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How to Form an LLC in Ohio: The Benefits of Doing Business as an Ohio LLC
There are many requirements that go into getting your Ohio LLC up and running, some of which can be overwhelming for new business owners.
However, with the right support, you’ll be able to successfully form your Ohio LLC so you can start doing business as a limited liability company. Below you will find an overview of each step:
The Ohio LLC formation process has five easy steps:
Step 1: Complete an Ohio LLC Name Search
Step 2: Choose a Registered 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 Ohio LLC
Step 5: Apply for an Employer Identification Number (EIN)
What is a Limited Liability Company (LLC)?
A limited liability company, also known as an LLC, is a specific type of business structure that allows business owners to offer professional services or products to clients or customers. In addition to the many benefits offered by the LLC business structure, perhaps the most well-known advantage is the protection of personal assets.
When you start an LLC as an entrepreneur, you are able to offer your business services with the guarantee of your personal assets being protected in the case of debts or lawsuits. This means that any personal bank accounts, properties, or vehicles remain separate from the LLC and cannot be taken in the case of debts or lawsuits against your Ohio LLC.
If you need help with any of the LLC formation documents, contact the professionals at LLC Formations. We can handle all of the paperwork so you can instead focus on growing your business, or we can guide you through filing the paperwork yourself.
Using an LLC to Hold Personal Assets
You can form an LLC in Ohio either 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. Further information on forming an LLC in Ohio is found in chapter 1705 of the state code.
The Different Types of LLCs in Ohio
Before starting the steps to form an LLC in Ohio, you must determine which type of LLC is best for your business’ needs. Deciding the type of LLC will determine how your Ohio LLC is managed. Your options are member-managed and manager-managed structures.
A Member-Managed LLC Structure
A member-managed LLC is an LLC 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 Ohio LLC. This means that you or your members will 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 preferred if you have a large number of co-owners. You may use this option if you or your members aren’t interested in running the day-to-day operations of the LLC.
The administrative duties of Ohio LLC are allocated to one or more managers. This means that you may elect an employee to make all the decisions or 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 of the Ohio LLC.
1) Complete an Ohio LLC Name Search
Choosing a business name is an important step in the LLC formation process. Also referred to as a trading name, your Ohio LLC name must comply with the state’s naming requirements. Ohio requires every business’ name to be distinctive and unique. This means that you and another business can’t share the same name or a name that is too similar, so the name must be creative and unique.
The following are three requirements for 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 the State Department, FBI, Treasury, Homeland Security, or Defense Department.
3. Make sure to restrict certain words such as a university, bank, and attorney. You must complete additional documents as a licensed individual to use these restricted words.
Conduct a Name Search through the Ohio Secretary of State Website
Ohio makes it easy for applicants to check their ideal company name in comparison to other LLCs in Ohio. You can do this by using the LLC name search portal on the Ohio Secretary of State website.
For better search results, type the first word or two of your business name into the Ohio Secretary of State database. Your search results may include:
- Active: The term “active” means the name is in use and cannot be used for your LLC in Ohio.
- Canceled: This means the business name was once in use but was canceled 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 on hold by another Ohio LLC applicant and will remain protected for a year. If you want the business name, check with the state about when the name will become available for you to use.
The Secretary of State website is easy to navigate once you get to the menu. You just need to make sure that you are inputting multiple variations of your ideal business name. This way, you can make sure that your ideal name isn’t similar in any way to other LLCs in Ohio state.
Once you find a business name, not in use, you can continue with the next step in the formation process: choosing a registered agent. If you need help with the name registration process, contact the LLC Formations team so we can help you get your filings completed.
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2) Choose a Registered Agent for Your Ohio LLC
Ohio requires every LLC in the state to have a registered agent. Also referred to as a statutory agent, the agent acts as your LLC’s point of contact with Ohio state and is responsible for many important documents for your LLC in Ohio.
Your registered agent receives legal documents such as tax notifications, legal summons, and compliance information. Additionally, your registered agent is responsible for accepting the LLC’s service of process.
Your Registered Agent Options in Ohio
A registered agent can be an individual or a company that specializes in processing items for LLCs. You have a few different options when choosing an agent for your LLC. Some requirements include:
1. Your agent must be at least 18 years old.
2. Your agent must have a physical address in Ohio and it cannot be a PO box.
3. Your agent must always be available during normal business hours.
Who Can be a Registered Agent?
b) A trusted friend or family member
c) A co-owner
d) A registered agent service
Hiring a commercial statutory agent service is a good option if you want to avoid missing or misplacing important documents or notices. For a small fee, a business owner has the convenience of someone else handling the filings and the business owner doesn’t need to be fully available during normal business days and hours.
