Forming an LLC in Ohio for your business has a lot of advantages. An LLC protects your personal assets from business liabilities and opens the door to tax savings. Additionally, it involves less paperwork and filing costs than a corporation.
Ohio offers multiple business incentive programs aimed at small and new businesses. Ohio has a set of procedures for setting up an LLC. Before you commit to starting an LLC in Ohio, you should know the basic steps involved.
We are here to break it down and guide you through each step involved in the process.
Name Your Ohio LLC
The first step in starting your LLC would be to name your company. A good name will help your LLC to have brand value in the market. It will also help the customers quickly identify your business from among the competition. Make sure that you have a unique name that captivates your customers.
While selecting a name, you must ensure that the name complies with all the naming requirements mandated by Ohio State.
The LLC name that you have chosen must be unique. It cannot be something already being used as a name for any other corporation in Ohio state. You can do an Ohio Business Search to check whether another entity is already using a particular name.
A unique name is not enough to pass the naming guidelines. The name you selected should also not be similar to any other corporate entity in Ohio State. Suffixes (like Co., Inc., Corp., etc.), definite articles (like A, An and The), conjunctions (like And, &, etc.), the singular or plural form of the selected word and abbreviation, punctuations, cannot be used to distinguish your selected name with any other existing name.
The name of your business should have the words “limited liability company” or one of its abbreviations (LLC or L.L.C.).
The name is not allowed to include specific words that may lead people to confuse your name with that of a government agency. For example, words like “FBI,” “State Department,” etc. can cause such confusion and are therefore not allowed.
Some restricted words include “Bank,” “Attorney,” etc. To include such words in your name, you would be required to file additional paperwork and permissions required for each of such words.
Does Your Business Require a DBA?
DBA (short for ‘Doing Business As,’ also called an ‘Assumed Name’ or a ‘Trade Name’) is a name you can adopt if you wish to conduct business under a name different from your LLC’s registered name.
In Ohio State, DBA can be of two types. It can either be a ‘trade name’ or a ‘fictitious name.’ If you opt for a trade name, it must be distinguishable from other entities’ other existing trade names. On the other hand, if you choose to go with a fictitious name, that does not necessarily have to be unique.
Trade names provide more protection than fictitious names since another new LLC cannot copy your trade name. You must apply for a DBA with the office of the Secretary of State. The application should include details such as the business structure of the applicant, whether applying for a trade name or fictitious name, the general nature of the business and details of the business owners and their address.
Option 1: Apply for Trade/Fictitious Name OnlineApply Online – OR –
Option 2: Apply for Trade/Fictitious Name by MailDownload Form
Secretary of State
PO Box 670
Columbus, Ohio 43216
Secretary of State
PO Box 1390
Columbus, Ohio 43216
Fee: $39, +$100 for 2 day processing, +$200 for 1 day processing, +$300 for 4 hour processing
Doing a Name Search and Name Reservation
Before finalizing a name for your LLC, you must ensure that the name you selected is not similar to an existing business. Similarly, if you opt for a trade name, that also needs to be unique.
You can conduct a business entity search online and confirm whether the name that you have chosen is already in use or not.
If you do not wish to form your LLC right away but have decided on a name for it, you can have that name reserved for 180 days. You will have to apply with the Secretary of State’s office to reserve the name you have chosen.
Option 1: Reserve Your Name OnlineApply Online – OR –
Option 2: Reserve Your Name by MailDownload Form
Secretary of State
PO Box 670
Columbus, Ohio 43216
Secretary of State
PO Box 1390
Columbus, Ohio 43216
Fee: $39 for Reservation, $25 for Transfer or Cancellation, +$100 for 2 day processing, +$200 for 1 day processing, +$300 for 4 hour processing
Registering a Business Domain
If you wish to have a website for your new LLC, you should check the availability of a domain. Even if you are not planning to have a website anytime soon, it is always good to keep that option open. Having a website adds professional credibility to your business.
So before you select a name for your LLC, it is recommended that you ensure that the domain name you need is also available.
You can check currently available domain names.
Choose a Registered Agent in Ohio
The next step in starting your LLC would be to select a Registered Agent in Ohio. Registered agents are known as ‘Ohio Statutory Agents.’
Registered agents must accept formal communication such as documents or other correspondence from the Ohio Secretary of State on your LLC’s behalf. It is mandated that all foreign or domestic corporations engage an Ohio Statutory Agent at all times.
The registered agent shall also receive any process service concerning a lawsuit against your company.
Who Can Be A Resident Agent?
The State of Ohio requires a Statutory Agent to comply with specific requirements. A registered must:
- Be a natural person or a domestic or foreign artificial legal entity.
