Should you form your LLC in Ohio? We’ve collected the relevant information that will help you make this decision.
Pros and Cons of Forming an LLC in Ohio
More than 250,000 LLCs are based in Ohio, with an almost 25% annual growth rate of new businesses formed. Ohio is also among the top ten states in gross domestic product and ranks in the top five for best tax environment in the nation.
Home to Major Universities
Ohio is home to several nationally ranked universities, meaning there’s a pipeline of talent for businesses who are hiring. Ohio University, University of Cincinnati, Ohio State University, and Miami University are among the more well-known schools in the state. In fact, the Buckeye State has four liberal arts universities that are listed among the top 50 schools in the nation.
Autonomy with LLC
Ohio is a popular home base for many LLCs because of the freedom that business owners have concerning how they distribute their gains and how they manage their profits and losses. Ohio also does not require the members of the LLC to be listed on any paperwork.
Ranked amongst “Best States for Business” (Forbes)
Ohio has risen in the ranks of Forbes annual list of best states for business - up over 10 spots to break into the top twenty, and more specifically, now at 15. This unassuming midwestern state ranks notably in the business world as it holds at least 45 of the top 1,000 companies in the nation—including Kroger and Macy’s.
Increased Tax Dues
Ohio business owners saw a major change in their tax dues beginning in January 2014—all businesses are required to pay their AMT (Annual Minimum Tax), which went from a flat $150 fee to a tiered scale of $150 - $2,600. Additionally, any businesses with gross receipts above $1,000,000 must also pay the CAT (Commercial Activity Tax) at a rate of 0.26%.
Because of the state’s laissez-faire approach to LLCs, Ohio is a popular location for small businesses to open shop, which means more competition for the nearly 12 million residents. Where business owners will see the most competition is in the manufacturing and financial/professional industries.
Cost of doing business
$99 filing fee / $0 annual statement
No disclosure of owners
How to Start an LLC in Ohio
Ohio has made things fairly easy for new business owners, but there is a definite and necessary list of “To Do’s” in order to be official and stay within the boundary of the law. First on the list is naming your business, followed by applying for an EIN and finding a registered agent (which you must have in order to do business in Ohio). At the same time, you also need to establish ownership of your business and file the necessary official paperwork with the Secretary of State. This may seem like a lot, but things are not as complicated as you might think—you just need the right guidance for smooth business formation.
Step 1: Name Your Ohio LLC
Your official name will need to end with one of the following signifiers (or abbreviation of): “Limited liability company”, “Limited company”, “LLC” or “L.L.C.” In addition, it is required that the name of your business is not intentionally misleading to consumers, for any reason. Your company’s new name must also be completely unique and not deceptively similar to any other organizations name or trademarks. There are also restrictions on terms that would logically be used to represent educational or Veteran’s organizations. The word “lottery” is also ineligible for use in a business’s name.
Free Ohio LLC Name Search
Use a free business name search tool to ensure your company’s desired name is available. If the name is unavailable, try a free business name generator to help ideate alternative names.
In addition to choosing a name for your LLC, creating an online presence is equally important in the current culture. You can easily check domain name availability at a number of online web services sites.
Step 2: Establish Ownership
The owners of an LLC are called “members.” The following information must be required regarding your LLC’s members:
Required Number of Members
Ohio LLCs must have at least one member or manager listed in their incorporation documents.
LLC members in Ohio may be of any age.
There are no residency restrictions imposed on LLC members in Ohio.
What information needs to be included in the articles of organization?
Outside of the principal member, LLC Members in Ohio are not required to list their name or addresses in their Articles of Organization.
Step 3: Find a Registered Agent in Ohio
All Ohio LLCs must have a registered agent on file who submits their name and address (which cannot be a PO box). This agent will be required to be accessible during standard business hours and act as the state’s point of contact with the company.
What is a registered agent?
A registered agent is a person who is authorized to accept official government notices (including the Secretary of State) and service of process notices on behalf of the LLC. The registered agent is required to be in the same state as the company.
Why do you need a registered agent in Ohio?
The short answer is that you have to. Whenever you form an LLC in Ohio, you are required to appoint a registered agent so that the state government has a steady contact person for your business. This person is especially beneficial for companies that do not have a physical address
Who can be an Ohio registered agent?
Any person with a physical address in Ohio can be a registered agent—the state does not allow agents to use a P.O. Box. It is possible for you to be your own registered agent, as long as you use a physical address.
Why you may not want to be your own registered agent
The agent’s address is public record, meaning that you compromise your personal information. Additionally, as lawsuit notices are typically delivered to the registered agent, you risk process servers showing up at your home or business during inconvenient (or embarrassing) times.
Avoid the hassles that come with being your own registered agent and choose Swyft Filings to fill the registered agent needs for small businesses in Ohio. Find more information here.