Another big advantage of hiring a service is privacy. Regardless of who is chosen as your registered agent, the physical address provided will be a public record. If filings are done with your personal address, you can receive a service of process at your home or office, which could be very bad for business.
If you operate your LLC from your home and choose to be your own registered agent, your personal address will be listed as the address of the limited liability company. However, if you choose a professional statutory agent service when you’re filing forms, then the service will be the listed address.
3) File Your LLC Articles of Organization with the Ohio Secretary of State
All businesses in Ohio must file the Articles of Organization with the Ohio Secretary of State. The Articles of Organization is a legal document that outlines the basics of your limited liability company.
Within your Articles of Organization, you must explain how your limited liability company operates, how it is financed, and how it is managed. Once your Articles of Organization are approved by the Ohio Secretary of State, then your business is considered approved and you officially have an LLC in Ohio.
Note: Login to the Ohio Business Central client service center to create an account if you are completing this process on your own.
What is Included in the Articles of Organization?
The following is some basic information that is included in the Articles of Organization:
1. Your LLC name and address
2. The names and addresses of all members
3. How the business will eventually be dissolved
4. Description of your LLC’s business
5. Name and address of your statutory agent
6. The procedures enacted when a member leaves, dies or sells their percentage
7. The procedures enacted when new members buy into the company
How to File the Articles of Organization
The filing fee for your Articles of Organization is submitted to the Ohio Secretary of State office for processing. The PO box number is listed on the forms. The filing fee of $99 is made payable to the Ohio Secretary of State. You can file your Articles of Organization either online or by mail.
If you file by mail, you can pay your filing fee either by check or money order. If you file your Articles of Organization online, you can use your credit card to pay the filing fee.
The Articles of Organization is typically processed within 7-10 business days if filed by mail. If you file your Articles of Organization online, you should have approval within 1-2 business days.
You may pay an extra filing fee if you want your LLC formation documents processed faster. The extra filing fee depends on how soon you want your Articles of Organization processed.
If you need help with submitting your Articles of Organization to the Secretary of State, contact the professionals at LLC Formations so we can help you form an LLC in Ohio state.
4) Create an LLC Operating Agreement
When forming an LLC, you need to draft an Operating Agreement for your LLC. An LLC Operating Agreement is a legal document that explains the operating procedures and ownership of your Ohio LLC. A comprehensive Operating Agreement is vital because it ensures that each member is on the same page about how to run the business.
An Operating Agreement also reduces the risk of any future conflicts among your LLC’s members. The Operating Agreement is considered an outline of rules and policies set forth once the members form an LLC. Your Operating Agreement is only for your company’s benefit and does not need to be filed with the Secretary of State.
How to Draft Your Operating Agreement
Although you aren’t required to file an Operating Agreement with the Secretary of State, it doesn’t that mean you don’t need one. You can create your Operating Agreement by using a “boilerplate” form or you can customize your own that is more specific to the needs of your limited liability company.
When you create a custom Operating Agreement, you’re providing more specific information about your business in Ohio within the agreement. Businesses can benefit from this because when the agreement is created from scratch, they can make sure that important details are considered that may be beneficial in the future.
Consider Hiring a Professional to Help Write the Operating Agreement
There are many professional services available to help you draft a customized Operating Agreement, or you can even contact an attorney to help you with this process. Be sure to get your Operating Agreement signed by each member of the LLC in Ohio. This way, it is a binding legal agreement.
Also, keep a copy for safekeeping in your office or with your statutory agent. To obtain financing for real estate, you may provide a copy to your lender. To obtain financial or tax assistance, you may provide a copy of your Operating Agreement to your tax or accounting professional.
Remember, your Operating Agreement can be changed as your LLC in Ohio grows or diversifies. If you make any changes to your Operating Agreement, you’ll need to update all copies with your members and statutory agent.
If you need help with drafting your Operating Agreement, contact LLC Formations so we can help you complete this important document for your LLC in Ohio.
