Articles of Organization

Before you can start conducting business, your Kentucky LLC must file articles of organization with the Business Filings Department of the Kentucky Secretary of State's office. The articles must be signed by one or more members or managers, or by an organizer of the LLC, who does not have to be a member or manager of the LLC. In fact, any person or legal entity can form an LLC, and they do not have to be a member of the LLC to do so.

You will need to submit the signed original plus two copies for filing to the state secretary of state. After filing, you will need to submit a copy of the file-stamped articles to the county clerk of the county where your LLC's registered office is located.

The articles must include:

• The company name
• The street (and mailing, if different) address of the LLC's initial registered office
• The name of its initial registered agent at the registered office
• The LLC's business purpose
• Whether the LLC will be member-managed or manager-managed
• If member-managed, the names and addresses of all members
• If manager-managed, the names and addresses of all managers
• The LLC's principal place of business
• The period of duration; if no dissolution date has been set, the LLC is considered perpetual
• Any other provisions that the members decide to specify, so long as they are not inconsistent with state law

Your LLC is considered "organized" once the articles of organization and two copies are delivered to the secretary of state (along with the $40 filing fee) and found to be in compliance with state requirements.

Registered Agent and Office

All Kentucky LLCs must have a registered agent-the person or office designated to receive official state legal and administrative correspondence. A Kentucky LLC's registered agent might be an individual state resident whose business office is the same as the registered office, or it may be a business entity that's authorized to conduct business in Kentucky-again, whose business office is the same as the registered office.

An LLC's registered office in Kentucky may be a place of its business, so long as it is located in the Bluegrass State.

Operating Agreement

The operating agreement is another very important document for an LLC. It can be amended or repealed as allowed by the agreement itself or applicable law. Having an operating agreement isn't specifically required by the state, but it's a key internal document that officially records and explains how the LLC will conduct its operations.

The operating agreement normally lists the LLC's members, how much each has invested, how profits are to be divided, and how much weight each member has when voting. It may also lay out meeting requirements and similar considerations, but is not required to do so. The operating agreement may also include rules and concepts already laid out in state law, as well as containing restrictions or prohibitions on the power of members to adopt, amend, or repeal the agreement.

Unless otherwise stated in the articles of organization or the operating agreement, a unanimous vote of members is required to amend either the articles or the operating agreement.

Membership in the LLC

An LLC has to have at least one member; a member may be a natural person or a legal or business entity.

To become a member, an individual normally makes a contribution of some sort. Members' contributions can be in cash, property, promissory notes, services previously or to be rendered, or some other binding obligation to contribute. Unless provided in a written operating agreement, a member has no right to withdraw from a Kentucky LLC. If the written operating agreement does not specify a time that a member may withdraw, that member may not withdraw without the consent of all other members remaining at the time. The withdrawn or resigned member is not necessarily released, however, from any liability-LLCs can pursue damages to the company that result from a member's resignation.

In a member-managed LLC, transfers of LLC property may be transferred by a document signed by an authorized member on behalf of the LLC. In a manager-managed LLC, any authorized manager can execute such a transfer document on behalf of the LLC.

Ongoing Requirements

All Kentucky LLCs are required to file an annual report with the Kentucky Secretary of State on or before the anniversary of its organization. The report must be signed by an authorized manager, member, or agent, and it must include:

• The LLC name and the state or country under which it was organized
• The address of the LLC's registered office
• The name of the LLC's registered agent at that office
• The address of its principal office
• The name and business address of each manager (if manager-managed), or each member (if the LLC is member-managed)

The first annual report must be delivered to the Secretary of State between January 1 and June 30 the year after the LLC is organized. Subsequent annual reports shall be delivered to the Secretary of State between January 1 and June 30 of the following calendar years.

Further, each Kentucky LLC is required to keep the following types of records open for inspection at its office:

• A listing of all current and former member(s) and manager(s) and their addresses
• A copy of the articles of organization, along with any amendments and related powers of attorney
• A copy of all federal, state and local income tax returns for the past three years
• Copies of all current and former operating agreements
• The amount of cash on hand and a statement of the agreed-upon value of any other property or services contributed or to be contributed in the future by each member
• Any events that would trigger the dissolution of the LLC
• Other relevant information about the LLC's operations

It's also advisable for your LLC to keep minutes of the members' or managers' proceedings and committee meetings.

Dissolution

Unless otherwise stated in the articles of organization or the operating agreement, a Kentucky LLC is dissolved when any one of the following events occurs:

• Event(s) or a time specified in the articles of organization or operating agreement that require dissolution
• Expiration of the term of the LLC as set forth in the articles of organization
• Written consent to dissolve of a majority in interest of the members (more than half of the members who own more than 50 percent of the then-current percentage or other interest in the LLC owned by all of the members)
• Filing of a certificate of dissolution by the Kentucky Secretary of State
• A court order is handed down requiring dissolution

Unless otherwise provided in the operating agreement, the written consent of a majority in interest of members is required to voluntarily dissolve the LLC.

