How to Start an LLC in Ohio? | 10 Steps To Success
Before registering, it is important that you understand what exactly an Ohio LLC entails and how much work has to go into setting up one. An LLC is a business entity that is less complicated to set up and easier to maintain compared to corporations.
As someone who has been in the business industry for a decade, I have counseled countless clients and helped them establish their own LLC.
After consulting with experts in Ohio, I have prepared a complete guide on how to start a limited liability company in Ohio.
Moreover, you can opt for one of these Ohio professional LLC services to facilitate the creation of your LLC.
Quick Summary:
- To start an LLC in Ohio, you must register an available business name, appoint a statutory agent, file the articles of organization and create an operating agreement.
- After establishing an LLC, it's necessary to obtain an Employer Identification Number (EIN) and a business license.
- According to U.S. Small Business Economic statistics, Ohio is home to 989,435 small businesses, representing 99.6% of all business entities, showcasing the state's robust entrepreneurial environment.
- From my experience, forming an LLC in Ohio appears to be a streamlined process, which is highly beneficial for entrepreneurs seeking legal protection with minimal complexity.
How To Form an LLC in Ohio
To form an LLC in Ohio, you need to follow state requirements and file all legal paperwork.
1. Choose the Type of Your Ohio LLC
Choosing the type of your Ohio LLC is a crucial decision that impacts your business's legal and financial aspects.
- Single-Member LLC: Ideal for solo entrepreneurs.
- Advantages: Simplified management, complete control, and fewer formalities.
- Disadvantages: Limited growth potential and personal asset vulnerability in cases of legal issues.
- Multi-Member LLC: Suitable for businesses with multiple owners.
- Advantages: Shared responsibility, diverse skill sets, and potential for more significant investment.
- Disadvantages: Complex decision-making process and potential for internal conflicts.
- Professional LLC: Designed for licensed professionals (e.g., lawyers, doctors).
- Advantages: Liability protection specific to professional services and enhanced credibility.
- Disadvantages: Strict regulatory compliance and limited to specific professions.
As a business consultant, I've guided numerous clients in choosing the appropriate Ohio LLC type. For solo entrepreneurs, I recommend Single-Member LLCs for their ease of management while cautioning about growth limitations.
For businesses with more complex needs, Multi-Member and Professional LLCs can be more suitable. The key is aligning the LLC type with the business's specific needs and future plans.
2. Choose a Name for Your Ohio LLC (Mandatory)
The best way to find an appropriate LLC name for your new business is to brainstorm keywords about your brand and then pick one that makes sense for your company.
Once you have your LLC name, you will need to ensure that it meets the state requirements. You can find these on the Secretary of State's website, and they are as follows:
- The business name cannot be the same as another name reserved by an existing Ohio LLC or a similar-sounding company registered with the state.
- The name must contain the terms “Limited Liability Company,” “LLC,” "LTD," or “L.L.C.” as stated in the Ohio Secretary of State document [1].
- It cannot contain misleading words, such as "corporation," "incorporated," or any other words that give the impression that it is a corporation.
- You cannot use the words “bank,” "trust,” or “insurance” in the business name.
- Additional paperwork and licenses are required if you include professional terms in the LLC’s name.
You can also reserve your company name by filing a reservation form with the Ohio Secretary of State. You can file it online for a $39 filing fee.
Read More: Looking Up an LLC in Ohio
3. Select a Registered Agent (Mandatory)
After you have your name, the next step in registering for an Ohio LLC is appointing a statutory agent.
An LLC statutory agent is equivalent to a registered agent in other US states. An Ohio registered agent service is a company or a person who accepts legal documents on behalf of the LLC. Basically, the main function is to provide a service or process for your company.
The State of Ohio has specific requirements and guidelines you need to follow when selecting a registered agent:
- Must be a person who is at least 18 years old and has permanent residence or citizenship in the US
- Must not be a member of another Ohio LLC
- Cannot have been convicted of crimes involving moral turpitude or dishonesty, fraud, theft, embezzlement, forgery, and other related offenses.