5) Apply for an Employer Identification Number (EIN)
An EIN is a tax number that the IRS uses to identify businesses. Also referred to as a federal tax ID number, the EIN is also important for filing purposes. Think of an EIN as your LLC’s Social Security Number.
When you apply for your EIN, you’ll need to register via the IRS Federal Tax ID Number tab. It is the only agency that provides EINs, and there is currently no filing fee required.
How to Apply for an EIN
You can apply for an EIN by Mail by completing the form SS-4 and mailing it to the IRS. Mailing the SS-4 to the IRS is your only option if you do not have an SSN or TIN.
You can also file online by going to the IRS website mentioned above. 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. After you hit submit and you’re approved, you’ll receive your EIN.
Choose the EIN Responsible Party
The person who uses their SSN to apply for the EIN is called the responsible party and will stay on file with the IRS. 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 or service 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 will request the other co-owners information on the 1065 Partnership return. Once the IRS has 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. The responsible party will not need to register anywhere, but he or she will need to be reliable for both state tax and federal tax.
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 business in the state of Ohio.
However, this 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 in Ohio.
Open a Business Bank Account for Your LLC
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. After your LLC is up and running, you’ll use your LLC’s EIN to open a business bank account.
Opening a bank account in your LLC name is essential for showing that your personal assets and business assets are not intertwined. This is important for the asset protection offered to business entities by the LLC structure.
Other benefits of opening a business bank account include being able to open lines of credit for your business as long as your business is in good standing. Whether you’re a single-member or multi-member LLC, you’ll definitely want to have a line of credit available if you ever want to expand or scale up your business.
If you need more information about how to set up a bank account for your LLC, contact the professionals at LLC Formations so we can guide you through the process.
What is Piercing the Corporate Veil?
When business and personal accounts are mixed, personal assets such as valuables, homes, and cars are at risk of being used to pay the 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 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 and keep your information organized. 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.
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 an employee getting injured on the job. Business insurance assists your LLC in managing those risks while 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 information 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
Professional liability insurance is for professional service providers such as lawyers, accountants, consultants, and doctors. 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, so 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 as soon as the LLC filing is complete.
Obtain Ohio Licenses and Permits
Whether your LLC needs to obtain a permit or a business license from the state depends on the type of business you have. To operate an LLC in Ohio, 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 for permits and licenses
Meet All LLC Tax Requirements
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 you 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, you’ll need to sign up for Employee Withholding Tax. This is done through the Ohio Business Gateway website.
How is Ohio LLCs Taxed?
When meeting all tax requirements, it’s important for you to know how your LLC will be taxed in Ohio state. 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, determined by your LLC filing. 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 a limited partnership. 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 since there are many things to consider. For instance, S-Corp taxation is a good option when your LLC generates more than $70,000 per year in net income.
We recommend contacting a professional who can guide you through the sometimes complicated process. You can connect with a professional at LLC Formations so we can help you handle the important parts of doing business in the state of Ohio.
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Forming a Foreign Limited Liability in Ohio
To form a foreign LLC, you must register your LLC with the Ohio Secretary of State and follow all of the steps listed above for forming an LLC in Ohio. The Secretary of State will keep all relevant information on file. Before completing your Ohio LLC registration, you will need to complete the following steps:
Transfer your business name or choose a new LLC name
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 trade name form online or via ordinary mail.
Select a statutory agent for your LLC’s service of process
Even if you’re operating as a foreign LLC, you still need to have a registered agent who is located in Ohio in order to form an LLC. Businesses that typically operate in another state would benefit from hiring a registered agent service for their business in Ohio.
The next step is filing a Registration of a Foreign Limited Liability Company form. This form is called Form 533B and is essentially 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.
Obtain a Business Phone Number for Your LLC
When your LLC is properly formed and approved, it’s important to consider how your customers or clients will contact you. Instead of using a personal phone number, we recommend that you obtain a business phone number so you can always be reachable for those who want to do business with you, all while keeping your personal information private.
How Can LLC Formations Help You?
In Ohio, you must meet many requirements in order to form your LLC. Although the Ohio Secretary of State doesn’t require an annual report, business owners must keep up with other obligations, such as bookkeeping and working to grow the business.
Hiring a professional team to help with the paperwork can allow you more time and energy to invest back in your business. Contact the LLC Formation professionals at LLC Formations so we can help you get your business up and running.
Our Oklahoma LLC article offers a step by step guide to starting your next company.