Form an Ohio LLC

LLC Ohio - Everything You Need to Know

A limited liability company arose from business owners wanting to adopt a business structure which permitted to operate like a partnership. This business structure, also commonly called LLC or L.L.C., allows owners to distribute income to their co-owners like a partnership. This means you and your co-owners report LLC Ohio income on individual tax returns. Another goal was to protect LLC owners from business losses such as judgments and debts. This allows owners to operate their LLC like a corporation.

Information on forming an LLC in Ohio is found in chapter 1705 of the state code. You are allowed to form an Ohio LLC to operate a business in the state or hold assets. The latter means that you can purchase assets like real estate, cars and boats using the LLC and keep them separate from your personal assets.

If you are like many other Ohioans, starting an LLC in Ohio is for the personal liability protection it gives you. If your LLC is ever sued, your personal assets such as your bank accounts, home and cars are safe. The court can’t go after your personal assets to pay for LLC debts.

Types of LLCs

Before starting the steps to form an LLC, you must determine what type of LLC you need. Deciding the type of LLC you need determines how it is managed. Your options are member-managed and manager-managed structures.

A Member-Managed LLC Structure

A member-managed LLC is one that is operated and run by its owners. You will select a member-managed LLC when you have a small company. Also, you want to select this type of LLC when you and your co-owners are willing and able to run the day-to-day operations of the company. This means you and/or your members make all major business decisions.

A member-manager is often called a “decentralized management” system because everyone is actively involved in the management and operation of the business. In other words, the administrative duties are distributed among you and your co-owners rather than just one person.

A Manager-Managed LLC Structure

A manager-managed LLC structure is an option is if you have a large number of co-owners. You may use this option if you and/or members aren’t interested in running the day-to-day operations of the LLC.
The administrative duties are allocated to one or more managers. This means you may elect an employee to make all the decisions. You may elect one co-owner to make all the decisions. In a manager-managed LLC, co-owners aren’t required to vote on or make any business decisions. This type of LLC business structure is called a “centralized management” system. The administrative power is one the hands of one or more managers who are generally not owners.

How to Form an LLC in Ohio

Congratulations on your first step in becoming a business owner in Ohio. Whether you live in Hamilton County, Cuyahoga County or Vinton County, forming an LLC in Ohio is completed in five steps. These steps are:

Step 1: Complete an Ohio LLC Search
Step 2: Choose a Statutory Agent for Your LLC
Step 3: File Your LLC’s Articles of Organization with the Secretary of State
Step 4: Create an Operating Agreement for Your LLC
Step 5: Apply for an Employer Identification Number (EIN)

You never want to skip a step in the process of forming an LLC. It can cause problems. For example, you decide to obtain your EIN prior to filing your articles of organization. The secretary of states rejects your LLC because of a specific reason. Now you have an EIN attached to an LCC that wasn’t approved. Once it is approved, you must re-apply for an EIN. Thus, it’s better to complete one step at a time.

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Step 1: Complete an Ohio LLC Search

Choosing a business name is the most important step in the LLC formation process. It could be one of the longest steps in the process. You must choose a business name for your LLC that complies with the state’s naming requirements. Ohio requires every business name to be distinctive and unique. This means you and another business can’t share the same name.

It also means that your business name can’t be similar to another business name in the state. It doesn’t matter if you’re operating your business in Cleveland and an LLC with a similar business name operates in Springfield Township. Thus, it’s important to create at least three potential business names just in case one or more of them are already in use in Ohio.

The following are three requirements to creating a business name in the state:

1. Include the phrase “Limited liability company” or an abbreviation such as L.L.C or LLC at the end of your business name
2. Exclude any names that would confuse people with a U.S. government agency. Examples of this include, but are not limited to the State Department, FBI, Treasury, Homeland Security or Defense Department.
3. Restrict certain words. According to Ohio law, you can’t use certain words or phrases unless you complete additional requirements. Some restricted words are university, bank and attorney. You must complete additional documents as a licensed individual to use these restricted words. For example, if you are a doctor, you must file paperwork proving you can use “doctor” in your LLC because you are a licensed physician.

Ohio does make it easier for you to avoid making the mistake of starting an LLC in Ohio with the same and/or similar business name as another company. You will narrow down your search using LLC lookup Ohio. This search is done via the state’s online business name database. It is a free search.