When selecting your registered agent service, you should consider several things, such as whether they will act in person or by proxy as a statutory agent.
Also, the statutory agent must be a resident of Ohio or have permanent US citizenship with at least one year of residence in OH and cannot have resided outside of the state for more than six months continuously.
It is important to choose someone trustworthy and knowledgeable in legal matters, as they will be responsible for handling sensitive legal documents.
4. File Ohio Articles of Organization (Mandatory)
LLC articles of organization are an important document that needs to be filed for the state of Ohio to recognize your LLC business structure.
The document is created by an attorney or a professional who specializes in these types of documents. The articles of organization will include information about how you want the company run, members involved, names and titles, etc.
Filing Ohio LLC articles of organization with the Ohio Secretary of State's office can be done online or by mail for a $99 filing fee.
Here is some information that should go into your articles about the organization before submitting them to the Ohio Secretary of State:
- Business name
- Physical address
- Members
- Registered agent
- Nature and purpose of the business
- Termination or completion date, if it is applicable
Steps to Take After Forming an LLC in Ohio
5. Create an Ohio LLC Operating Agreement (Optional, but Recommended)
In drafting the operating agreement, I work with clients to define the LLC's internal governance structure, including roles, financial management, and conflict resolution. This document is essential for providing clarity and direction for the business's operations.
The operating agreement document should include:
- How you want to run your LLC (e.g., how many members will have an equal say in company decisions or if one person has a controlling interest)
- How much capital each member contributes and how profits are distributed
- How do you want shares distributed (e.g., if there are multiple members, how do they divide up membership interest)
- How decisions will be made and what happens in the event of a disagreement between members.
- How to run meetings (e.g., does majority vote rule or consensus)
- How to manage finances and decide on investment decisions. For example, should members be allowed to withdraw funds, or can the LLC make loans to them?
- How to hire employees
All members of the LLC should sign operating agreements for it to take effect.
Please note that an operating agreement is an internal document that is not required by Ohio law, but it is a very good idea to have one, especially if the company has multiple members.
6. Apply for an Employer Identification Number (EIN) (Optional, but Recommended)
I guide clients through the process of obtaining an EIN, a vital step for tax and financial transactions. It's crucial in establishing the business's financial identity and legal standing in economic activities.
An employer identification number (EIN) is a tax number assigned to a business entity.
It's an important thing to have for your company because it acts as proof of identification and gives the Ohio Secretary of State permission to use its Social Security Number (SSN).
You will need this information if you plan on filing any taxes in Ohio or want to open a business bank account. It also applies to the commercial activity tax.
To get an EIN, you must fill out the SS-4 form and submit it with the following information:
- Your name
- Business address
- Location of the main office or home office if different from above
- Type of entity such as LLC partnership corporation, S corporation or C corporation, sole proprietorship, etc.
You can file your form by mail or fax it to the Internal Revenue Service (IRS) for free.
To get your EIN, you will need an SSN, a mailing address, and the name of your business.
Be sure to include your company's legal name on the form in order for it to be recognized by the IRS, as well as your EIN number, if you have one.
You can apply online through the IRS website or by mail.
Related Articles:
- How Much Does It Cost to Start an LLC in Ohio
- Changing the Name of an LLC in Ohio
- How to Dissolve an LLC in Ohio
- Best LLC Services in Ohio
7. Open an LLC Bank Account (Optional, but Recommended)
For your Ohio LLC, opening a dedicated bank account is an optional but highly recommended step. This account separates your personal finances from your business transactions, offering both legal and financial benefits.
- Liability Protection: A separate bank account reinforces the legal distinction between you and your LLC, which is crucial for maintaining your limited liability status. This separation helps protect your personal assets in the event of business debts or legal issues.
- Professionalism: Having a dedicated business account enhances your LLC’s credibility with customers, vendors, and potential partners. It demonstrates that you are running a legitimate, structured business entity.
