Are you considering starting a business in either Delaware or Kentucky? One of the first steps is deciding which type of legal entity to form.
Limited Liability Companies (LLCs) are becoming an increasingly popular choice due to their flexibility and liability protection benefits.
Here we will provide a side-by-side comparison of Delaware vs. Kentucky LLCs.
Highlighting the key differences in company formation, operating agreements, management structures, taxes, and asset protection.
Delaware vs. Kentucky LLC
Taxation: Delaware generally offers lower personal income tax rates but imposes a higher corporate income tax rate.
Kentucky has a lower flat income tax rate but also levies a sales tax, whereas Delaware does not have a state sales tax.
Formation Costs: Delaware has higher initial filing fees and annual franchise taxes.
Making it more expensive to establish and maintain an LLC compared to Kentucky, which has lower filing fees and annual report costs.
Sales Tax: Delaware doesn’t have a state sales tax, making it attractive for businesses in retail or online sales.
In contrast, Kentucky imposes a 6.00% sales tax on most goods and services.
| Delaware LLC | Kentucky LLC |
|---|---|
| Delaware charges an initial filing fee of $90. | Kentucky has a lower initial filing fee of $40. |
| It imposes an annual franchise tax of $300. | It has a lower annual report fee of $15. |
| Delaware’s state income tax rate varies from 2.20% to 6.60%. | Kentucky has a flat state income tax rate of 4.50%. |
| It imposes a corporate income tax rate of 8.70%. | It has a lower corporate income tax rate of 5.00%. |
| Delaware does not have a state sales tax. | Kentucky has a state sales tax rate of 6.00%. |
| Delaware typically requires registered agent fees ranging from $100 to $300 per year. | Kentucky’s registered agent fees are in a similar range. |
| It has an annual report requirement but does not specify the fee. | It charges an annual report fee of $15. |
| Delaware offers privacy by not requiring the disclosure of member names in public filings. | Kentucky does not have similar privacy provisions. |
| It has well-established corporate laws and an extensive legal framework. | It offers a simpler regulatory environment. |
| Delaware boasts a strong business infrastructure, including corporate services and legal professionals. | Kentucky provides access to local resources and a supportive business community. |
Cost Breakdown of The Two
You may use our free LLC cost calculator by state to find out filing fees, tax percentages, income taxes, and more.
Delaware:
Filing Fees: Delaware charges a filing fee of $90, which is a one-time expense required to register your LLC with the state.
Annual Franchise Tax: Delaware imposes an annual franchise tax of $300 on LLCs, which is an ongoing cost to keep your LLC in good standing.
Registered Agent Fees: The fees for a registered agent in Delaware can vary but typically range from $100 to $300 per year.
A registered agent is necessary in Delaware to receive legal documents and government correspondence on behalf of your LLC.
Kentucky:
Filing Fees: Kentucky has a lower initial filing fee of $40, which is a one-time expense to establish your LLC in the state.
Annual Report Fee: Kentucky requires an annual report fee of $15, which is an annual cost to file the report and maintain your LLC’s good standing with the state.
Registered Agent Fees: Similar to Delaware, the cost of a registered agent in Kentucky can vary, typically ranging from $100 to $300 per year.
A registered agent is essential in Kentucky for receiving legal documents and official communications on behalf of your LLC.
Related Posts:
- Delaware LLC: Cost Breakdown, Pros and Cons, Requirements
- Kentucky LLC: Cost Breakdown, Pros and Cons, Requirements
Similarities Between Delaware and Kentucky LLC
Limited Liability Protection: Both Delaware and Kentucky offer limited liability protection to the members of an LLC.
This means that the personal assets of the LLC owners (members) are generally protected from the business’s debts and liabilities.
Operating Agreements: Both states allow LLCs to create operating agreements.
An operating agreement is a legal document that outlines the management structure, ownership interests, and operating procedures of the LLC.
While not required by law, having an operating agreement is recommended for LLCs in both states to clarify internal operations and protect the members’ interests.
Registered Agents: Both Delaware and Kentucky require LLCs to have a registered agent in the state. The registered agent is responsible for receiving legal documents and official communications on behalf of the LLC.
This is a common requirement in most states to ensure that the LLC can be properly served with legal notices.
Annual Reporting: Both states have annual reporting requirements for LLCs.
Delaware and Kentucky LLCs must file annual reports or pay annual franchise taxes to maintain their good standing with the state.
These reports often include basic information about the LLC and may require payment of a fee.
Foreign LLCs: Both states allow for the formation of foreign LLCs. If your LLC was originally formed in one state but wishes to conduct business in either Delaware or Kentucky.
You can typically register as a foreign LLC in those states to gain the legal authority to operate there.
Additional Resources:
Steps to Form LLC in Delaware
1. Choose a Name for Your LLC:
You’ll need to select a unique name for your Delaware LLC that complies with state naming requirements.
