition of an active trade or business. Organizational costs are amounts paid to organize a business and the direct costs of creating the business. Both deductions may be in the form of legal fees or other business-related payments to appraisers, consultants, accountants, etc.To claim the deduction, a business owner will have to file IRS Form 1099-MISC with its tax return. If your business intends to claim a deduction for our legal services, we will provide you with our firm’s employer identification number so you may complete the filing.
- Does Kentucky charge a franchise tax or a business excise tax?
- No. Some state charge a franchise tax, or a tax levied on businesses for the privilege to do business within the state, based on the net value of a business, its assets, the number of shares it has issued, etc. Kentucky does not charge a franchise tax on any business entity. Kentucky previously imposed its corporation license tax on a portion of the capital employed in the business, but this tax was repealed with no new liability after December 31, 2005. KRS 136.0701.Kentucky does impose a limited liability entity tax on entity types which receive a liability shield upon formation: LLPs, Limited Partnerships, LLLPs, LLCs, and Corporations. Such entities pay no limited liability entity tax if gross profits from all sources are $3 million or less annually and will receive a partial exclusion if gross profits from all sources are over $3 million but less than $6 million annually. KRS 141.0401(2)(b)(1).
- Should I form my business in Delaware, Nevada, Wyoming or another state with favorable business laws?
- Kentucky has pretty favorable business laws. The Kentucky corporate income tax rate is between four and six percent. KRS 141.040(6). Kentucky recognizes federal tax method changes (e.g., S-Corp elections) and taxes accordingly. There are a number of financing and tax credit opportunities available to Kentucky businesses. And it is generally easier and less costly from an administrative standpoint to maintain and pay taxes for a business in one’s home state. A business must qualify to do business in each state other than its home state, maintain a registered agent in that state, file an annual report, and complete other such tasks depending on the states involved.There is no one state whose laws will be most favorable to all businesses. Whether another state’s laws will be more advantageous must be determined on a case-by-case basis. For instance, another state may have low or no corporate income taxes but adds on franchise taxes, excise taxes, business license requirements, etc. (see the above question).It makes sense for a business to organize in another state (whether Delaware, Nevada, or otherwise) if other businesses with whom it has close dealings insist on formation in the other state. Affiliated businesses may be more familiar with the other state’s business laws or courts and want to streamline their contractual relationship. In that event, because the business would primarily operate in Kentucky, it would need to obtain authority to do business in Kentucky.
- What is a series LLC?
- A series LLC allows a large parent company to preside over several smaller subsidiaries using the LLC framework. A single business entity may protect its owners from liability for business debts and obligations arising from that single business entity. As a business expands, there is a greater likelihood that some segment of its operations will incur a liability, which could be levied against the entire business if it were set up as a single entity. Because of this, there is an incentive to create several smaller LLCs so that the liabilities of one segment may not be imposed against the profits of another. But structuring several businesses to achieve this maximum degree of liability protection is a cumbersome process in many states. In recognition, the series LLC was developed to synchronize business and tax filings for such an arrangement. Currently, nine states allow series LLCs to be formed.Kentucky does not allow series LLCs, but Kentucky imposes low filing fees for LLC formation and maintenance so there is little need for the option anyway. Individual LLCs may be set up with the parent LLC as its member, achieving the same liability protection attained by the series LLC arrangement. This method of structuring several business ventures is particularly beneficial to entrepreneurs with multiple real estate holdings.
- What is a LC3?
- A LC3, or a low-profit limited liability company, is an organization with a primarily charitable purpose but organized as a for-profit business entity. Though it must be operated to achieve a socially beneficial objective, it is allowed to earn some degree of profit, and whatever profits are received by its members are subject to taxation. The purpose of such an entity is to attract capital from investors seeking some return on their investment. Currently, eight states allow LC3s to be formed.Kentucky does not allow LC3s but does allow non-profit LLCs to be formed. Non-profit LLCs do not have to keep up with as many required formalities as do non-profit corporations and may still apply for federal tax exemption.
- Which business entity type do clients most frequently select?
- The most common business structure that we form is a for-profit LLC. Limited liability companies have the same (or greater) liability protection as do corporations, complete tax method flexibility, and far fewer formality requirements as compared to corporations.