- Simplified Accounting: A separate bank account makes tracking business income and expenses easier, streamlining bookkeeping and tax preparation.
- Banking Services: Business bank accounts often come with benefits tailored for businesses, such as higher transaction limits, merchant services, and lines of credit.
Remember to choose a bank that offers services that align with your LLC's needs and consider any fees or minimum balance requirements.
To open an account, you'll typically need your Ohio LLC's EIN, formation documents, and operating agreement.
8. File your Ohio LLC Annual Report
In Ohio, unlike some other states, LLCs are not required to file annual reports or pay annual fees to maintain their good standing.
This is a significant distinction from states that mandate such filings, as it simplifies the administrative burden for LLC owners in Ohio.
However, it is still important for LLCs to keep their records up-to-date with the Ohio Secretary of State, especially if there are changes in the business, like address changes or changes in membership or management.
Regularly checking with the Ohio Secretary of State's office for any updates or new requirements is advisable to ensure compliance with state laws.
9. Obtain Business Licenses and Permits
If you want to provide professional or personal services in Ohio as LLC owners, you must obtain a business license and register your professional limited liability company.
Many types of licenses depend on the type of service being offered, such as:
- A contractor's license for contractors and subcontractors who work with building trades like plumbers, electricians, carpenters, etc.
- An individual practitioner's certificate is required if you are a doctor or other health care professional and want to offer your services in the state of Ohio.
Licensing requirements vary from county to county, so be sure you research and understand the type of license your Ohio LLC needs before applying for it.
If you operate as an LLC that orders taxable items, you have to remember to apply for a sales tax license with the Ohio Department of Taxes online.
Or, you can obtain help by having a service provider like ZenBusiness set up the firm on your behalf.
10. Choosing Your Tax Structure
When choosing a tax structure for your Ohio LLC, the key options and their implications remain largely consistent with federal guidelines, though state-specific nuances may apply:
- Sole Proprietorship: Simple, with profits taxed at your personal tax rate. Less administrative overhead, but no personal liability protection.
- Partnership: Similar to sole proprietorships in tax treatment, with income passing through to partners' personal taxes. Offers flexibility, but each partner is liable for business debts.
- Corporation (C-Corp): Provides liability protection but incurs double taxation. Less common for small businesses due to its complexity and tax inefficiency.
- S Corporation: Offers liability protection and avoids double taxation by passing income directly to shareholders. It has strict eligibility criteria and requires adherence to certain corporate formalities.
- Limited Liability Company (LLC): Popular for its liability protection and pass-through taxation, avoiding the double taxation of C-Corps. However, members are subject to self-employment taxes on their share of profits.
In Ohio, as in other states, the LLC structure is often preferred for its balance of liability protection and tax flexibility.
To change your tax structure, filing with the IRS before the start of the fiscal year is essential. For S-Corp status, this involves filing Form 2553 by March 15th.
Keep in mind that state-specific rules may apply, and consulting with a tax professional familiar with Ohio regulations is advisable for the most accurate guidance.
According to Statistics of U.S. Businesses, small businesses in Ohio are also major employers, with 2.2 million individuals employed, accounting for 43.8% of the state's entire workforce [2].
This statistic highlights small businesses, including LLCs, as key to Ohio's job creation and economic support, showing the benefits of starting an LLC in the state's diverse economy.
Benefits and Drawbacks of an LLC in Ohio
Benefits:
- Limited Liability Protection: Members of an Ohio LLC enjoy protection of their personal assets from business debts and legal liabilities. This is a significant advantage as it shields personal wealth in case the business faces financial difficulties or legal issues.
- Pass-Through Taxation: Ohio LLCs benefit from pass-through taxation, where business income is not subject to double taxation. Profits and losses are reported on the members’ individual tax returns, potentially resulting in tax savings.
- Flexible Management Structures: Ohio LLCs offer management flexibility. Members can manage the company themselves or appoint a manager, allowing a tailored approach to business operations.