2. Designate a Registered Agent:
Appoint a registered agent in Delaware who will accept legal documents on behalf of your LLC.
3. Obtain and Fill Out the Certificate of Formation:
You must complete the Certificate of Formation, which is the official document to register your LLC in Delaware.
You can download this form from the Delaware Division of Corporations website.
4. Pay the Filing Fee:
Submit the completed Certificate of Formation along with the filing fee, which is typically $90. You can pay by check or money order made payable to the “Delaware Secretary of State.”
5. File the Certificate of Formation:
Mail the Certificate of Formation and payment to the Delaware Secretary of State’s office or submit it online through their website.
6. Create an Operating Agreement:
Although not required by the state, it’s advisable to draft an operating agreement that outlines how your LLC will be managed and operated.
7. Obtain an EIN (Employer Identification Number):
You can apply for an EIN from the IRS online or by submitting Form SS-4. This number is needed for tax purposes and banking.
8. Register for Delaware Business Licenses and Permits:
Depending on your business type and location, you may need specific licenses or permits. Check with state and local authorities for any additional requirements.
9. File Annual Reports and Pay Franchise Taxes:
Delaware LLCs are required to file an annual report and pay franchise taxes to maintain good standing with the state. The annual report is due on or before June 1st each year.
10. Comply with Ongoing Requirements:
Be sure to meet all ongoing compliance requirements, including keeping accurate records, holding annual meetings (if applicable), and paying state taxes.
11. Operating Your LLC:
With your LLC officially formed, you can now operate your business in accordance with the terms outlined in your operating agreement.
Steps to Form LLC in Kentucky
1. Choose a Name for Your LLC:
Select a unique name for your Kentucky LLC that complies with state naming requirements. It must include “Limited Liability Company” or abbreviations like “LLC.”
2. Designate a Registered Agent:
Appoint a registered agent in Kentucky who will receive legal documents on behalf of your LLC. The agent must have a physical address in Kentucky.
3. File Articles of Organization:
Prepare and submit the Articles of Organization to the Kentucky Secretary of State. You can file online or by mail. Include the filing fee, which is typically $40.
4. Create an Operating Agreement:
While not required by Kentucky law, it’s advisable to draft an operating agreement that outlines how your LLC will be managed and operated.
This document is for internal use and should be kept with your business records.
5. Obtain an EIN (Employer Identification Number):
Apply for an EIN from the IRS. You can do this online or by submitting Form SS-4. This number is needed for tax purposes and opening a business bank account.
6. Register for Kentucky State Taxes:
Depending on your business activities and location, you may need to register for state taxes such as sales tax, use tax, and withholding tax.
Check with the Kentucky Department of Revenue for specific requirements.
7. Comply with Local Permits and Licenses:
Contact your local city or county government to determine if your LLC needs additional licenses or permits to operate in your specific area.
8. File Annual Reports:
Kentucky LLCs are required to file annual reports to maintain good standing with the state.
The annual report filing fee is typically $15. You can file online or by mail, and the deadline is June 30th each year.
9. Maintain Ongoing Compliance:
Ensure that your LLC complies with all state and federal regulations, including keeping accurate records, holding necessary meetings (if applicable), and paying state and federal taxes.
10. Operating Your LLC:
Once you have completed all the necessary steps and obtained the required permits and licenses, you can begin operating your LLC in Kentucky.
Feature Comparisons Between Delaware LLC vs. Kentucky LLC
Delaware LLC:
Formation Requirements: Requires filing a Certificate of Formation with the Delaware Secretary of State and appointing a registered agent.
Taxation: Imposes a corporate income tax rate on LLCs and does not offer pass-through taxation. It also has an annual franchise tax.
Annual Reporting: Delaware LLCs must file an annual report with the Secretary of State, including updated business information.
Business Environment: Known for a business-friendly legal environment, Delaware is home to diverse industries, including finance, healthcare, and technology. It has a skilled workforce.
Name Availability: Conducting a name availability search before filing is recommended to ensure the desired name is available.
Kentucky LLC:
Formation Requirements: Involves filing Articles of Organization with the Kentucky Secretary of State and designating a registered agent.
Taxation: Kentucky imposes a state income tax on LLCs and also has a corporate income tax. It also has a state sales tax.
Annual Reporting: Kentucky LLCs are required to file an annual report to maintain good standing with the state.
Business Environment: Kentucky offers a diverse economy with strong sectors in manufacturing, agriculture, healthcare, and technology.
Name Availability: Conducting a name availability search is recommended in Kentucky to ensure name availability.
Business Environment
The business environment for LLCs in Delaware and Kentucky can vary in several ways. Here’s a comparison of the business environments in both states for LLCs:
Delaware LLC:
Legal Environment:
Delaware is renowned for its well-established and business-friendly legal environment. It has a specialized court system.
