Authority to Transact Business in Kentucky (Qualification) - Wolfe & Houlehan law firm in Lexington, Kentucky

General Information

A business entity incorporated/organized in a state other than Kentucky is considered a foreign business entity. Before transacting business in Kentucky, such a business must obtain authority, sometimes referred to as “qualification,” by providing information through a filing with the Secretary of State. A business that has been authorized/qualified may operate in the same manner as those businesses founded in Kentucky.

Determination of “Transacting Business”
Before going ahead with qualification, it is necessary to determine whether the business entity is transacting business under Kentucky law. The facts and circumstances of the activities must be considered but the notion of “transacting business” should be given its ordinary meaning. A business likely falls under the requirement if it conducts common business activities such as selling products, providing services, or maintaining an office. According to KRS 141.010(25), “doing business” in Kentucky includes but is not limited to:

Being organized under the laws of Kentucky
Having a commercial domicile in Kentucky
Owning or leasing property in Kentucky
Having one or more individuals performing services in Kentucky
Maintaining an interest in a pass-through entity doing business in Kentucky
Deriving income from or attributable to sources within Kentucky, including deriving income directly or indirectly from a trust doing business in Kentucky, or deriving income directly or indirectly from a single-member LLC that is doing business in Kentucky and is disregarded as an entity separate from its single member for federal income tax purposes
Directing activities at Kentucky customers for the purpose of selling them goods or services

These activities are listed as part of the income tax chapter of the Kentucky Revised Statutes and are not binding on the Secretary of State’s determination of “transacting business”.

Conversely, according to KRS 14A.9-010(2), all of the following activities do NOT constitute transacting business:

Maintaining, defending, or settling any proceeding
Holding meetings of the board of directors, shareholders, partners, members, managers, beneficial owners, or trustees or carrying on other activities concerning the internal affairs of the foreign entity
Maintaining bank accounts
Maintaining offices or agencies for the transfer, exchange, and registration of the foreign entity’s own securities or maintaining trustees or depositaries with respect to those securities
Selling through independent contractors
Soliciting or obtaining orders, whether by mail or through employees, agents, or otherwise, if the orders require acceptance outside this state before they become contracts
Creating or acquiring indebtedness, mortgages, and security interests in real, personal, or intangible property
Securing or collecting debts or enforcing mortgages and security interests in property securing the debts
Owning, without more, real or personal property
Conducting an isolated transaction that is completed within 30 days and that is not one in the course of repeated transactions of a like nature
Transacting business in interstate commerce

Therefore, if a business conducts only some combination of the above activities, it will not need to obtain authority in Kentucky. However, if any other activities are undertaken, authority is probably required.

Certain business changes mandate the filing of an amendment to the Kentucky authority document. A business that seeks to end operations in Kentucky must formally withdraw through a Secretary of State filing.

Purpose/Necessity

A foreign business entity may not transact business in Kentucky until it has obtained authority from the Kentucky Secretary of State. KRS 14A.9-010(1). This requirement applies to the following business entity types: For-Profit Corporations, Non-Profit Corporations, Professional Service Corporations, For-Profit LLCs, Non-Profit LLCs, Professional LLCs, Limited Partnerships, and Limited Liability Limited Partnerships. A foreign General Partnership does not have to obtain authority. KRS 14A.9-010(4). A foreign Limited Liability Partnership must file a statement of foreign qualification which grants it similar authority to that of other entity types. KRS 362.1-1102(1).

A foreign business entity faces several negative consequences for transacting business in Kentucky without authority. The business would be liable for a civil penalty of $2 for each day it transacts business in Kentucky without a certificate of authority. KRS 14A.9-020(4). Additionally, the business would not be able to maintain a proceeding in a Kentucky court until a certificate of authority is obtained. KRS 14A.9-020(1)-(2).

After obtaining a certificate of authority, the foreign business entity receives the same rights and privileges as domestic business entities of the same entity type. KRS 14A.9-050(2). A certificate of authority must be recorded with the County Clerk in the county of the business entity’s registered office. KRS 14A.2-040(1)(e).

