Guide to Starting an LLC in Ohio
Are you thinking of starting your own business? Congratulations! It’s an exciting venture, and there are a lot of things to think about when getting started. One of the most important decisions you’ll make is the legal structure of your business. A limited liability company, or LLC, is a great option for entrepreneurs in Ohio. In this guide, we’ll walk you through the process of setting up an LLC in our state. So read on to learn more!
What is an LLC?
If you’re thinking about starting a business, you may have heard of the term “LLC.” But what exactly is an LLC? An LLC, or Limited Liability Company, is a type of business structure that offers its owners personal liability protection. This means that if your LLC is sued, the court can typically only go after the assets of the LLC, not your personal assets. While LLCs are similar to corporations in this respect, they are much easier to set up and maintain. In addition, LLCs can be taxed as either sole proprietorships or corporations, depending on the circumstances, which may provide tax savings.
Related: Guide to starting a business in Ohio
Steps to Form an Ohio LLC
While it may seem complicated to form an LLC for the first time, with a little research and patience, you can learn how to form an LLC in Ohio without an attorney.
Let’s break down the steps to complete the Ohio LLC formation process.
Total Time: 10 minutes
Step 1: Choose a Name for the LLC
The first step in forming an Ohio Limited Liability Company is to make sure the name you want is available.
It’s critical to do a name search before registering an LLC name, as the name of each LLC must be distinguishable from other entity names registered in the state of Ohio. The Ohio Secretary of State makes it easy to search and verify if your LLC name is available. Here is more information on how to do an Ohio LLC name search.
In addition to the name being unique, the entity designator (identifier used at the end of the business name) must be either:
If the name you want to use is considered similar to another, you can file a Consent for Use of a Similar Name form and add the form as an attachment on a later page.
The name of the LLC must include one of the following words or abbreviations at the end of the business name:
Limited Liability Company
A comma may be used after the business name and before the designator. “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are both acceptable.
Even if the name you select shows as being available, it isn’t final until the Secretary of State manually searches and approves it for your use.
If you plan to use a different name from the one that you register (perhaps you want to run multiple businesses under the LLC), you can use a trade name (sometimes referred to as a fictitious name, assumed name, DBA, or Doing Business As name). To register a name, file the Trade Name Registration Application (Form 534A) along with a $39 filing fee to the Ohio Secretary of State.
If there is a name you want to register, but are not ready to file the LLC, you can file the Name Reservation form (Form 534B) and $39 filing fee to hold a name for up to 180 days.
Before settling on a name, you may want to see if a domain name is also available to match your business name and website address.
Step 2: Appoint an Ohio Statutory Agent
Every LLC in Ohio is required under the Ohio Revised Limited Liability Company Act to have a Statutory Agent (referred to as a Registered Agent in most states). A Statutory Agent will act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.
The basic requirements to be a Statutory Agent in Ohio include:
– The agent must be an Ohio resident at least 18 years of age or a commercial Statutory Agent service with a registered office in the state.
– The agent must have a physical address in the state (PO Boxes aren’t allowed).
– The agent must generally be available during normal business hours at the address provided to receive service of process.
Learn more about the requirements for a Statutory Agent in Ohio
The Statutory Agent must also provide consent they consent to be the agent for this LLC.
You are not required to pay for a Statutory Agent. Any individual meeting the requirements can be the agent; however, the agent’s name and address becomes public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed. Hiring a commercial Statutory Agent service like Northwest Registered Agent will help keep the owner’s names from being publicly listed.
Step 3: File the Ohio Articles of Organization
The paperwork to officially create an LLC in Ohio is called the Articles of Organization. To submit the paperwork, either file online through the Ohio Business Gateway, which is the Ohio Secretary of State’s website. If you would rather file the paper form, download the Ohio LLC Articles of Organization Form 610) instead.
When filling out the Articles of Organization, a few sections and terms can be confusing. Let’s go over a few of these sections to help get your LLC started right.
Effective Date – If you want the LLC to start as soon as it is filed, choose the next available date. If you want the LLC to start later, enter a date less than 90 days in the future to start. The main reason for delaying the LLC start date is when the filing is being done close to the end of a calendar year, and the business isn’t going to have any activity until the start of the year. By delaying until the following year, they will reduce the number of end-of-year filings.