For better search results type the first word or the first two words of your business name into the state’s business name database. Hit the “Click” button. If your search yields no search results, you may use your potential business name. Your search results may include:

  • Active: The term “active” means the name is in use and no longer available.
  • Cancelled: This means the business name was once in use, but was cancelled by the state. Thus, you’re free to use the business name.
  • Dead: This means the business was once active, but is no longer in use. You’re free to use the business name.
  • Hold: If your search results yield this term, the business name is in limbo. It’s been cancelled by Ohio. However, it is still protected for a year. It’s not available to use until that 12-month period ends. If you want the business name, check with the state about when the name will become available for you to use.

Once you find a business name not in use, you can continue with the next step in the formation process: choosing a statutory agent. However, you may also want to check online for your business name. You may not want to use your business name as a web domain now, but buy it anyway. You want to prevent anyone else from acquiring it for their own use or to sell it to you at a high price.

Step 2: Choose a Statutory Agent for Your LLC

Ohio requires every LLC in the state to have a statutory agent. If you’re familiar with LLCs, the “statutory agent” term may confuse you. Other states use the term “registered agent.” In Ohio the terms mean the same thing. The agent acts as your LLC’s point of contact with the state. Your statutory agent receives legal documents such as tax notifications, legal summons and compliance information. In other words, your statutory agent is responsible for accepting the LLC’s service of process.

Your Statutory Agent Options in Ohio

A statutory agent can be an individual or a company who specializes in service processing. You have options when choosing an agent for your LLC as long as they are:

1.  At least 18 years old
2. Have a physical address in Ohio. The address must be where they conduct business. It cannot be a post office box.
3. Always available during normal business hours. Normal business hours are typically 8 a.m. to 5 p.m. The state requires your statutory agent to have business hours because those of the hours to receive service of process.

If you choose an individual as your statutory agent, you can elect:

a) Yourself
b) Trusted friend or family member
c) Co-owner

Hiring a professional statutory agent service is a good option if you want to avoid missing or misplacing important documents or notices. The service does charge a fee. However, they are convenient and ensure your LLC’s privacy. The convenience is that you don’t have to worry about missing notices or being available during business hours.

Another big advantage is privacy. Regardless of who is chosen as your statutory agent, the physical address provided will be public record. This means that your LLC office or personal address won’t be listed. If you operate your LLC from your home and choose to be the statutory agent, your personal address will be listed. However, if you choose a professional statutory agent service, its physical address is listed. This is a great option to maintain privacy.

Step 3: File Your LLC’s Articles of Organization with the Secretary of State

Every LLC in Ohio must have articles of organization. This is a legal document outlines the basics of your LLC. This means within your articles of organization you must explain how your LLC operates, is financed and managed. Articles of organization, once approved, officially form your LLC.

The type of information in your articles of organization will depend on whether you are a single-member LLC or a multi-member LLC. A single-member LLC means that you are the only owner of the business. A multi-member LLC indicates that you own the business with one or more individuals. The following is some basic information that is included in the articles of organization:

1. Your LLC’s name
2. LLC’s address.
3. The names and addresses of all members
4. How the LLC will be dissolved
5. Description of your LLC’s business
6. Name and address of your statutory agent
7. The procedures enacted when a member leaves, dies or sells their percentage of the LLC
8. The procedures enacted when new members buy into the LLC

Your articles of organization and the filing fee is submitted to the secretary of state’s office for processing. The secretary of state accepts articles of organization by mail and online. The processing time if you submit your document by mail is five to 10 days.

You may pay an extra fee if you want it processed faster. The extra fee depends on how soon you want your articles of organization processed. For example, the fee is the highest when you want your articles of organization processed within four hours. It can be expedited between four hours and two business days.

It’s processed within 24 hours when submitted online.

Forming a Foreign LLC in the State

The third step of forming an LLC in the state focuses on Ohio LLCs called “domestic LLCs.” This means that the LLCs are formed in the state of Ohio. A foreign LLC is an LLC formed in another state. For example, you originally formed your LLC in Delaware. Now, you want to operate your business in Ohio. You’d need to complete some additional steps to form a foreign LLC in Ohio.
First, you must register your LLC with the Ohio Secretary of State. Before completing your Ohio LLC registration, complete an Ohio LLC search in the state’s business name database. You’re required to make sure your existing LLC name is available in the state. Complete the same process in step 1 of How Form an LLC in Ohio.

If your existing business name isn’t available in Ohio, you can’t use it. You must use a trade name instead. This trade name is your business name only in the state. Again, your trade name can’t be any business name currently used in Ohio. Once you’ve found an available business name, complete Form 534A and submit it along with your filing fee. Form 534A is called the Trade Name Registration application. Submit the form online or via ordinary mail.

