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Kentucky offers an exciting and diverse business climate, from the metropolitan areas of Louisville and Lexington to the mountain communities of Appalachia.
New business owners can take advantage of the Bluegrass State’s central location, worldwide shipping options, and below-average labor costs. It also has the Kentucky Small Business Tax Credit Program, which offers small businesses up to $25,000 per year in tax credits.
Here is our eight-step guide to starting a business in Kentucky.
1. Choose a business idea
The first step to building a new business in Kentucky is settling on a workable business idea. Will you sell a product, a service, or both? What makes your offerings different? When you believe you’ve come up with a solid concept, ask yourself the following questions:
- Who is your customer? Get to know your customers—you can’t prosper without them. Survey your target market, analyze the marketplace, and research industry trends. Will you sell directly to consumers (B2C) or business to business (B2B)? Will you sell online, through a traditional brick-and-mortar storefront, or both? Pinpoint the best way to reach potential buyers.
- What is your projected profitability? A business with no potential for profitability isn’t worth your time and money. Ensure your business idea can generate enough income to cover your expenses and more—at least over the long term. Consider your pricing, distribution opportunities, and business expenses. What’s your break-even point, and how much do you need to sell to cover your costs?
2. Name your business
With an idea for your Kentucky business, it’s time to choose a business name. Come up with a short, memorable name that hints at what you are selling. Here are rules and other considerations for picking a suitable business name in Kentucky:
- Be original. Your business name must differ from any other business name registered in Kentucky. Run a search through the Kentucky Secretary of State’s website to see if your desired business name is available.
- Include certain words. You may need to include certain words in your business name, depending on your business structure. For example, LLCs must contain “Limited Liability Company,” “Limited Company,” or an abbreviation thereof (“LLC” or “LC”), and corporations must include “Corporation,” “Incorporation,” “Co.,” or “Inc.” Sole proprietorships need to operate under the proprietor’s legal name, and partnerships must include partners’ surnames.
- Exclude certain words. Your business name may not contain words that might confuse the company with a legitimate government agency, like the FBI or Treasury. It also cannot contain words suggesting your business operates in a specialized field, like law or banking, unless you’ve obtained the relevant credentials.
- Reserve your name. Kentucky does not allow entrepreneurs to reserve business names online. Submit the reservation form in writing to the Secretary of State’s office in person or by mail, with the $15 filing fee.
- Adopt a DBA. If you want to operate your business under a business name that differs from its formal legal name, you must file for a DBA, or “doing business as.” Kentucky state law requires businesses wishing to do business under an assumed name to file a Certificate of Assumed Name with a $20 fee. Your DBA must be unique, and you must renew it every five years.
- Secure a domain name and social media handles. Your website domain name (URL) and social media handles should reflect your business name or DBA to make it easier for customers to find you online.
3. Write a business plan
Every business needs a solid business plan to determine how the company will operate and make money. A successful business plan articulates your business’s function and should include thorough market research, an organizational structure, product and service descriptions, target customer and market profiles, as well as marketing, logistics, and finance strategies. You can write this plan yourself, use an example, or customize a template.
4. Choose a business structure
There are a number of business structures to choose from when forming your Kentucky business. Each offers different benefits for personal liability, ownership, taxation, and funding, and certain types are better suited for different company structures. Here’s how the three main structures differ:
- Sole proprietorship. A sole proprietorship is the default designation for any one-person operation. Sole proprietorships are taxed at the owner’s personal-income rate, allowing them to avoid “double taxation” on business income and personal income derived from the business. One downside of running a sole proprietorship is that you’re personally liable for most debts or legal damages incurred by the business. You can also form a partnership, which is similar to a sole proprietorship but with two or more owners. Partners are also taxed at their personal-income rates.
- LLC. Limited liability companies, or LLCs, are considered “pass-through entities,” meaning business income is taxed at the business owners’ personal-income levels. LLCs come with personal asset protection for owners (i.e., members) related to business debts and damages.
