How to Start an LLC in Ohio
With all their benefits, LLCs are an emerging and attractive business structure for entrepreneurs. Pair it up with the right knowledge and approach, and your business can be off to a smooth start. But it’s not just that. LLCs are straightforward, guaranteeing a high success rate for your business idea. Starting an LLC might be your best bet if you’re seeking business opportunities in Ohio. We’ve done the research for your part and explained the entire process for your convenience.
What is an LLC?
A limited liability company, abbreviated as LLC, is a US legal entity that conveniently operates and manages a business. It combines the advantages of various business structures, including corporations, partnerships, and sole proprietorships. Thus, an LLC is a hybrid business structure with the legal protection of a corporation and pass-through taxation similar to a partnership.
LLCs are gaining rapid popularity in different states because of their flexible nature and simplified procedure. The limited liability feature ensures separate demarcation of personal assets from business assets, thus protecting the owner’s assets in case of a lawsuit. Moreover, LLCs offer flexible taxation options by paying personal taxes on one’s share of the business. This prevents double taxes on business entities, so LLCs are big on saving taxes.
For new business schemes, LLCs offer a good platform to operate your business, decide on owners, and manage tax options. Many people resort to Ohio’s flourishing business climate for their startups because of its affordable commercial space, encouraging business environment, and dedicated workforce.
Recently, Ohio has secured top positions in various business rankings owing to its diverse economy, affordability, and profitability, which drives an increased influx of customers. Seeing its low tax structure and small maintenance fees, we cannot help but admit that Ohio is a welcoming location for LLC owners.
Advantages Of an LLC In Georgia
If you’ve settled on starting an LLC in Ohio as your preferable business structure, many benefits will come along your way. These advantages, if leveraged the right way, can be utilized to ensure the booming success of your small business. A brief insight into the advantages of LLCs in Ohio can help you make up your mind better.
LLCs feature a single level of taxation for all company members, which is a golden opportunity for new businesses to save on expenses. The ‘pass-through’ taxation system ensures that all members of an LLC have to pay their due personal taxes on their share of the profit or loss of the business.
This gives an edge over various corporations that have to pay double taxes, once on their business entities and once on their taxes. Moreover, you can select your company’s taxation options as an S-Corp, C-Corp, or partnership based on whatever suits your needs.
The limited liability feature is particularly interesting to entrepreneurs new to the business market. In case of a lawsuit or court order, LLCs can be a safe space to protect your assets like cars, property, houses, etc.
You will be assured that with an LLC, your corporate loss can never be greater than the investment in case the company fails. By keeping private property off-limits, owners can save themselves from massive financial losses in case of bankruptcy or legal claims.
Flourishing business climate
With its escalating capital growth rate, Ohio is home to many emerging businesses, particularly tech-based. The skilled workforce, creativity, and diversity are highly encouraging to unlock entrepreneurial potential.
Ohio has funded several technology-related startups and offers business incentives for small enterprises. The state offers many financial assistance programs and flexible loan plans to lend a supporting hand to people who are passionate enough.
Affordable and easy
Undoubtedly, one of the major attractions of Ohio is its low cost of living. But there’s more to it. LLCs in Ohio cost less than $100 on paperwork and require no additional annual fees. This can help you save up on expenses. Moreover, the entire LLC process in Ohio is pretty straightforward. You don’t necessarily have to be a state resident to form an LLC. Still, we can’t deny being local taps in certain benefits as Ohioans have a strong ‘buy local’ mentality.
If you create a limited liability company in Ohio, you’ll be exempted from many unnecessary requirements usually involved in a corporation. LLCs do not require meetings, a board of directors, or annual reporting; hence the process is flexible and simplified. Members have complete freedom in deciding whether a manager or an elected member will run the company’s management.
Disadvantages of Starting a Ohio LLC
Alternately to the benefits, forming an LLC is not always a wise decision. Sometimes, you’ll need to settle for a partnership or a corporation by weighing the cons and the pros. You must be fully aware of the drawbacks of setting up an LLC in Ohio because every location impacts your business differently. A few potential disadvantages might include the following:
Ohio offers rich business opportunities for only limited industries, such as infrastructure and technology. Other industries might struggle a bit in Ohio because of limited diversity. This can be daunting to scale a business, particularly if your interests lie beyond tech and infrastructure domains. Another challenge might be hiring skilled employees and competing with larger corporations in the market.
More often than expected, multiple members of an LLC do not agree on similar terms, which can lead to disputes. This can be avoided by specifying responsibilities beforehand and deciding on the management policy, either member-based or manager-based. Within an LLC in Ohio, the ownership interests are only transferable if approved by all the members, so accommodating new members or selling ownership interests can also be a point of disagreement.
