How to Start an S-Corp in Kentucky

Kentucky, popularly known as The Bluegrass State, offers a bunch of benefits for business owners, especially the state capital Frankfort has a lot to offer to the rising entrepreneurs in the state. If you want to start a business in Kentucky, you must choose an appropriate corporate structure. You can have a corporation or a sole proprietorship or set up an LLC in Kentucky. There are a few guidelines that you should be aware of when it comes to starting an S-Corporation. In Kentucky, S-Corporation is businesses’ most common corporate structure, especially start-ups. It was developed in order to give companies limited liability protection while preserving the advantages of being a distinct legal organization.

In this article, you will learn about how to start an s-corporation in Kentucky. You will also learn whether an s-corporate business structure suits your business. Please read all the points carefully before starting your business in Kentucky.

What is an S-Corp in Kentucky?

An S corporation (S-corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other business structures. It’s a tax classification that might result in significant financial savings for both corporations and LLCs but in different ways. S-corp is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

If you want an S corp status for your business, you can always form an LLC to protect your personal assets from business debts. It takes some basic steps to have a successful s-corporation in Kentucky. S-Corps do pay corporate income taxes, but they are still treated as disregarded companies for federal tax purposes.

S-corps pay corporate taxes that LLCs do not have to pay. If you want to have an S-corp status, then we would recommend you have an LLC instead. This will protect your personal assets from your business liabilities and you don’t have to pay any corporate taxes.

–LLCBuddy Editorial Team

Limitation and Requirements of S-Corp in Kentucky

As you have decided to have an S-Corp structure for your business, you must know the limitations and requirements to qualify for S-Corp status. We have listed some important points to consider following for your reference-

• Be a domestic corporation.
• Not be an ineligible corporation, such as specific financial institutions, insurance providers, or domestic corporations engaged in overseas sales.
• Have just one type of stock.
• Have a maximum of 100 shareholders or members.
• Have only permitted individuals, certain trusts, and estates as stockholders or members.

If you are qualified for the limitations and requirements, you can apply for an S-Corp in Kentucky.

How to Start an S-Corporation in Kentucky?

To create S-Corp in Kentucky, you must follow the below guidelines that include forming a business name, hiring a Registered Agent, filing your Articles of Organization, creating an operating agreement in Kentucky, requesting an EIN, filing a form 2553.

Step 1: Register a Business Name in Kentucky

After you have decided on the idea to start an S-Corp in Kentucky, deciding the name for your corporation is significant. Legal procedures should be taken into account when choosing your partnership name. Choose a business name that will enable you to develop a strong brand identity.

If you want to set up an LLC, there is a complete guide on Kentucky LLC name guidelines for a proper LLC name. Here are some guidelines you must follow while naming your S-corp.

• Avoid profanities
• The name should be available, and no other entity should have the same name in Kentucky.
• Limit of restricted words that need a license in Kentucky, for example, doctors, attorneys, etc.
• Do not use a business name that sounds like a government agency or entity (like “police,” “county,” and “state”)

Step 2: Hiring the Kentucky Registered Agent

The next step in starting an S-corp in Kentucky is hiring a Kentucky Registered Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents (such as subpoenas), all notices of lawsuits, and other official government correspondence in Kentucky. Forming an LLC and an S-corp will be easier if you have Registered Agent in Kentucky.

Step 3: File Your Kentucky Articles of Organization

The Articles of Organization is an important document to start your limited liability company (LLC). Kentucky Articles of Organization is a simple document that contains the business name and address as well as the name and address of the person who received lawsuits on behalf of the organization. In order for the “Articles of Organization” to be filed, you need to pay a filing fee to the state. In Kentucky, the filing fee is $40.

In California, along with the Articles of Organization, you must send the Statement of Information to file your company. The statement of information is a mandatory document in California, but other states do not have this document.

Step 4: Creating an Operating Agreement in Kentucky

After you have filed your Articles of Organization in Kentucky, the next step is to create an LLC operating agreement in Kentucky. The Kentucky LLC operating agreement is essential and necessary since it will cover your corporation’s important documentation and rules. The operating agreements usually include the following-

• Article I: Organization
• Article II: Management and Voting
• Article III: Capital Contributions
• Article IV: Distributions
• Article V: Membership Changes
• Article VI: Dissolution

After creating the LLC operating agreement, you can benefit in several ways since it will discuss how decisions for the business will be made, including management and member voting structure. For more details about how an operating agreement works, please check Operating Agreement.