The Delaware Court of Chancery, that deals with corporate and business matters, providing predictability and expertise in resolving business disputes.
Corporate-Friendly Laws:
Delaware offers a flexible and favorable legal framework for LLCs, with a comprehensive body of corporate law that provides clarity and protection for business owners.
Privacy Protection:
Delaware provides greater privacy protection to business owners. Members’ names are not required to be disclosed in public filings, offering anonymity for owners.
Preferred by Investors:
Delaware is often chosen by startups and larger corporations alike due to its reputation, making it easier to attract investors and access capital.
Business Infrastructure:
Delaware offers a robust business infrastructure, including a well-developed financial sector, corporate services providers, and a network of legal professionals with expertise in corporate matters.
Kentucky LLC:
Compliance-Focused:
Kentucky provides a straightforward and compliance-focused business environment. It may be easier for small and local businesses to navigate regulations.
Simplicity:
Kentucky’s business regulations are generally simpler and less extensive than those in Delaware, which can be advantageous for smaller businesses with fewer resources.
Location-Specific Advantages:
Kentucky’s central location in the U.S. can be advantageous for businesses with a regional focus, making it accessible to a significant portion of the country.
Local Business Community:
Kentucky may offer a supportive local business community, access to resources for startups and small businesses, and networking opportunities.
Cost-Effective:
Kentucky often has lower initial filing fees and annual report costs compared to Delaware, making it a cost-effective option for LLC formation and maintenance.
Read Also:
- 30 Best Business Ideas in Delaware
- 24 Best Business Ideas in Kentucky
- The Best States to Form an LLC
Delaware vs. Kentucky Taxes
Delaware LLC:
Taxation:
State Income Tax: Delaware imposes a variable state income tax rate ranging from 2.20% to 6.60%. This may be advantageous for LLCs with lower income levels.
Sales Tax: Delaware does not have a state sales tax, making it attractive for businesses involved in retail or online sales.
Corporate Income Tax: Delaware has an 8.70% corporate income tax rate.
Formation Costs:
Filing Fee: Delaware charges a higher initial filing fee of $90.
Annual Franchise Tax: Delaware imposes an annual franchise tax of $300 on LLCs.
Legal Environment:
Business-Friendly Laws: Delaware is known for its business-friendly legal environment and well-established case law, making it a preferred choice for many businesses.
Privacy:
Privacy Protection: Delaware offers more privacy to business owners by not requiring the disclosure of member names in the public filings.
Kentucky LLC:
Taxation:
State Income Tax: Kentucky has a flat state income tax rate of 4.50%, providing simplicity and predictability in tax obligations.
Sales Tax: Kentucky has a 6.00% state sales tax, which affects the pricing of goods and services.
Corporate Income Tax: Kentucky has a 5% corporate income tax rate.
Formation Costs:
Filing Fee: Kentucky has a lower initial filing fee of $40.
Annual Report Fee: Kentucky charges an annual report fee of $15.
Legal Environment:
Compliance: Kentucky offers a simpler and more straightforward regulatory environment, which can be advantageous for small businesses.
Location-Specific Considerations:
Geographic Location: Kentucky’s location in the central U.S. can be beneficial for businesses with a focus on regional markets.
Local Business Community:
Local Business Support: Kentucky may offer a supportive local business community and access to resources for startups and small businesses.
Flexibility in Rules and Regulations
Delaware LLC:
Flexible Operating Agreements: Delaware allows LLCs to have highly flexible operating agreements, which are the internal documents that outline the management and operation of the company.
Members have significant freedom to customize the terms and structure of their operating agreements.
Management Options: Delaware permits various management structures, including member-managed and manager-managed LLCs.
This flexibility allows members to choose the management style that best suits their needs.
Series LLCs: Delaware is known for being one of the few states that allow Series LLCs.
This structure enables you to create separate “series” within a single LLC, each with its own assets, liabilities, and members, providing substantial flexibility for different business activities or investments.
Privacy Protections: Delaware offers privacy protections by not requiring the disclosure of member names in public filings, providing an additional layer of anonymity for business owners.
Kentucky LLC:
Flexible Operating Agreements: Kentucky also allows for flexible operating agreements, providing LLC members with the ability to customize the rules governing their LLC’s management and operations.
Management Options: Kentucky allows both member-managed and manager-managed LLCs, similar to Delaware, allowing for flexibility in choosing the management structure that suits the business.
Simplicity: Kentucky’s regulatory environment is generally simpler and less complex than Delaware’s, making it an appealing choice for businesses seeking a straightforward approach to compliance.
Adaptability: While Kentucky doesn’t specifically allow Series LLCs like Delaware, its adaptable regulations can still accommodate a wide range of business structures and operations.
Key Differences Between Delaware and Kentucky- An Overview