LLCs in Ohio have to submit additional commercial activity tax, which can get quite expensive over time in case of the incorporation process. Moreover, the inability to issue stocks makes it harder to raise money, and owners constantly need help finding creative solutions for better sales. Also, LLC earnings are often reported as self-employment tax by the members, which can be higher than most corporate shareholders.
LLC Formation in Ohio
Each state has its own particular set of requirements for starting an LLC. Keeping this in mind, it’s important to be fully aware of the legal procedure in Ohio to ensure a streamlined formation process. This will put things in perspective so you can get your business up and about in no time. Since it might initially seem confusing, we’ve simplified the entire procedure into six steps. Still, trying to figure out where to begin? Here’s a complete guide.
- Selecting a unique name
- Appoint a registered agent based in Ohio
- File the Ohio LLC articles of organization
- Draft the LLC operating agreement
- Apply for EIN for your Ohio LLC
- Business license and tax accounts
Selecting a unique name
Once you have an idea for your business, you must give it a distinguishable name. The name of your LLC sets the first impression, so it should be a concise representation of your business values, products, and services. To boost your business in the market, choose a name that is memorable and easily searchable. However, ethical considerations must be considered to prevent plagiarism and copyrights. In addition, the name must follow the state’s guidelines.
Ohio’s Naming Guidelines
The company’s name must include the designators’ limited liability company’, ‘limited,’ or ‘LLC,’ ‘L.L.C.,’ ‘ltd.,’ or ‘ltd’ to identify as an LLC. It is strictly forbidden to use names that might create confusion about affiliation with government entities, e.g., FBI, CIA, etc.
Ohio is particularly strict on choosing a unique name, and profane words or offense against ethnic or religious groups is strictly prohibited. Moreover, if you include special words like ‘bank, attorney, credit union, etc.,’ you will be required to provide special paperwork and licensing per the state’s guidelines.
Reserve the Name
More than simply surfing google is required to ensure the uniqueness of your company’s name. You can do a search task on the State of Ohio’s website to confirm the credibility of your selected name. We recommend checking a URL based on the website’s name for future online sales.
LLCs in Ohio allow owners to reserve their decided names for 180 days by submitting a name reservation application. The application can be online or mailed to the Ohio Secretary of State for $39 to ensure no one else can buy or copy your company’s name and website. Meanwhile, it will give you ample time to comply with other proceedings of forming an LLC.
Ohio DBA (doing business as) or trade names are a smart way to give your company a fictitious name rather than the original one. You can register your LLC with a legal name in Ohio but have a separate name for public usage and identity.
To register a trading name, you must submit an application to the Ohio Secretary of State with a filing fee of $125. If this sounds expensive, you can use the legal name registered with the state and save on additional costs.
Appoint a registered agent based in Ohio
As per the state guidelines, you are allowed to form an LLC even if you’re not living in Ohio, but it is necessary to provide a statutory or registered agent. The statutory agent can be a trusted family member or friend who physically lives in Ohio.
You can also hire a registered agent to manage businesses in that state. The basic purpose of having a statutory agent is to form a point of contact between the LLC and the state of Ohio. The following prerequisites are important to fulfill the criteria of a statutory agent.
- Must be of legal age, 18 years or older
- Must have a street address in Ohio.
- Available during business hours at all times.
- Readily available and approachable in case of legal matters or paperwork requirements.
Appointing a statutory agent is important for handling all paperwork and receiving legal documents related to the company’s matters. If you live in Ohio, you can be your statutory agent, but you must keep in mind the demanding workload of running errands and being available 24/7.
To avoid such cases, you can always opt for a registered agent service provided by several companies; however, you must research and consider the financial aspects before selecting a representative company for your LLC in Ohio.
File the Ohio LLC articles of organization
The next step is to officiate the LLC by filing an Articles of Organization with the Ohio Secretary of State. You can apply online or fill out Form 610 and send it through mail to register your company.
The standard costs in Ohio are $99 for receiving an answer in 3-7 business days. The process can be expedited as well by paying an additional fee. The Ohio code section specifies what needs to be included in the Articles of Organization. It is a complete form that must be read and filled out thoroughly with all the necessary information, such as;
- LLC name
- Purpose of LLC
- The effective date of the LLC (either the filing date or later)
- Duration of LLC (perpetual or specified end date)
- Address of LLC business location
- Statutory agent’s name and address
- Signature of manager or members
The Articles of Organization also require the owners to specify the management plan of the LLC. Typically, LLCs can either be managed by an elected member of the LLC or by a manager hired separately to make decisions on behalf of all the members of the LLC.
Ohio offers complete freedom in choosing the management options as per what works best. Once the Articles of Organization are submitted to the Secretary of the State, they review them and approve your LLC as a legal business structure.
