Are you thinking of starting a limited liability company (LLC) in Ohio? Then you’re probably wondering what’s required to form this business structure.
LLC formation is a legal process assuming a submission of company formation documents to the Ohio Secretary of State (SOS), filing for business licenses and permits (which depends on the type of business).
The process is followed by designating a registered agent and obtaining necessary tax registrations (with the Internal Revenue Service and the local state authorities).
Don’t worry if all that sounds overwhelming. We will explain everything.
Steps to Open an LLC in Ohio
- Step 1: Choose a name for your Ohio LLC
- Step 2: Hire a registered agent
- Step 3: File for articles of organization with Ohio Secretary of State
- Step 4: Obtain an Employer Identification Number from the IRS
- Step 5: Register with Ohio state tax authorities
- Step 6: Prepare an LLC operating agreement
Now let’s go through each step of how to start an LLC in Ohio in more detail.
Step 1: Choose a company name for your LLC
Selecting a business name for your Ohio LLC is the first step towards forming the entity.
First of all, you need to brainstorm a unique, brandable name. Once you have several combinations, run a business name search on the Ohio Secretary of State to verify that no other registered business uses a similar name.
Legal LLC names in Ohio must be unique and distinguishable from other registered business names with the state of Ohio.
Also, don’t forget about adding a designation.
For example, LLCs need the designation LLC, Limited Liability Company, or some other abbreviation (indicating the type of business entity) at the end of the business name.
In addition, the names of legal companies must not:
- Use slurs
- Include or suggest profanity
- Appear similar to a government entity’s name
Once you have found a fine-sounding and available name for your LLC, you might want to reserve it while completing other company formation documents.
Step 2: Hire a registered agent (service or a company)
Before filing the articles of organization with the Ohio Secretary of State, you need to designate a registered agent (referred to as a statutory agent in the state).
All business entities in Ohio must have a statutory agent to receive service of process or other hand-delivered legal documents on behalf of your business entity.
Here’s who can act as a statutory agent in Ohio:
- A natural person with permanent residence in the state and a registered street address, not a P.O. box.
- A domestic or foreign corporation, nonprofit corporation, limited liability company, partnership, limited partnership, limited liability partnership, limited partnership association, professional association, business trust, or unincorporated nonprofit association with a business address in this state. If the agent is a business entity, then the agent must meet the requirements of Title XVII of the Revised Code to transact business or exercise privileges in Ohio.
In other words, you have two options — act as a statutory agent yourself, designate an employee or hire a professional registered agent service. The latter means extra annual costs of around $100-$150.
The good news is that you don’t have to make the above decision immediately. You can list yourself as a statutory agent at first. And then “upgrade” to a professional service.
There’s no fee for appointing an initial statutory agent for your LLC. However, if you need to update or change your agent, you must file Form 521 (Statutory Agent Update) and pay a state fee of $25.
To file a Reinstatement & Appointment of Agent form, your LLC should file a Form 525, along with a filing fee of $25.
Step 3: File for articles of organization with Ohio Secretary of State
Articles of organization signal company formation to the state. It’s the main document you need to form an LLC in Ohio.
Per Ohio Revised Code Section 1705.04, you’ll need to provide the following information to the SOS:
- The business name of the LLC
- Statutory agent name and address
- Period of duration (with some exceptions)
- Provisions of the operating agreement, if needed (such as when they differ from the articles of organization).
To file for articles of organization, download and fill in the state form 532A to mail it or hand-in personally during an appointment. Or use the online portal (the Ohio business gateway) to register an LLC online.
However, you can speed up Ohio LLC registration by paying expedited fees:
- $100 for 2-day processing
- $200 for 1-day processing
- $300 for 3-hour processing
Both foreign limited liability companies and domestic limited liability companies can find the applicable forms for submitting their formation documents, along with the filing fees, via the Ohio Secretary of State’s webpage on Filing Forms and Fee Schedule.