Also, you must select a statutory agent for your LLC’s service of process. You have three options. Your statutory agent may be:

  • An Ohio resident
  •  An Ohio corporation. An Ohio professional statutory agent service.
  • A foreign corporation with a place of business in Ohio. The corporation must also be licensed to work in the state.

Remember, Ohio doesn’t allow a statutory agent to list a post office box as a physical address.

The next step is filing a Registration of a Foreign Limited Liability Company form. This form is called Form 533B. It is an application to become a foreign LLC. Ohio requires that you send a certificate of legal existence along with your application.

Sometimes the certificate of legal existence is called a certificate of good standing in different states. Request a copy of this certificate where you formed your LLC. Ohio requires the certificated be dated within 60 days of you filing your application.

The state only accepts this form, certificate and filing fee by mail.

If you choose not to register, your LLC isn’t legally allowed to bring a lawsuit in Ohio. However, if you don’t register as a foreign LLC, your contracts in the state are still valid. You’re also not personally liable for any obligations of your LLC solely because it’s not registered to transact business in the state.

However, it is important to register your existing LLC in the state of Ohio if it “transact business” here. The term “transact business” means that your LLC has a physical presence in or with the state to collect required sales tax on transactions. Examples of “transact business” in Ohio includes having a:

I- Sales representative in Ohio
II- Warehouse in the state
III- Store located in Ohio
IV- Office in the state

Step 4: Create an Operating Agreement for Your LLC

An operating agreement is a legal document that explains the operating procedures and ownership of your LLC. A comprehensive operating agreement is vital because it ensures that each LLC owner, or member, is on the same page. It also reduces the risk of any future conflicts among your LLC’s members. That’s why the operating agreement is considered an outline of rules and policies set forth between the LLC member. You aren’t required to have and/or file an operating agreement in Ohio. That doesn’t mean you don’t need one.

A multi-member LLC outlines who are the co-owners and what the membership interest of the business they own. Each membership interest is explained in one of two ways. It can be divided into percentages. For example, you may own 50 percent of the LLC. Your other co-owners have the rest of the percentage of the LLC. Some multi-member LLCs divide their membership interest into shares. This is similar to a corporation. Each member has a number of shares they own in the LLC.

In addition to outlining the shares or percentage of LLC ownership, your operating agreement will explain how taxes are paid. You’ll include how losses and profits are distributed among each LLC co-owner.

You may not think you need an operating agreement if you’re a single-member LLC, but you do. In fact, the agreement is vital to your LLC’s credibility.

Once you have an operating agreement, you show that your LLC is legitimate because you have specific rules and policies about how your LLC is operated. It also keeps you from combining your personal and LLC assets. Piercing the corporate veil is a term used when an LLC owner uses their personal assets in the LLC or vice versa.

It’s also used to describe the commingling of personal and LLC assets together. If it is determined by the state of Ohio that you’ve pierced the corporate veil, you lose your limited liability protection. If your LLC is involved in a lawsuit and a judge determines you pierced the veil, your personal assets may be used to pay off your LLC’s debts.

Create your operating agreement using a boilerplate form or customize your own agreement. The term “boilerplate form” is a standard form that includes the basics of an operating agreement. It usually contains areas where you can type or print information specific to your LLC. When you create a customized agreement, you start from scratch.

This means that you draft the agreement and it doesn’t contain in general information. There are many professional services available to help you draft a customized operating agreement. An attorney can also create a customized operating agreement for you too.

Once your operating agreement is drafted and approved by you and/or your co-owners, provide copies to each member. Also, keep a copy for safekeeping in your office or with your statutory agent. Whether you provide a copy to others depends on your business. For example, to obtain financing for real estate, you may provide a copy to your lender. To obtain financial and/or tax assistance, you may provide a copy of your operating agreement to your tax or accounting professional.

Remember, your operating agreement is a contain work in progress. Your final operating agreement may change depending on the changes in your LLC. It will also change as your business grows.

Step 5: Apply for an Employer Identification Number (EIN)

Before explaining why and how to apply for an EIN, it’s important to discuss what the number is. An EIN is a tax number that identifies your LLC to the Internal Revenue Service (IRS) and used for filing purposes. Think of an EIN as your LLC’s personal Social Security Number (SSN). Although the EIN has the word “employer”, it doesn’t mean that you must hire employees to use the number. It’s just one type of taxpayer identification number (TIN) required to identify your LLC with the IRS.