Draft the LLC operating agreement
The Ohio Secretary of State does not state it is compulsory to submit an Operating Agreement in Ohio, but this document is essential for future matters of the LLC. The operating Agreement will outline each member’s rights, duties, and powers, so it could save you in a sticky spot, particularly in case of settling disputes.
This document clarifies the liability of assets and gives the LLC a professional impression. Without an operating agreement, the court could make decisions, not in the LLC’s and its members’ best interests. The Operating Agreement is reviewed and signed by all the members and must include the following details;
- LLC name and physical address
- Purpose of LLC formation
- Names of all members
- Contributions by each member
- Voting rights in disputes
- Profits and loss distribution
- Procedure for hiring new members
- Responsibilities of managers and members
- Dissolution proceedings
Apply for EIN for your Ohio LLC
For LLCs with more than one member, you must apply for an EIN or employer’s identification number. The EIN is sometimes referred to as Federal Employer Identification or Federal Tax Identification Number. This is a nine-digit social security code issued by the IRS, specific to your business entity.
EIN is useful for filing taxes for the LLC so that your business is separated from personal assets. The employer’s identification number is essential to opening a bank account and facilitates your LLC in hiring new employees. It is also recommended to look into Ohio’s employer obligations, including reporting new hires within 20 days and paying unemployment taxes.
Business license and tax accounts
Owners should know that certain Ohio businesses require a license to operate. Check-in with the clerk of the city and Ohio’s online platform for local and state business licensing procedures and requirements.
If the LLC sells goods and taxable services, you will also have to obtain a Vendor’s license from the Ohio Department of Taxation. After that, you can also look into insurance options and marketing strategies to gain customers for your LLC.
Types of LLC
Which type of LLC is ideal for me?
In Ohio, there are different types of LLCs that business owners can choose from based on their needs. They include:
- Single-member LLC: This type of LLC is owned by one person who is responsible for all the company’s decisions and operations.
- Multi-member LLC: This LLC has more than one owner or member who shares in the company’s management and decision-making.
- Domestic LLC: An LLC formed under the laws of Ohio is known as a domestic LLC.
- Foreign LLC: An LLC formed in another state but operating in Ohio needs to register as a foreign LLC in Ohio.
- Series LLC: A series LLC allows for the creation of separate divisions or series within a single LLC, each with its own assets and liabilities.
- Professional LLC (PLLC): This type of LLC is for licensed professionals, like doctors, lawyers, and architects, who want to form a limited liability company for their profession.
Remember to consult with a legal or financial advisor to determine the best type of LLC for your specific business needs.
Applicable LLC taxes in Ohio
A comprehensive knowledge of the taxation system for LLCs in Ohio can help drive your sales in the right direction. We have summed up the best of our knowledge, but since taxes are constantly updated in each state, it’s always a safe option to check in with the Ohio Department of Taxation beforehand.
After obtaining your business license for the local and state level, you must register with the Ohio Business Gateway to look up all the filings of state taxes in the Department of Taxation. This will give you a brief overview of the taxes that apply to your LLC.
If you still need clarification, here’s a pro tip. Ohio offers a small training program to help you understand the taxation process for small businesses and LLC owners. A state sales tax of 5.75% for vendor license holders will be applicable, which may vary in each county of Ohio.
The franchise tax is only applicable if your LLC falls into the categories of being a financial institution, loan holding company, an affiliate of the above, or a securitization company. Otherwise, per Ohio’s laws, a Commercial Activity Tax (CAT) of 0.26% applies to LLCs earning more than $1 million. The rules for paying the CAT are stated as follows;
- This tax is not applicable for LLCs with less than $150,000 in gross receipts.
- For LLCs with gross receipts between $150,000 and $1 million, the annual tax will be $150.
- For LLCs with gross receipts of more than $1 million but less than $2 million, the annual tax will be $800, with calculated CAT tax on all receipts above $1 million.
- For LLCs with gross receipts between $2 million and $4 million, the annual tax will be $2100 plus CAT.
- For LLCs with gross receipts over $4 million, the annual tax will be $2600 along with the CAT.
When hiring employees, look into employment taxes and unemployment insurance. Ohio does not account for any annual fees or reporting to keep the LLC working smoothly, so this makes a huge plus point to save on yearly expenses. However, the taxation system and procedure are different if you apply as a foreign LLC from a different state.
Cost of forming an LLC in Ohio
We’ve mentioned the individual costs of each step involved in forming an LLC in Ohio. Still, the total expense may vary based on your preference and expedited processing. If you want to cut expenses, you can avoid spending on optional costs such as name reservation, DBA, or hiring statutory agents. Here’s a brief outlook to give you a rough estimate of the overall costs for an LLC in Ohio.
Filing articles of organization
Name reservation (optional)
Registered agent service (optional, up to)
Ohio biennial report
Business permits and licenses
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