An LLC is a great way for small businesses to shield themselves from personal liability. They offer protection from lawsuits and creditors while allowing them to operate like a corporation. But there are several types of organizations that can serve this purpose. This article explains how to choose one based on the needs of your business.
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How to Form an LLC in Ohio
Ohio offers several different ways to form an LLC. You can do it online, pay someone else to do it for you, or hire a lawyer to help you out. If you want to form an LLC yourself, here are some things you need to know about how to start up an LLC in Ohio. First, there is no charge to form an LLC in Ohio. Second, you don’t need to register your LLC with the state; however, you must file annual reports with the secretary of states’ office. Third, you can choose to operate your LLC under either the federal laws or the state laws. Finally, you’ll need to decide whether you want to be taxed as a sole proprietorship, partnership, corporation, limited liability company, or entity.
Step 1: Choose a name for your LLC
Before forming an LLC, choose the perfect name for your company. But where do you start? Many steps involve choosing a name for your company, including registering the name with the state. Here are some tips to help you find the best name for your company.
Step 2: Appoint a statutory agent
Statutory agents are required by state law to receive legal notices, legal process papers and make decisions about your company. They must do these things on your behalf, even though you remain responsible for your company’s actions. You cannot delegate authority to a statutory agent without appointing one.
There are different statutory agents, including registered agents, foreign representatives, and foreign corporations. Each type offers different benefits and responsibilities.
Registered Agents
A registered agent serves as your representative in most states. He or she receives legal notices and processes legal papers on your behalf. A registered agent does not represent you personally; he or she represents your company.
If you plan to conduct business outside the United States, you may need to appoint a foreign representative. Foreign representatives serve as your agent in countries where you do business. For example, if you operate a retail store in China, you might hire a Chinese representative to manage your business there. In some cases, a foreign representative acts as a corporate officer.
Step 3: Check if you need an Ohio business license.
A business license is required for anyone doing business in Ohio. This includes companies, partnerships, sole proprietorships, limited liability companies, corporations, trusts, unincorporated associations, government entities, nonprofit organizations, and individuals. You must obtain a separate business license if you do business under another name, such as a corporation or LLC.
Business licenses are different from permits. Permits are usually needed for things like construction projects, special events, temporary signs, etc., whereas business licenses cover ongoing operations. You cannot operate without one; it is mandatory.
If you sell tangible goods, you must pay sales tax. Sales tax rates vary depending on where you live, what type of product you sell, and how much you make. For example, some states charge 0% sales tax, while others charge 4%. Some states even impose a flat 5% sales tax.
Registering your business name is two ways: registering a Fictitious Business Name or Registering a Trade Name. Each requires slightly different steps.
Step 4: File articles of organization
The Articles of Organization are the legal foundation of your LLC. They provide the basic framework for how your LLC operates. This includes things like what type of entity it is, whether it’s taxed as a corporation or partnership, how many members there are, and where the registered office is located. If you’re starting a brand new LLC, you’ll probably file the articles of organization with the state(s) where you plan to operate. However, if you already have an existing LLC, you might want to consider updating your articles of organization.
Step 5: Draft an LLC operating agreement
An operating agreement is required by most states, even though you don’t need one to form an LLC in Ohio. In fact, many people make the mistake of thinking that they don’t need an operating agreement because they are just starting out. This is a big mistake. If you want to avoid headaches down the road, you should consider drafting an operating agreement now. You might think that you won’t need one since you aren’t doing anything too complicated. But there are plenty of reasons why you might want to use an operating agreement. Here are some examples:
If you plan on selling products or services to others, you will probably want to include provisions about how you handle payments and disputes.
You might want to set up a procedure for resolving conflicts among members. For example, if you have three partners and one wants to sell his shares without paying his portion of capital contributions, he could end up owning less than 50% of the business.
You might want a provision that requires members to act reasonably and fairly towards each other.
In addition, you might want to add provisions that address situations like bankruptcy, dissolution, or death.
A well drafted operating agreement will give you peace of mind and allow you to focus on running your business.