When you apply for your LLC’s EIN, you’ll apply via the IRS. It is the only agency that provides EINs. The state of Ohio requires your LLC to have an EIN, but it can’t give you the number. The IRS doesn’t charge for obtaining an EIN. It’s free.

The IRS allows you to apply for an EIN in two ways. The IRS eliminated the phone option to obtain your LLC’s EIN. You’re required to have an SSN or TIN when you apply. If you don’t, you can still obtain an EIN. You’re limited in the ways you can apply for one. Apply for an EIN by Mail. Complete the form SS-4 and mail it to the IRS. Mailing the SS-4 to the IRS is your only option if you do not have an SSN or TIN.

Go to the IRS website. This is the easiest and fastest way to apply for an EIN. You’ll answer the same questions that are on the SS-4 form. You’ll need an SSN or TIN to apply. After you hit submit and you’re approved, you’ll receive your EIN.

Choose the EIN Responsible Party

As mentioned earlier, the IRS requires you to use an SSN to obtain an EIN. The person who uses their EIN is called the EIN Responsible Party. This person is the individual on file with the IRS as the party applying for the EIN. Think of this person as your LLC’s “point of contact” for the IRS. The IRS will send any correspondence and mail to the individual picked as the EIN Responsible Party.

In a single-member LLC, you are the EIN Responsible Party since you are the owner. In a multi-member LLC, you must pick one member as the EIN Responsible Party. The IRS doesn’t want all co-owners SSNs when applying for your LLC’s EIN. Instead, the IRS will request the other co-owners information on the 1065 Partnership return. Once they have this return, the IRS will issue K-1s yearly.

When picking an EIN Responsible Party, make sure the co-owner is someone who can handle the tax responsibility. As the responsible party, they are in charge of the LLC’s taxes and ensuring they are properly paid.

An LLC can’t not Apply for an EIN for a Separate LLC

In 2018, the IRS changed the rules regarding whether another LLC could apply for another company’s EIN. For example, you own an existing LLC in Columbus. You want to start a new LLC in West Chester. It’s a separate company. Instead of using your SSN, you want to use the Columbus LLC’s EIN to apply for the new LLC’s number. You can’t. The IRS no longer allows an LLC to act as the EIN Responsible Party. You must use a person’s SSN to apply for an LLC’s EIN.

Receive Your EIN Confirmation Letter

If you apply for your EIN online, you’ll receive it instantly. However, you will still receive an official EIN Confirmation Letter, or CP 575, from the IRS. You’ll receive a PDF copy instantly. A paper copy is mailed to you in approximately five weeks.

If you sent the SS-4, you’ll also receive an EIN Confirmation Letter. It is sent by mail in approximately eight weeks. Once you have applied for your EIN, you have finished the steps required to form your LLC in the state of Ohio. That doesn’t mean you are finished with the LLC formation process. You still have important work to do. The following sections are the other steps you need to take to form your LLC.

Steps to Take After Forming Your LLC in the State of Ohio

After the secretary of state approves your Ohio LLC, you must take steps to protect your LLC and your personal assets. The first step involves officially separating your business and personal assets. In this step, you’ll use your LLC’s EIN to open a business checking account. This is essential for showing that your personal assets and business assets are not in the same bank account. You can also establish a line of credit with your LLC’s EIN for your business.

When business and personal accounts are mixed, personal assets such as valuables, home and car are at risk of being used to pay LLC’s debts. For example, if your LLC is sued and your business and personal accounts are mixed, you can be accused of piercing the corporate veil.
The term “piercing the corporate veil” means that you have combined and/or used both personal assets and business assets in your LLC. The purpose of the LLC is to protect your personal assets from business debts and lawsuits. The corporate veil is pierced typically when:

a) Your LLC is severely underfunded
b) Your LLC committed wrongful or fraudulent actions
c) Your LLC and its co-owners combined personal and business affairs

To avoid these situations, always maintain separate business and personal banking accounts. Build your LLC’s line of credit by applying for a credit card. This will show that your LLC is separate from your personal credit accounts. When your LLC has a credit history, you may have an easier time raising additional capital later.

Obtain Insurance to Protect Your LLC in the State of Ohio

Every business in Ohio is at risk for some negative event, whether it is a lawsuit or employee getting injured on the job. Business insurance assists your LLC managing those risks and growing the company. The type of business insurance your LLC will need depends on your type of business.

Workers’ compensation insurance is a type of business insurance that provides coverage for your LLC in case of any employee-related illness, injury or death. For example, your employee can’t sue you if they are injured on the job. Instead, they file a workers’ compensation insurance claim to receive compensation.