Step 4: File the Certificate of Formation
To officially register your LLC with Ohio, a Certificate of Formation must be filed. The Certificate of Formation includes the name of the entity, the business address, the registered agent's name and address, the names of the manager, and whether the LLC is member-managed or manager-managed. When you form your LLC with Swyft Filings, we’ll handle filing the Certificate of Formation for you.
Step 5: Create an LLC Operating Agreement
When you form an LLC in Ohio, it's good practice to have an LLC Operating Agreement. Even if you are on your own, it shows that you’re respecting the corporate formalities. The operating agreement also shows professionalism and helps prevent creditors from getting to your personal assets.
What is an LLC Operating Agreement?
The LLC Operating Agreement is a legal document that sets the ground rules for how the LLC is going to operate. Similar to a partnership agreement or a bylaws/shareholder agreement, the operating agreement defines the rights and responsibilities of each person involved in the LLC.
Why do I need an LLC Operating Agreement?
While the LLC operating agreement is primarily used internally (not filed with the state), the document provides structure to the business and helps protect all parties involved in the business from personal/individual liability. It also provides clear direction to those involved in how the business should run.
What goes into an LLC Operating Agreement?
There is no set rule that dictates what must/ must not be included in your LLC Operating Agreement - it should be tailored to fit your business. But, generally speaking, the operating agreement should probably cover:
- Initial capital contributions of the members
- Who gets to vote, how they vote and what percentage of votes are needed to do certain actions
- Restrictions on transfer of a member’s share or the addition of a new member
- How profits will be distributed
- Designation of officers or managers
Get a customized LLC Operating Agreement for your Ohio business with Swyft Filings. Find more information here.
Step 6: Obtain an EIN
Ohio requires an EIN (employee identification number) for all LLCs that will have employees, and most banks will require one to open accounts. Ohio does not require LLCs to obtain state tax ID numbers.
What is an EIN?
The EIN (Employer Identification Number), sometimes referred to as a Federal Tax ID, is a nine-digit number assigned to your business by the Internal Revenue Service (IRS) that identifies your business with the government. Many people compare the EIN to a personal social security number, except it is used specifically for business reasons.
How to Obtain an EIN
If you are operating any type of entity other than a sole proprietorship, you will likely need an EIN to conduct business. The more common reasons you would need an EIN are:
- To hire employees
- To open a bank account in the U.S.
- To file your company’s taxes
- To pay independent contractors
If you collect revenue of any kind through a corporate entity, you will need an EIN.
Swyft Filings offers EIN services for small businesses in Ohio. Find more information here.
Maintaining Your Ohio LLC
Now that you are finished with the initial foundational phase of your Ohio LLC, the next set of steps concern operating as an official business. Ohio’s tax set-up is a little different than other states, but you will still need to register paperwork with the state. You must also begin acquiring the licenses and/or permits that your business requires.
Step 1: Register for Ohio State Taxes
Like most states, Ohio has its own business tax that all companies formed in Ohio are responsible for—the Commercial Activity Tax (CAT) has a few stipulations and was recently overhauled. Before 2014, all businesses paid a standard $150 AMT (minimum tax) in addition to the 0.26% CAT on gross receipts exceeding $1,000,000. The main change focuses on the AMT, which is now a scale ranging from $150 to $2,600. The Commercial Activity Tax is still required, but the minimum amount in taxable receipts before being required to register is $150,000.
Step 2: Obtain Business Licenses and Permits
The business licenses and permits required in Ohio vary wildly depending on the county or municipality where your new LLC is located.
There are a few different factors that may affect which permits and licenses are required for businesses operating in Ohio, such as the physical location and type of business. All entities registered with the Secretary of State must have a business license in order to function.
If you plan to open a construction business in Ohio, you will (in addition to the business license) need a construction equipment lease permit, as well as permits for wherever you will be working. You may also need a building code compliance permit as well.
Swyft Filings has a team of business professionals who can help you figure out which permits or licenses your business will need. They can also help you with the applications for each permit/license at the federal, state, and local levels. Click here for more information.
If you would like to see more in-depth information on licenses and permits, visit the content in our learning library that covers business licenses and permits.
Step 3: File an Annual Report
LLCs in Ohio are not required to file an annual report. You can learn more about annual reports here.
Step 4: Obtain a Certificate of Good Standing
Many times, banks and other businesses (especially those with whom you are working) want official assurance that your company is fully compliant with all regulations and all parties in the business have been properly vetted. A certificate of good standing is one of the most common and acceptable ways to verify your business.
What is a Certificate of Good Standing?
The certificate of good standing is an official notification from the government agency that confirms your entity has been properly filed and is still in compliance.
Why should I obtain a Certificate of Good Standing?
In the course of conducting business, there will be times when you will need to prove that your business is properly filed and fully compliant with the state. Many banks and businesses will request a Certificate of Good Standing as part of the due diligence process (especially during major transactions).
For the most part, any time you need to show your business is properly filed and fully compliant, you will likely need to present a Certificate of Good Standing.
Swyft Filings can create a Certificate of Good Standing for your Ohio LLC. Click here for more information.