- Have a registered office located at a street address in Ohio.
- Be a resident of Ohio (in the case of an individual resident agent.)
- Be permitted to conduct business in Ohio State (in case the registered agent is another entity).
- Be available during business hours for accepting and signing official correspondence, if any.
Individual v. Registered Agent Service
A registered agent can be either an individual (like an attorney, a member of your LLC [including yourself], a friend/relative) or a registered agent service that you can hire (like a corporate service).
An individual agent may not always be at the location registered with the state, potentially resulting in the loss of important correspondence from the state.
On the other hand, registered agent services are professionals working solely on correspondence for other businesses. They ensure that you don’t fail to duly respond to any notice or other communication that may be sent to your LLC. They remind you when your returns and other filings are due and help ensure you don’t miss any deadlines.
The registered agent’s address is available for the public to access on the concerned websites. So if you work out of your home or a private office, having a professional registered agent service will help you maintain privacy.
File the Articles of Incorporation with Ohio
The next step in incorporating your LLC is to file Articles of Incorporation for your LLC. Articles of Organization is a legal document needed to officially form and legally incorporate your LLC. It is to be filed with the office of the Secretary of State. Once this is completed, your LLC is registered and recognized in the law’s eyes.
Articles of Incorporation are required to include details such as:
- Name of the LLC
- The effective date of the Articles
- LLC’s terms
- Purpose of the LLC (Optional)
- Phone Number, email, and address of the LLC
- Name, signature, and address of the statutory agent
- The signature of the LLC manager, member, or any authorized representative
If you would like your Articles of Incorporation to be processed within 2 days, you can do so by paying an extra $100. For incorporation within a day, you would have to pay an additional $200. For $300, your Articles of Incorporation will be processed within 4 hours.
Publish Notice of Formation
The State of Ohio has not mandated a public notice of formation for new LLCs.
Create an Operating Agreement for Your Ohio LLC
An Operating Agreement is a document that outlines an LLC’s operating procedures and ownership. It lays down the rules of your LLC’s internal operation and functioning. It also provides a framework concerning the duties of members of the LLC and its managers.
The Operating Agreement is only an internal agreement as far as Ohio is concerned. You are not mandated to have an Operating Agreement by law in Ohio State. However, having one ensures that all the members of the LLC are on the same page. This reduces the chances of a conflict in the future. An operating agreement acts as a guiding force in matters of the day-to-day functioning of the LLC.
Though you are not restricted to any set of clauses in your operating agreement, here are some of the more important ones you should include:
- Your LLC’s time and location of formation
- Information on the members of the LLC
- Management and voting structure
- Division of capital contribution by each member
- Process of joining, or leaving, the LLC as a member
- Division of profits and losses
- Scope and limits on responsibilities and liabilities
- Dissolution procedures for the LLC
- Your LLC’s tax structure
Writing The Operating Agreement Yourself v. Hiring a Service
One way of drafting an operating agreement is to hire a commercial service. Most registered agent services offer drafting services for operating agreements. You should hire someone familiar with Ohio’s laws.
Alternatively, you can create your operating agreement, or you can purchase templates that you can customize to draft the operating agreement of your LLC. This way, you can draft the agreement to cater to your specific needs by going beyond the standard format.
Limits of the Operating Agreement
An operating agreement cannot be drafted to go against the laws of Ohio, nor can it exempt any member or employee from the laws of Ohio. An operating agreement is limited in outlining responsibilities and restricting liability within the scope of Ohio’s state laws.
Obtain an EIN for your Ohio LLC
EIN is short for ‘Employer Identification Number.’ It is a nine-digit number assigned to an entity by the Internal Revenue Service. The EIN helps the IRS identify businesses for taxation purposes. It is like a Social Security Number, but for entities.
An EIN becomes essential when your LLC wants to start a bank account, file taxes, employ people, etc. The IRS issues an EIN, and you can apply for it online or through the mail.
File Annual Reports in Ohio
An Annual report is also referred to as the Statement of Information. Annual Reports are supposed to provide respective states with vital business information. These include any changes or any updated information since your LLC last filed an annual report. Most states legally require all LLCs to file annual reports.
Ohio State is one of the only five states that do not mandate their LLCs to file annual reports. There is a requirement to file a $0 annual report in a few States, but an annual report must be filed. Ohio State does not require you to file even that. It has an actual ‘No Annual Report Due’ policy.
Tax Liability For Your Ohio LLC
The way your LLC will be taxed depends upon the number of members in your LLC. There are four ways in which LLC will be taxed:
- Sole proprietorship: a business owned by a single person
- Partnership: a business owned by multiple people
- C – Corporation: income is split or segregated for taxation
- S – Corporation: tax liability is split between the business and its owners
Federal Tax Liability
Depending on how you treat your LLC for taxation purposes, you may need to pay a self-employment tax and a federal income tax.