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Step 6: Comply with employer obligations.
Business owners are required to comply with certain federal and state laws and regulations regarding employment practices. This includes reporting requirements for newly hired employees.
The Ohio Bureau of Workers’ Compensation requires businesses to provide notice of termination to the Ohio New Hires Reporting Center within 20 days. The center sends out notices to employers about new hires.
Employers must maintain records for three years related to wages paid to employees. These include payroll records, W-2 forms, tax withholding statements, and wage reports.
Ohio employers must purchase workers’ compensation insurance from the state rather than purchasing it from a private insurer. You must pay into the state fund if you hire 50 or more employees. You can deduct up to $5,000 per employee from taxable income.
If you have fewer than 50 employees, you can buy coverage directly from the state. Your premiums are based on your payroll size. For example, if you have 10 employees, your premium is $1,200 per month.
You must set up an unemployment compensation account with the state. This is done online. You cannot use a paper form.
Step 7: Pay Ohio business taxes
Ohio does not require businesses to withhold state income tax from wages paid to employees. Instead, it requires employers to pay quarterly employment taxes, known as unemployment compensation tax. This is separate from federal unemployment insurance taxes. If you are self-employed and make less than $1 million per year, you do not owe any unemployment taxes.
You can file an online application for unemployment benefits here. You can find out how much you owe by calling the Ohio Department of Job and Family Services at 877-822-7256.
Step 8: Comply with federal requirements.
An employer must file Form 941 for each quarter of employment unless it qualifies for one of three exemptions. If the employer does not qualify for an exemption, then it must pay $100 per week ($1,800 per month). This amount is known as the “withholding tax.”
The withholding tax is calculated based on the total wages paid during the quarter. For example, if you pay your employee $10,000 in wages during the quarter, then you owe $3,600 in withholding tax. You are responsible for filing quarterly returns even if you do not withhold any money.
If the employer pays less than $400 in wages during the quarter, no withholding tax is due. However, if the employer owes money to the IRS, it must still make payments.
Advantages and drawbacks of forming an LLC in Ohio
An LLC offers many benefits over corporations, including lower capital gains tax rates. This makes it easier to raise money without paying corporate income tax. But if you don’t live in one of the states where there are no income tax, you might prefer incorporation instead.
Ohio allows limited liability companies to avoid paying corporate income tax. However, if incorporated in another state, you’ll still owe federal income tax. In addition, you’ll have to file annual reports with the Secretary of State’s office. You’ll also have to pay franchise tax based on the amount of revenue generated within the state.
Incorporation costs vary widely depending on how much money you plan to invest. Incorporating won’t cost you anything if you just want to start a small business. On the other hand, incorporate it now if you’re planning to open a large chain restaurant. Incorporating early gives you time to hire employees, buy equipment, build a brand identity, and develop a marketing strategy.
Frequently Asked Questions
What should I include in my Ohio LLC’s operating agreement?
The Ohio Revised Code requires that every limited liability company form an operating agreement, which includes the following sections:
Why the LLC is being formed
• What are the purposes of the LLC?
• Who owns the LLC?
• How many members does the LLC have?
• Are there restrictions on how many members can join the LLC?
• Is there a limit on the number of owners holding membership interests?
What’s the difference between a member-managed and a manager-managed LLC?
In a member-managed LLC (MLLC), the owners are members of the LLC. They’re responsible for managing the day-to-day operations of the business.
In a manager-managed LLC (MMLLC), the owners appoint one or more managers to manage the business. These managers make decisions about how the business should operate and how it should grow.
The decision to form an MLLC or MMLLC depends on what type of ownership you want. For example, some people choose to form an LLC because they don’t want to deal with legal formalities. Others prefer to keep things simple and just go straight to the formation process.
James Rourke is a business and legal writer. He has written extensively on subjects such as contract law, company law, and intellectual property. His work has been featured in publications such as The Times, The Guardian, and Forbes. When he’s not writing, James enjoys spending time with his family and playing golf.