Step 5: Request for EIN in Kentucky

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your general partnership. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in Kentucky can be through the following:

• Apply Online- You can apply for EIN online, the most desirable and fastest method for users.
• Apply by Fax- Another method of obtaining EIN is to fax Form SS-4 (PDF) after entering all the correct information to (855) 641-6935.
• Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is 4 weeks.
• Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

If you would like to be assisted in getting an EIN in the Internal Revenue Service, we can get your EIN for you. Our EIN service is quick and hassle-free. For more details about EIN for your business, check why you need EIN.

Step 6: File Form 2553 for Your S-Corp Business in Kentucky

Once you have obtained your EIN and Articles of Organization to form an S-Corp, you must file Form 2553, Election by a Small Business Corporation, to apply for S-corp status. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or not more than 75 days after the beginning of the tax year in which the election is to take effect.

If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, in order to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS. In Kentucky, you can send your form 2553 to the Department of the Treasury Internal Revenue Service Center – Kansas City, MO 64999 Fax: 855-887-7734.

Advantages of Starting an S-Corporation in Kentucky

Filing an S-Corp in Kentucky has numerous benefits and advantages.

• Writing Off Losses: With S-corp, owners can deduct business losses from their individual income statements. If the company loses money in the first few years, it may balance its other sources of revenue. Even so, understand the shareholder loss limitations set by the IRS.

• Pass-Through Taxation: Starting an S-Corp is the widely known advantage in forming this kind of business structure since an s-corp uses a pass-through taxation structure. The company does not pay twice the tax in this kind of taxation. Because of this structure, most start-ups and entrepreneurs in Kentucky apply for an S-Corp LLC.

• Qualified Business Income Deduction: A qualified business income, or QBI, is the total of all qualified items of income, gain, deduction, and loss from any qualified trade or business, including S-Corp. With this, S corp owners may deduct up to 20% of their eligible earnings under the Tax Cuts and Jobs Act.

FAQs

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Why Kentucky S Corporation is So Important

An S Corporation is a unique type of business entity that provides the liability protection of a corporation with the tax benefits of a partnership. In order to qualify as an S Corporation, a company must meet certain requirements set forth by the Internal Revenue Service, including being a domestic corporation, having only allowable shareholders, and only one class of stock.

One of the most significant benefits of choosing an S Corporation in Kentucky is the pass-through taxation. This means that the company itself does not pay federal income taxes. Instead, the profits and losses “pass through” to the shareholders, who report them on their individual tax returns. This can result in substantial tax savings for businesses, as income is only taxed once, unlike in a C Corporation where it is taxed at both the corporate and individual level.

Another advantage of an S Corporation in Kentucky is the flexibility it provides in structuring the ownership of the company. S Corporations can have up to 100 shareholders, while still retaining the benefits of pass-through taxation. This makes it an attractive option for businesses looking to expand and bring on additional investors without sacrificing the tax advantages of being an S Corporation.

Additionally, S Corporations in Kentucky have limited liability protection for their shareholders, similar to that of a traditional corporation. This means that shareholders are not personally liable for the debts and obligations of the company, protecting their personal assets in the event of a lawsuit or bankruptcy.

S Corporations in Kentucky also have more credibility in the eyes of potential investors and partners. Because they are subject to more stringent regulations and requirements than other business entities, such as sole proprietorships and partnerships, S Corporations are seen as more serious and established businesses. This can help attract investors and customers who are looking for a reliable and well-managed company to work with.

Overall, choosing to structure your business as an S Corporation in the state of Kentucky can provide a multitude of benefits, including pass-through taxation, limited liability protection, flexibility in ownership structure, and increased credibility. Whether you are just starting out or looking to restructure your existing business, it is definitely worth considering the advantages that an S Corporation can offer.

Conclusion

In conclusion, starting an S-corp in Kentucky is a strategic choice for entrepreneurs seeking the benefits of limited liability and favorable tax treatment. One can successfully establish an S-corp by following the outlined steps, including selecting a unique name, filing the Articles of Incorporation, obtaining necessary licenses, and adhering to state-specific regulations. Ultimately, this corporate structure offers a strong foundation for business growth and protection, making it a worthwhile consideration for those looking to launch a venture in Kentucky.