- Corporation. Owners of corporations enjoy personal asset protection and can issue stocks to shareholders for an ownership stake in the business. Corporations can be formed as C corporations or S corporations. S Corps are subject to limits in the number of shares they can issue and to whom, but as with LLCs, S Corp owners enjoy pass-through taxation status.
Apply for a federal employer identification number (EIN)
Once you’ve chosen a formal business structure for your Kentucky business, you can register for a federal employer identification number, or EIN. EINs are issued by the US Internal Revenue Service (IRS). Both federal and state tax authorities use EINs to identify businesses and track their tax obligations. Apply for an EIN online through the IRS website, free of charge.
Incorporating in Kentucky
With your EIN, you can incorporate your new business in Kentucky. Sole proprietors don’t need to complete this step but LLCs and corporations must be formally incorporated. Register your business through the Kentucky Secretary of State’s One Stop business portal. Forms vary depending on business structure:
LLCs and corporations in Kentucky must file annual reports with the Secretary of State’s office, which require a $15 fee.
5. Obtain business licenses and permits
Kentucky does not require a statewide general business license, but some businesses must obtain special licenses or permits to operate legally in certain locations or fields. In some cases, more than one license or permit may be required. Contact your local government office to find out if your county or city requires a business permit. Kentucky’s One Stop portal offers an occupational licenses/permits resource to help you determine whether you need specific occupational or regulatory licenses.
6. Look into business insurance options
Purchase insurance to manage risk and attain a degree of liability protection for your Kentucky business. Standard insurance packages in Kentucky include:
- General liability insurance. General liability insurance broadly protects businesses from legal damages, losses due to property damage, and injuries on business property (such as customer slip-and-falls). General liability insurance is not mandatory for Kentucky businesses, but many commercial leases require it.
- Workers’ compensation insurance. Known as workers’ comp, this insurance policy covers injuries and illnesses employees might sustain on the job (including death). Kentucky state law requires all businesses with employees to carry this policy.
7. Understand financial considerations
Aside from insurance, you may need to make other investments in your new Kentucky business. These might include hiring professionals or contractors, like lawyers and accountants, or paying for certain digital services, like social media management, website building, or hosting. You'll need money to rent space if you decide to run a brick-and-mortar storefront or ship through a warehouse. Business resources are available to help you raise funding and defray some of these startup costs. You should also speak to a bank to set up business accounts for handling business expenses and managing cash flow.
8. Market your business
Once your Kentucky business is up and running, accelerate your marketing. Implement a marketing plan to raise your business’s profile in Kentucky and beyond. Here are a few ways to market your business:
- Paid advertising and promotion. Paid advertising is a traditional and trusted method. You can buy print or digital ads yourself or hire an agency to craft them on your behalf.
- Social media. Social channels like Instagram, Facebook, YouTube, and TikTok can help promote your products and services and make it easier for customers to discover your brand.
- Public relations. Reach out to local and national media outlets and cultivate relationships with journalists and publications. This could broaden your reach and increase your brand visibility.
- New business and customer retention. Build relationships with your customers to keep them coming back and ensure they spread the word to friends and family.
Starting a business in Kentucky FAQ
How much does it cost to start a business in Kentucky?
At a minimum, it costs $40 to form an LLC and $50 to form a corporation in Kentucky. You may also be subject to specific business licenses, depending on where you operate and the nature of your business. If you plan to hire employees, you must purchase workers’ compensation insurance, pay $15 annual report fees, and consider other startup costs.
What documents do I need to start up a business in Kentucky?
If you choose to form an LLC in Kentucky, you must file Articles of Organization. Corporations must file Articles of Incorporation. The Secretary of State’s office provides further information on what documents should be submitted along with these filings.
Does Kentucky require a business license?
Kentucky does not require a general business license, but certain counties, cities, and trades do.
Is Kentucky a good state to start a business?
Kentucky is an excellent place to start a business. It offers low-cost utilities and labor, some of the lowest living costs in the US, and various financial incentives, including a progressive tax program that gives new businesses more financial breathing space.