Step 4: Obtain an EIN (Employer Identification Number) from the IRS
Ohio LLCs need an Employer Identification Number (EIN) for identification on tax filings. Additionally, you need an EIN to pay employment taxes and open a business bank account.
Your LLC can get an EIN by submitting an application at IRS. Applying for an EIN with the IRS is a free service.
If you’re a single-member LLC, you can postpone filing for an EIN and use your social security number instead for federal tax purposes.
Step 5: Register with Ohio state tax authorities
Your Ohio LLC will also need to register with the Ohio Department of Taxation to pay state taxes when applicable.
In particular, your company may be subject to the following type of taxation:
- Employee taxes for Ohio LLCs with at least one employee, which includes FICA and unemployment taxes.
- Sales taxes if your LLC sells goods in Ohio.
- A commercial activity tax (CAT), if your LLC has taxable income of $150,000 or more in a calendar year.
Business owners can find information regarding Ohio taxes, including registration and filing requirements and filing due dates, on Ohio’s Department of Taxation website.
Step 6: Prepare an LLC operating agreement
Ohio LLCs are not required to file an LLC operating agreement with the state of Ohio. However, it’s recommended to have one for multi-member LLCs.
An operating agreement outlines your LLC’s managerial policies, procedures and sets forth the responsibilities of each LLC member.
This document creates a “checks and balances” system within your company and helps ensure that each member knows their position and decision-making capacity.
Open a business bank account
Maintaining a separate business bank account for your LLC is an excellent legal and accounting practice.
- First of all, comingling personal spending with business assets can result in the loss of personal liability protection your LLC extends to you.
- Secondly, comingled finances are an accounting nightmare and can result in misreporting.
Be sure to register a business bank account for your LLC early on. As a small business, you may prefer to go with a local Ohio bank. Also, you may want to open an account with your current bank to negotiate lower account fees.
Fees for a business bank account will vary significantly on features, amount of assets, and qualifications of the business owners. Look around and do some research!
Ohio LLC costs, taxes, and fees
Ohio is one of the few states that doesn’t require an annual LLC report. So there’s one more cost off your hands.
Taxation isn’t as favorable, however.
Though Ohio deprecated annual franchise taxes for LLCs in 2014, there are still several types of state taxes you’ll need to pay:
- The Commercial Activity Tax — 3% as of 2020 for businesses with gross receipts of $150,000 or more.
- State employee taxes such as for FICA and unemployment if you have employees on the payroll.
- State-wide sales and use tax of 5.75% and any other applicable local sales taxes (unless you’re eligible for an exemption).
- Personal income tax on business profits, which ranges from 0%-4.797% as of 2020.
Additionally, business entities in Ohio with at least one employee must have workers’ compensation coverage.
If you’re a single-member LLC, you don’t need that but may wish to obtain personal liability insurance.
Either of these will add additional costs. The costs will greatly vary based on the type of business activities your LLC performs and the number of persons involved.
Ohio business permits and licenses
While there’s no general business license for Ohio LLCs, some types of companies may need to apply for profession-specific business permits and licenses. It’s based on industry and the kind of business you operate.
Check the Ohio Business Gateway licensing website. It provides more information on the professional licenses and business permits that may be required for your LLC to do business in the state.
Also, check with local government offices to find out if they have additional license or permit requirements, based on the exact location of your LLC’s principal business office.
Pros and cons of creating an LLC in Ohio
Starting an LLC in the Heart of It All state is a sound decision for residents and foreign business entities looking to expand into a new market.
However, operating a business out of Ohio has several advantages and limitations.
- No annual report fees
- Low startup costs to form your LLC
- Minimal fees for registered agents
- Helpful guidance on the Ohio Secretary of State website
- Low annual maintenance costs
- Commercial activity tax
- LLC owners may pay higher self-employment taxes compared to other states
- Less established regulations for businesses than states such as Delaware
- Higher taxes versus states that use corporate tax rate system
- Not as much flexibility compared to some other states
Commonly asked questions (FAQ)
Below are some of the most frequently asked questions about forming an LLC in Ohio.