Ohio has specific rules on which LLC is required to obtain workers’ compensation insurance. In Ohio, any business with one or more employees must obtain workers’ compensation insurance. The state doesn’t include an owner as an employee. Thus, if you own your LLC and consider yourself an employee, you’re not required to purchase workers’ compensation insurance.

Professional liability insurance is another type of business insurance you’ll need. Professional liability insurance is for professional service providers such as lawyers, accountants, consultants and writers. The insurance coverage protects them against malpractice claims and other types of business errors.

Malpractice occurs when a business professional is accused of providing substandard care to their clients. Substandard care means that the professional may not have fulfilled their contract as they agreed to do. Clients can sue. If the professional is liable, the professional liability insurance typically covers the claim.

General liability insurance is a type of catchall business insurance because it covers a broad range of things. In general, liability insurance protects an LLC against any type of lawsuit. That’s why many small businesses choose to purchase general liability insurance.

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Get Ohio Licenses and Permits

Whether your LLC needs to obtain permits and licenses from the state depends on the type of business you have. To operate an LLC in the state, you must comply with the local, state and federal government regulations. For instance, if your LLC is a restaurant, you most likely need building permits, health permits and signage permits.

Be sure to read the details of the permits and licenses carefully if you’ve formed a foreign LLC in the state of Ohio. Business licenses and permits vary in each state. You don’t want to be surprised if you’re required to take a class to obtain a license or permit. Fees for permits and licenses also vary on the type of document you need.

To determine if you need a permit or license for your LLC:

  • Contact your local county clerk and request information about local permits and licenses
  • Use the guide at the U.S. Small Business Administration (SBA)
  • Go to Ohio’s page under permits and licenses

Meet All LLC Tax Requirements

Whether you complete this step depends on your business. The state may not be required you to register for one or more state tax forms. If you sell a physical product, Ohio generally requires you to obtain a sellers permit via the Ohio Business Gateway website. Once you have this certificate, you can collect sales tax on all taxable goods.

In Ohio, sales tax is called “Sales and Use Tax” too. Your LLC is taxed by municipalities, states and counties on any business transactions involving the exchange of specific taxable services or goods.

If you don’t plan to sell goods but have employees, you’re required to pay employer taxes. The state requires you to register for Unemployment Insurance Tax via the Ohio Department of Job and Family Services. In addition to signing up for unemployment insurance tax, sign up for Employee Withholding Tax. This is done through the Ohio Business Gateway website.

When meeting all tax requirements, it’s important for you to know how your LLC will be taxed in Ohio. By default, the state taxes LLCs based on the number of owners. The default tax status for a single-member LLC in the state is as a sole proprietorship. However, if your LLC is owned by another business, it’s taxed as a division of its parent company.

Multi-member LLCs are taxed differently. They are taxed as partnerships. This means the IRS views your multi-member LLC as a partnership and not a sole proprietorship. However, you can elect your LLC to be taxed as a C-Corp. To do this, you apply for your EIN, then file Form 8832. If you want the IRS to tax you as an S-Corp, apply for your EIN, then file Form 2553.

Having your LLC taxed as an S-Corp is a popular option with business owners. However, you must speak to an account if you select S-Corp or C-Corp status. There are a lot of things to consider. For instance, an S-Corp taxation is a good option when your LLC generates more than $70,000 per year in net income.

How to Start an LLC in Ohio

In Ohio, you must meet a lot of requirements after you form your LLC such as paying your taxes. However, the good news is that the Ohio Secretary of State does not require LLCs to file a report each year. Since there’s no annual report due, this is one less requirement you have. Make sure to focus on keeping your personal and business assets separate to avoid piercing the corporate veil.

You are taking a big step into the business world by forming an LLC in the state of Ohio. The purpose of starting any LLC in the state is to protect your personal liability. If someone trips and falls inside the building that houses your LLC, your personal assets aren’t taken to pay the lawsuit. This is one of the reasons to make sure you complete every step of LLC formation correctly.

One mistake and the LLC can be rejected in Step 2 or 3. It can also be dissolved for wrongdoing. Instead of trying to form your LLC on your own, consider a professional LLC service. A professional service takes care of the hard work for you. From making sure your business name is available to filing your articles of organization, a professional service will make sure it’s done correctly. Hiring a professional service actually makes the process stress free for you. You’re able to focus on getting capital for your business and/or grow your LLC. Contact a professional service today.  Our Oklahoma LLC offers a step by step guide to starting your next company.