Starting a small business can be super overwhelming, especially when it comes time to decide how to structure your business. But don’t fret too much, because today we’re explaining everything you need to know about limited liability companies (aka LLCs) and, more specifically, how to start a limited liability company in Ohio.
Starting an LLC in Ohio in particular is a great choice, because:
- Ohio recently experienced a boom in entrepreneurship, and offers several tax benefits and other incentives for small business owners
- The LLC business structure is a popular one for small business owners because it combines the best parts of a corporation and a sole proprietorship (but more on the perks later!)
By the end of this article, you’ll have an understanding of how to start a limited liability company in Ohio—and the pros and cons—and gain the tools to make an informed decision about what’s best for you and your business. Let’s get into it!
How to start an LLC in Ohio
First, let’s cover exactly what you’re getting yourself into when you start an LLC in Ohio. Here’s a quick summary of the eight main steps:
- Name your Ohio LLC
- Choose a statutory agent for your LLC in Ohio
- File articles of organization for your Ohio LLC
- Draft an Ohio LLC operating agreement
- Obtain an EIN (employer identification number) for your Ohio LLC
- Obtain an Ohio business license
- Comply with Ohio tax requirements and regulatory requirements
- Establish accounting best practices
1) Name your Ohio LLC
The first step when starting an LLC in Ohio is deciding on a name for your business. But it’s not as simple as just picking a catchy name and running with it—there are some important legal factors to consider too. 😉 For example:
- It’s important to check if your name has already been taken by another business in Ohio. You can verify that your name is free to use on the Ohio Secretary of State’s name database.
- Your name also needs to include “LLC” in your business name, or a variation of that (such as limited liability company, limited, L.L.C., or ltd.).
- Your name can’t include any words that might insinuate it’s a government agency (such as “FBI” or “state department”.) If you want to use words like “bank,” “doctor,” or “university,” you might need specific licensing or paperwork.
- If you want your customers to know your business by a name other than the legal name that will appear on your articles of organization, you can register to use a “trade name.” For example, maybe the name you’ve registered on your articles of organization is “Reeves Bakeries, LLC,” but you want “Keanu’s Cupcake Shop” to be the name that appears on your storefront and advertising. In this case, you’d need to register your trade name (“Keanu’s Cupcake Shop”) with the Ohio Secretary of State for an extra fee.
Ohio LLC name considerations
Hold on, because we’re not quite done with name considerations just yet!
Even if you don’t need a business website right at this very minute, it’s important to verify that your intended website domain and URL is available (afterall, you don’t want your customers going to someone else’s website instead of yours!).
Since coming up with a name and then actually launching your business can be worlds apart, Ohio actually lets you reserve a business name for up to 180 days before filing your articles of organization for $39.
2) Choose a statutory agent for your LLC in Ohio
Getting a statutory agent is mandatory for LLCs in Ohio. A statutory agent (also known as a “registered agent” in other states) is a person or an entity whose role it is to receive legal documents on behalf of your business.
Your statutory agent must be an Ohio resident and at least 18 years old if they’re an individual. If you go with a company, it must have a physical address in Ohio. In both cases, your statutory agent needs to be able to receive official mail for you.
Technically, you could be your own statutory agent, but you could run into trouble if you’re unavailable to accept mail (even small business owners go on vacation sometimes!). For that reason, it’s probably safer to go with a statutory agent service.
3) File articles of organization for your Ohio LLC
Okay, this step is the most important one! In order to officially form an LLC, you need to fill out and then file the articles of organization to the Secretary of State by mail or online. It costs $99 to file. Here’s the information you’ll need on hand:
- Your business's name
- The official "start date" of your LLC (needs to be within 90 days of filing)
- How long you plan to be in business (it can be perpetual)
- The purpose of your business
- The address, email, and phone number associated with your business
- The name, address, and signature of your statutory agent
- The signature of an owner, manager, or other official representative of your business
Once submitted, your articles will be processed and filed within three to seven business days. You can pay an extra fee to get your filing expedited.
Once the state has approved your articles of organization, they’ll send you a stamped copy that officially authorizes you to start doing business in Ohio! Optional next step: bring out the celebratory cake.
4) Draft an Ohio LLC operating agreement
But wait, we’re not quite done setting up your business just yet!
LLCs in Ohio aren’t legally required to create an operating agreement, but an operating agreement will help cover your business’s butt—it’s used to help clarify a business's operating functions and the duties, power, and rights of its owners. They can help keep you out of sticky situations, especially conflict with other owners. Here’s what we recommend including in your operating agreement:
- The purpose of your LLC
- The names and addresses of members and/or managers
- What each member or manager does within the business
- How much authority each member has, including their ownership stake, voting rights, and profit share
- How new members and managers are elected
- A meeting schedule
- How voting works
- Terms of dissolution
Make sure each member signs the agreement, and be sure to store it in a safe place. You don’t need to file it with the government or anything, it’s just for the reference of you and other owners or managers.
