Forming an LLC in Ohio
A limited liability company (LLC) is a business entity that many small businesses choose to organize themselves as when they are just getting started. An LLC has a few advantages for small businesses but may not be appropriate for larger ventures or startups that are seeking investors. In addition, LLCs have a unique business structure that can get very technical.
It would help if you looked closely at other business entities like partnerships and S-corporations before launching an Ohio LLC.
Advantages of LLCs:
- Limited personal liability for members for business debts and lawsuits.
- Fewer reporting and recordkeeping requirements than other kinds of entities, including corporations.
- Avoiding the double taxation—business and personal—of corporations if taxed as a pass-through entity.
- Ohio LLCs do not pay an annual fee or file an annual report.
Disadvantages of LLCs:
- An LLC is not a good investment vehicle for outside investors.
- LLCs and corporations pay commercial activity taxes, unlike sole proprietorships and partnerships.
- LLC owners may pay self-employment taxes.
Forming an Ohio Limited Liability Company
With all of that, you have decided to form an LLC in Ohio. You have your members, your business plan, and a little startup capital, and you are on your way.
Here is a step-by-step guide for creating a fully legal Ohio LLC.
Step I: Name Your LLC
Creating a legally proper LLC name and then protecting it is one of the first actions in LLC formation. This process can be complex and time-consuming, but the LLC needs to operate legally in Ohio.
The first thing you have to do is create a great name (that's up to you). Ohio law requires that the business name be unique and different from any other company's name.
Your first task will be to search the Ohio business organization database to ensure that the name you have chosen is not in use by any other Ohio company.
The Ohio Secretary of State requires that the name be "distinguishable upon the records" from any other business name. The state has numerous other requirements before a business name can be registered.
The state gives you the option of reserving the name for 180 days before registering it, if you want, using Form 534B for that name reservation.
Register the name on the Ohio Secretary of State website or by mail. You will be notified if the name is accepted or rejected.
In addition, if you are doing business as a DBA (or Trade Name), you must register that name with the Ohio Secretary of State using Form 534A.
Step II: Appoint a Statutory Agent
The State of Ohio requires an LLC to appoint a statutory agent for service of process before formally registering with the state. A statutory agent is designated to receive process (legal documents) on behalf of the LLC. An Ohio registered agent can be an individual or a company and is often the LLC lawyer. An LLC will usually choose a professional registered agent service.
Step III: Legally Protect Your Name
Next, make sure that no one else can use it in business or on the internet. You do this by doing a name search to ensure that the internet domain name is available. If available, grab it immediately (that will only cost a few dollars).
If you want to do business nationally or operate in several other states, you should trademark the nonprofit's name with the United States Patent and Trademark Office (USPTO). This process takes some time and money. While that application is pending, the name is still protected as a common law trademark.
Once you receive your federal trademark, apply to the Ohio Secretary of State to register it as an Ohio trademark or service mark. You may also trademark the name with just the state, without a federal trademark.
Now you can keep anyone else from using the name, and it conforms to Ohio law.
Step IV: Structure the Business
An LLC has a particular, unique business structure. To begin with, the stakeholders of an LLC are called “members." There is no stock issued, so they cannot be “stockholders." This is the primary reason that an LLC is not a good investment vehicle for either the founders or potential investors.
There is no number of members required. You can have a single-member LLC—say, for a one-person office. Professional LLCs, called PLLCs, are structured for professional offices like lawyers, doctors, accountants, etc.
Secondly, an LLC is governed by an “operating agreement." This is similar to but different from "bylaws," "charters," or other forms of corporate organization. Creating an operating agreement virtually requires the input of a professional, particularly a legal professional. Operating agreements are optional, but no LLC can really work without one.
The LLC operating agreement is a private contract among the members. It is not filed with the state. It should include the following points, according to the Small Business Administration:
- Percentage of members' ownership
- Voting rights and responsibilities
- Powers and duties of members and managers
- Distribution of profits and losses
- Holding meetings
- Buyout and buy-sell rules (procedures for transferring interest or in the event of a death)
An LLC may be managed by the members or hire an outside manager.
Step V: Write and File Your Articles of Organization
You are now ready to compose and file your articles of organization with the Ohio Secretary of State.
Your articles of organization formation documents should contain the following information:
- Name of LLC
- Effective date of the LLC (optional)
- LLC's period of existence (optional; there is no end date)
- Purpose of the LLC (optional)
- Name, contact information, and signature of the statutory agent
- Name and signature of the member, manager, or company representative filling out the articles
- State and date of original filing if a foreign (out of state) LLC
The articles of organization are then filed with the Secretary of State using Form 533A for domestic (Ohio) companies and Form 533B for a foreign LLC. There is a $99 filing fee. The process takes 7-10 business days, but the process can be expedited with an additional fee.
After You File
You will have numerous state and federal requirements for your new LLC after filing with the state.
State Business Licenses
Certain kinds of businesses must be licensed with the State of Ohio. You may be subject to state or local licensing requirements. Check with local authorities about local business licensing.
State Employer Requirements
Your LLC will be subject to state rules if it has employees—even if the employees are also members.
First, you must report any new hire to the state within 20 days of employment through the Ohio New Hire Reporting Center. Next, you must register and pay for Ohio Workers' Compensation Insurance. And last, you must establish an unemployment payment account with the Ohio Department of Jobs and Family Services.
You will be subject to both state taxes and federal taxes. This is a job for your accountant, but here is a brief outline of your tax obligations.
First, all Ohio businesses must be registered with the Ohio Department of Taxation. This takes care of registering for both employer-based withholding taxes and corporate tax purposes, as well as any sales tax or use taxes you may be subject to.
You will be subject to both federal withholding tax if you have employees and, of course, business income taxation.
If you have employees, you must file to receive an IRS Federal Employer Identification Number (FEIN) on the Internal Revenue Service website. You will be subject to all withholding rules.
In addition, because of the structure of an LLC (versus a corporation), you will be paying federal self-employment income taxes.
Help is Available
Any new business venture, including an LLC, will need legal help. Contact an Ohio business and commercial lawyer for assistance with starting your business.
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