- Diverse Business Opportunities: Ohio's diverse economy spans manufacturing, technology, healthcare, and agriculture, offering a broad market for businesses. With 989,435 small businesses comprising 99.6% of all entities, according to U.S. Small Business Economic statistics, the state showcases a strong entrepreneurial spirit, suggesting ample opportunities for new LLCs to prosper [3].
- Asset Protection in Estate Planning: LLCs in Ohio can offer flexibility in structuring the distribution of assets to heirs, protecting business interests for future generations.
Drawbacks:
- Annual Commercial Activity Tax (CAT): The CAT, based on total taxable gross receipts, can lead to higher tax obligations for LLCs with significant gross receipts.
- State Income Tax: Ohio levies a state income tax on business profits, which can affect the overall tax liability of the LLC and its members. The rate varies depending on income levels, potentially impacting the LLC’s bottom line.
- Limited Life Span: An LLC in Ohio has a limited lifespan, and events like a member leaving can necessitate its dissolution and reformation, involving additional processes.
- Competitive Market: Ohio’s business environment is competitive, and depending on the industry, businesses may face significant competition from both local and out-of-state entities.
DIY vs. Professional LLC Formation
DIY LLC Formation
Pros:
- Cost-Effective: Forming an LLC yourself is generally cheaper since it avoids the service fees charged by professional services.
- Control and Learning: Handling the process yourself offers more control over every step and provides a deeper understanding of your business’s legal structure.
Cons:
- Time-Consuming: The process can take anywhere from 5 to 11.5 hours, excluding waiting times for approvals. This duration may vary based on your familiarity with the process and the specific details of your business.
- Potential for Errors: Without professional guidance, you might make mistakes in the formation process, especially in legal paperwork like Articles of Organization and Operating Agreements, leading to potential compliance issues.
- Administrative Burden: Managing all administrative tasks, such as filing the necessary forms and ensuring compliance with state requirements, can be overwhelming.
Professional LLC Formation
Pros:
- Expertise and Accuracy: Professional services provide expertise, ensuring that all paperwork is correctly completed and filed. This minimizes the risk of errors and compliance issues.
- Time-Saving: Professionals handle the bulk of the work, significantly reducing the time you need to invest in the formation process.
- Additional Services: Many professional services offer extra support, such as obtaining an EIN or drafting an Operating Agreement, which can be advantageous for business owners unfamiliar with these processes
Cons:
- Cost: Professional services come with a fee, which might be a significant factor for budget-conscious entrepreneurs.
- Less Personal Involvement: Using a service means less hands-on involvement in the formation process, which might be a downside for those who want to deeply understand every aspect of their business’s formation.
"Using professional services means you provide the details, and they manage the entire process, eliminating the need to understand LLC formation laws or worry about errors. Conversely, the DIY route demands that you learn your state's requirements and ensure all paperwork is properly handled, requiring more time and effort."
- Jon Morgan, Co-Editor & Co-Founder of Venture Smarter
Ultimately, the choice between DIY and professional LLC formation in Ohio depends on individual requirements, expertise, and resources.
Both options have their merits, and the best choice varies based on your specific business needs and capabilities.
FAQs
What Does LLC Non-Ohio Mean?
LLC Non-Ohio means that the LLC is registered outside the state of Ohio. In other words, a non-Ohio LLC is the same as a foreign LLC.
Does a Foreign LLC Have to Register in Ohio?
A foreign LLC has to register in Ohio. Registering for an Ohio LLC is fast and simple. To do it, you can submit your application either online or by postal mail; the filing fee is $99.
Is Ohio a Good State for LLCs?
Ohio is a good state for LLCs because it offers limited liability protection, fewer reporting, and recordkeeping requirements than corporations, plus their fees are much lower. You can also avoid double taxation and reap numerous tax benefits.
References:
- https://www.ohiosos.gov/globalassets/publications/busserv/llc.pdf
- https://www.census.gov/programs-surveys/susb.html
- https://advocacy.sba.gov/wp-content/uploads/2023/11/2023-Small-Business-Economic-Profile-OH.pdf