Taxes

An LLC offers tax advantages over a corporation, mostly because an LLC is not required to be a separate tax entity like a corporation. Instead, it can be a "pass-through entity" for tax purposes, so LLC owners show business losses or profits on their personal tax returns, instead of the LLC being taxed as a separate entity and the members' incomes from the LLC being taxed a second time at their individual level.

The LLC tax rate for Kentucky varies based on Kentucky taxable net income. However, Kentucky LLCs are subject to the state's franchise tax on net capital accounts.

Articles of Incorporation

Kentucky requires that new corporations file articles of incorporation with the Commonwealth Secretary of State. The articles are delivered by one or more incorporators (only one is required), whose primary duties are to sign the articles and deliver the original and two copies of the articles to the state office. The incorporator does not need to be a director, officer, or shareholder of the corporation.

The articles must include the following information:

• The name and address of each incorporator
• The number of shares the corporation is authorized to issue
• The address of the corporation's principal office
• The signature of the registered agent accepting appointment as such, or a separately signed consent document

The Commonwealth of Kentucky allows corporations to be formed for any lawful business activity. There is no need to state a business purpose in the articles.

Kentucky does not require a statement of par value for stocks. To create one class of common shares with equal rights and preferences, simply state the number of shares. Incorporators typically authorize 1,000 shares in order to pay the minimum filing fee of $50. If you want to create special classes of shares, you must list them, together with the rights and restrictions associated with each.

It's also allowable to include other optional provisions into the articles of incorporation for those who want to formalize additional criteria, such as:

• The names and addresses of the initial directors
• The corporate purpose(s)
• Regulating the powers of the corporation, its board, and shareholders
• A par value for authorized shares or classes of shares
• Personal liability of shareholders for corporate debts in certain situations
• Limitation of director liability to the corporation or its shareholders in certain situations

After the corporation has been formed, one copy of the articles of incorporation must be filed in the county where the corporation has its registered office.

Registered Agent and Office

The articles of incorporation should also include the name and address of your corporation's initial registered agent-the person appointed to receive official legal and administrative correspondence from the state on behalf of your corporation.

The registered agent must be either an individual who lives in Kentucky and whose business office is the same as the registered office, or a domestic corporation, LLC, or limited partnership with a business office that is the same as the registered office.

Bylaws

Corporations should keep a copy of their bylaws at their principal executive office, but they are not required to file those bylaws with the state. At the new corporation's initial meeting, the incorporators or board of directors should adopt corporate bylaws and then keep them updated as time goes on. Bylaws are a critically important document describing the corporation's basic managerial and legal operating principles regarding such issues as:

• Shareholders' and directors' meetings
• The authority, number, and tenure of directors in the board of directors
• Voting procedures
• The duties, responsibilities, and tenure of directors and officers
• How stock is issued
• How and when annual financial information is provided to shareholders

Officers of the new corporation can either be listed in the bylaws or elected by the board in compliance with those bylaws. The right to adopt, amend, or repeal bylaws is vested in the board, subject to the articles of incorporation and the stockholders.

Directors and Officers

The corporation's business is managed by its board of directors. There must be at least one director; the articles of incorporation or the bylaws may specify the number. The state does not mandate any eligibility requirements for directors, but the articles of incorporation or bylaws may prescribe director qualifications. Directors are generally elected at each annual shareholder meeting to hold office until the next annual meeting.

If a board of directors has the authority to fix or change the number of directors, the board may increase or decrease by up to 30 percent the number of directors last approved by the shareholders, but only the shareholders may increase or decrease by more than 30 percent the number of directors.

Corporate officers can either be listed in the bylaws or elected by the board in compliance with those bylaws. Officers may appoint other officers as needed for the operation of the corporation, in accordance with the bylaws. There must be one officer who is responsible for preparing and maintaining records of the proceedings of directors' and shareholders' meetings and for authenticating corporate records.

Multiple offices may be held by the same person unless the articles or bylaws state otherwise.

Required Reports

Kentucky corporations must file a report with the Kentucky Secretary of State's office every year by the end of the anniversary month of incorporation. The annual report must include:

• The corporation's name
• The state or country of its incorporation
• The address of the corporation's registered office and the name of its registered agent at that office
• The address to which correspondence for corporate officers should be mailed
• The names and addresses of the directors, president, and secretary

Taxes

Kentucky imposes a graduated corporate income tax, with rates that depend on corporate taxable income. Kentucky also imposes a license tax on capital employed in the business, with a minimum yearly license tax of $30.