Self-employment tax is a tax all members and managers of an LLC need to pay upon taking profits out of the LLC. The Self-employment tax is levied under the Federal Insurance Contributions Act. The present applicable rate is 15.3% and applies to all the profits you take from the LLC.
Federal income tax is supposed to be paid on the profits you withdraw from the LLC, with specific allowances and deductions.
All employers must also hold specific percentages of their employees’ wages as federal taxes. LLCs are mandated to withhold 7.65% of the total wages as taxes payable by the employees.
If you wish to be taxed as a sole-proprietorship, you’ll have to file your taxes with the IRS under Schedule C, Schedule E and/or Schedule F of Form 1040. If you want to be taxed as a partnership, along with filing Form 1040, you’ll have to file your taxes under Form 1065 and provide information in the K-1 of each partner. If you want your LLC to be taxed as a C-Corp or S-Corp, file your taxes under Form 8832 and Form 2553, respectively.
State Tax Liability
Ohio’s Department of State expects LLCs to pay income and sales taxes. As the owner of an LLC, you would be giving yourself some money out of your LLC’s profits. You must pay income taxes to Ohio from your personal taxes on such withdrawn amounts.
Ohio also requires you to pay sales tax on specific goods and services. You need to collect sales tax on the goods or services you sell and then pass them to the state of Ohio. Sales tax rates in Ohio State depend upon where the sales are made.
Some States levy the franchise tax on the right to do business as a legal entity in the state. Ohio State does not impose a franchise tax.
Depending on the kind of business your LLC is involved in, you might also be liable to pay other taxes. For instance, gasoline sellers are liable to pay taxes on the sale of fuel, and businesses importing goods are required to pay duties on those goods. It is always a good idea to check with an accountant to know what miscellaneous taxes your LLC would be liable to pay.
Taxes can sometimes get very complicated. If the process is not done correctly, you might have to face severe regulatory consequences or miss some deductions or benefits, reducing your profits. Therefore, hiring a professional service to help you file taxes for your LLC is strongly recommended.
Permits & Licenses
You would be required to obtain specific licenses and permits depending on what line of business your LLC is dealing in. Accordingly, your business will be subject to three licensing jurisdictions: Federal, State and Local.
Federal Licensing requirements will depend on the business activity carried on by your LLC. If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.
Some business activities requiring Federal Licenses and Permits are:
- Alcoholic beverages
- Firearms, ammunition, and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime transportation
- Mining and drilling
- Nuclear energy
- Radio and television broadcasting
- Transportation and logistics
If your LLC sells specified products or provides specific services subject to sales tax, you will need to obtain a seller’s permit. In Ohio, a seller’s permit is also called a vendor license. You can apply for it by visiting the Ohio Business Gateway portal.
Depending on where you operate your business, you may also be required to get the local government’s license and permit. In Cincinnati, certain businesses are required to have a specific city license. To know more about local licensing requirements, get in touch with the office of your city or county government.
For more information regarding;
Business Bank Account & Phone Number
To keep your personal expenses different from your business expenses, you must open a separate bank account for your LLC.
Having a separate bank account for your LLC makes it convenient to manage cash balances, file tax returns, deduct expenses, conduct proper accounting, manage employee payouts, etc. A separate bank account will also protect your personal assets if legal action against your LLC exists.
You would need your EIN and other documents required by the bank to open a bank account in your LLC’s name.
It is recommended that you get a separate phone number for your LLC. Several network providers offer business/enterprise services at competitive prices; you can set up pre-recorded prompts, call recordings, etc.
Getting a business phone number is a good idea, especially if you do not want your personal number to be put in the public domain along with your LLC.
There are a lot of advantages to setting up your LLC in Ohio. There are several financial assistance programs that the State of Ohio offers, such as 166 Direct Loans, the Business and Industry Guaranteed Loan, Basic 7(a) Guarantee for a Loan, Rural Business Development Loans, etc.
Ohio also offers the Enterprise Zone Program, administered by the county and municipal governments. You can register for this program if you incorporate your LLC in an enterprise zone. Registering for this program would help your LLC leverage personal and real property tax exemptions. Ohio State has two enterprise zones, distress zones and non-distress zones. If your business is located in a low-income community in Ohio, you would be eligible for some benefits.
Once an LLC is incorporated, it is imperative to stay up to date with mandated compliances and requirements. It would help if you kept your eyes open for new schemes and incentives that the state might start offering.
We wish you all the best!