Frequently Asked Questions

Do businesses formed in Kentucky need to obtain authority?
- No. Kentucky businesses (domestic business entities) only need to undertake business formation. Authority is a process only for foreign business entities which have already been formed.
Do businesses formed in Delaware or Nevada need to obtain authority?
- Yes. Occasionally a business may decide to incorporate/organize in Delaware, Nevada, or some other state because that state’s business laws are friendly or familiar to the particular business. If that occurs, the business will absolutely need to obtain authority in Kentucky if its activities constitute “transacting business” within Kentucky.
What if the name of my business entity is already in use in Kentucky?
- The real name of the foreign business entity must be included when applying for authority in Kentucky. KRS 14A.9-030(1)(a). If the business’s name is not distinguishable from a business name already in use in Kentucky, the foreign business may use a fictitious name to transact business in Kentucky. KRS 14A.3-040(1)(a). This is not the same as an assumed business name which must be renewed every 5 years, but has the same effect.A business may check to see if its name is in use in Kentucky by using the Secretary of State’s Name Availability Search. If the name is taken, to secure a valid fictitious or assumed name it will usually be sufficient to add “Kentucky”, “KY”, or some similar identifier to the name.
Must a certificate of existence/good standing be included when applying for authority in Kentucky?
- No. Kentucky no longer requires inclusion of a certificate of existence/good standing from the business entity’s home state when applying for authority.
Why is a registered agent necessary?
- A registered agent collects and maintains contact information for the business entity and forwards any service of process received on behalf of the business entity to the business itself. KRS 14A.4-050. Service of process is the procedure of giving notice of a pending legal action, usually done through a summons or a subpoena, but may also include governmental communications including tax notices. “Selecting a registered agent is important because service of process on the registered agent is deemed to be service on the corporation regardless of whether the registered agent actually forwards the notice to the corporation.” See the Kentucky Secretary of State’s page on Business Filings. Failure to maintain a registered agent in Kentucky for 60 days or more or failure to file changes of registered agent or registered office may result in revocation of the foreign business entity’s authority. KRS 14A.9-070.
Who may serve as registered agent?
- 1. A Kentucky resident whose business address is the registered office address. KRS 14A.4-010(1)(b)(1).
  2. A domestic business entity already formed in Kentucky whose business address is the registered office address. KRS 14A.4-010(1)(b)(2).
  3. A foreign business entity qualified to transact business in Kentucky whose business address is the registered office address. KRS 14A.4-010(1)(b)(2).The registered agent for a business entity may not be that same business entity itself, but the registered agent may be an individual officer or director (corporation) or manager or member (LLC) whose business address is the registered office address.If you use our firm to obtain authority to transact business in Kentucky, we offer registered agent services at an additional cost (see below). While this may be a valuable service for foreign businesses, we do not offer registered agent services for domestic businesses because an individual affiliated with that business is capable of serving as its registered agent.
Does the document obtaining, amending, or withdrawing authority for the foreign business entity have to be recorded?
- Yes. According to state law, the recording process is mandatory. KRS 14A.2-040. To stay in compliance with the law, the business should make the appropriate recording soon after the business document was accepted by the Secretary of State’s office.
What changes necessitate the filing of an amendment to the authority document?
- Under KRS 14A.9-040(1), an additional filing will be required to amend the information in the Kentucky Secretary of State’s records if any of the following changes are made:
  1. Entity name in the state of incorporation/organization is changed
  2. Entity name to be used in Kentucky is changed
  3. State of incorporation/organization is changed
  4. Period of duration is changed (e.g., date when entity automatically dissolves)
  5. Business entity type is changed (e.g., entity undergoes conversion)
Are there any obligations for a foreign business entity which will cease transacting business in Kentucky?
- Yes. A foreign entity may not withdraw from transacting business in Kentucky until a certificate of withdrawal is filed with the Secretary of State. KRS 14A.9-060(1). This document also must be recorded with the County Clerk in the county of the business entity’s registered office. KRS 14A.2-040(1)(g).