Period of Existence – In this section, you can indicate how long it will remain in existence. Most LLCs will choose a “Perpetual” duration as they plan to operate indefinitely; however, some businesses (usually investment-related) will have a specific closure date.
Purpose – Select whether your LLC is non-profit or for-profit.
Purpose Clause – This is an optional section but would provide some basic information about what the business does. If left blank, the default is “An LLC may be in existence for any and all lawful activity.”
Estimated Cost: 99 USD
IncAuthority and IncFile are currently running a special where you only pay state fees for your LLC formation and they do the rest!
You have an Ohio LLC! Now what???
Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.
Prepare an Ohio LLC Operating Agreement
The operating agreement is a document that governs the framework of an LLC. This document covers items like ownership rights, LLC member responsibilities, how profits and losses are distributed, and more.
Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Related: Ohio operating agreement template
Obtain an EIN
The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, or Federal Tax ID Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, build business credit, register for business licenses and permits, file federal and state taxes, and more.
There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.
Related: How to Apply for an EIN
Elect the LLC’s Form of Federal Income Taxation
One of the significant benefits of the Limited Liability Company is the tax flexibility it provides. When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:
- Sole proprietorship
While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.
Related: How can an LLC be taxed?
By default, the taxation of an LLC is called pass-through taxation, which means the profits or losses of the LLC flow through to the members.
Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can also elect to change the taxation to a C-corporation or an S-corporation.
Multi-member LLCs will, by default, be taxed as a partnership. The members can also elect to change the taxation to a C-corporation or an S-corporation.
In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership is that the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership. As a result, the owner will pay self-employment taxes on all business profits. As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes. Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.
Before electing how your LLC will be taxed, consider talking with an accountant to assess which one will be best for you. Some tax elections, such as the C corporation, may be detrimental for some people due to double taxation.
Open an LLC Bank Account
Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original business formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- Occasionally the bank will request an Ohio Certificate of Good Standing to prove the LLC is active and in good standing with the state.
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, there will likely be various business licenses and permits needed before starting your business. Some common registrations include:
- Business License – Some cities require businesses to obtain licensing before they can start.
- Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed.
- Vendor’s License – Businesses selling products and certain services will need to register for a sales tax permit with the Ohio Department of Taxation will be necessary.
- Commercial Activity Tax – All businesses that make over $150,000 will need to register and pay the CAT. The minimum tax is $150 and is paid to the Department of Taxation.
Common Questions To Starting An LLC In Ohio
How much does it cost to start an LLC in Ohio?
The cost to start an LLC in Ohio is filing the Articles of Organization with the Secretary of State, which costs $99.
How long does it take to start an LLC in Ohio?
It normally takes 2-3 business days to form an LLC in Ohio when filing online, or about one week when filing by mail, for the Secretary of State to process the LLC paperwork.
How much are recurring costs for an LLC in Ohio?
Unlike most states, there is no annual report or annual state fee for Ohio LLCs.
What happens if an LLC doesn’t maintain a Statutory Agent?
If an LLC fails to continuously maintain or fail to update the name and address of its Statutory Agent, the Ohio LLC Act imposes penalties and may cancel the Articles of Organization.
Where do you check if your Ohio LLC name is available?
The first step to forming an LLC is making sure your desired LLC name is available. Every LLC has to register a unique name, and you can check online using the Ohio Secretary of State name availability search tool.
Does an LLC need a business license in Ohio?
Probably – It’s sometimes thought that the LLC and business license are the same in Ohio, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business. A business license is an approval from a government entity to legally operate.
Is an LLC the same as a corporation?
What is a Foreign Limited Liability Company?
A foreign LLC isn’t a special type of LLC. Instead, it’s an LLC that was formed in another state but wants to physically operate in Ohio. Physically operating means having a presence, such as having an office or hiring an employee.
Related: What is a foreign LLC?
What is a Series LLC?
A traditional LLC is the most common form of LLC, however, some states allow for the creation of a Series LLC. A series LLC is comprised of a parent LLC with one or more individual series within the umbrella of the LLC. The individual series are protected from liabilities and losses suffered by the other individual series and the holding company.
Read more: What is a Series LLC?