5) Obtain an EIN (Employer Identification Number) for your Ohio LLC
An Employer Identification Number (EIN) is a unique number assigned by the Internal Revenue Service (IRS) used to identify your business. It lets you open a business bank account, get loans, establish credit, hire employees, and apply for business licenses.
You will need to register for an EIN if your LLC has employees, has multiple owners, and/or has elected to be taxed a corporation. Either way, an EIN is a super useful thing to have, so we always recommend getting one. You can apply online or by mail.
6) Obtain an Ohio business license
Ohio doesn’t have one singular general business license. Instead, it has something called a vendor's license (seller’s permit), which is necessary if you’re selling goods or services. This certificate enables you to collect sales tax on any sales you make.
You might require more licensing or permits depending on your industry or location, on a local, statewide, and/or federal level. We have a whole article on how to get a business license in Ohio that goes into more detail.
7) Comply with Ohio tax and regulatory requirements
In Ohio, LLCs are automatically treated as pass-through entities, which means your business itself does not pay income tax; instead, your business’s income "passes through" to each owner’s personal tax return, so each owner pays taxes on their share of the profits. One of the perks of forming an LLC is that you get to choose how it gets taxed—so you can choose to be taxed as a corporation instead, if you’d like.
If you’re planning on hiring employees for your business, you must register for Unemployment Insurance Tax through the Ohio Department of Job and Family Services for the Employee Withholding Tax through the Ohio Business Gateway. (FYI, all new hires need to be reported to the Ohio New Hire Reporting Center within 20 days.)
LLCs need to report their income to the IRS using the appropriate IRS form. Ohio’s commercial activity tax applies to Ohio LLCs whose gross receipts exceed $150,000 per year. Owners are also responsible for paying self-employment taxes to cover Social Security and Medicare obligations.
8) Establish accounting best practices
Like most small business owners, you probably started your business because you love accounting. Just kidding! Of course you didn’t.
Even though accounting can seem intimidating (and super procrastination-worthy), understanding accounting and bookkeeping best practices makes managing your finances much easier. It’ll help you stay organized and save yourself a bunch of headaches at tax time—and keep the IRS happy, too, of course.
Here are some best practices to follow:
- Open up a business bank account to help you keep your personal finances and your business finances separate, which not only helps protect your assets, but makes tax time easier too.
- Get a business credit card, which will make categorization much easier and help build your credit score.
Hire a business accountant, or consider a small business accounting software like Wave to help manage your finances. Wave provides easy-to-use software for small business owners that helps you stay on top of bookkeeping and always be tax ready. We recommend taking care of your accounting in one place, like Wave, because it minimizes the chances of human errors.
Benefits of starting an LLC in Ohio
Now that you know what LLCs are and how to form one, here are a few reasons forming an LLC might benefit you:
- LLCs are fairly simple to form and maintain
- LLCs protect you, personally, from the financial and legal liabilities of your business
- LLCs allow for flexibility in ownership, management structure, and taxation
- LLCs require less paperwork and recordkeeping compared to corporations
- LLCs allow for pass-through taxation, so you can avoid double taxation
Drawbacks of starting an LLC in Ohio
Aaaand here are some of the disadvantages to consider, too:
- LLCs are subject to Ohio’s commercial activity tax, which applies to businesses whose gross receipts exceed $150,000 per year (sole proprietorships and partnerships are exempt)
- LLC owners may pay more in self-employment taxes compared to members of a corporation
- Investors may not be as interested in funding your business, since LLCs cannot issue stock
Are you ready to start an LLC in Ohio today?
Phew, congrats on making it to the end of this article! Now, you’ve gained an understanding of how to form an LLC in Ohio, and the pros and cons of doing so. Here’s a recap of what we covered:
- You need to follow naming guidelines in Ohio and officially register your business name.
- Statutory agents are mandatory in Ohio.
- File articles of organization to officially create your business!
- An operating agreement helps organize you and any other owners of your business.
- Most LLCs require an EIN for tax purposes, and to get access to a bunch of good stuff that will help you build out your business.
- Do research on what local, statewide, and federal licensing you need to obtain since it depends on your industry. You’ll at least need a vendor’s license.
- Decide how you want your LLC to be taxed, and stay compliant with tax regulations.
- Set up a business bank account to make bookkeeping and tax time easier, and always remember to keep your personal finances and your business finances separate.
If you still have questions about starting an LLC in Ohio—on anything from accounting to taxes or paperwork to hiring employees—our team of small business bookkeeping pros can provide you with personalized, 1:1 assistance.
The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.