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An entrepreneur can organize their business in a variety of ways. One popular way is with an LLC or a Limited Liability Company. A Limited Liability Company (LLC) is a type of company structure that is permitted under Ohio state law, which was developed in 1977 for various reasons, one being to create a “limited liability” structure to reduce your personal liability in case the business fails.
This is similar to how a corporation operates, but it simultaneously allows the company to be regulated like a partnership. Members of an LLC are the people who own the limited liability company, which can be likened to the way shareholders own parts of a corporation.
The specifics of forming an LLC differ between states; here’s what you should know about how to start an LLC in Ohio.
Here are the steps you’ll need to take in order to get your LLC in Ohio.
Below, you’ll find a detailed explanation to walk you through each step.
First, choose your business’s name. Your Ohio LLC should have a unique, one-of-a-kind name that is easily recognizable that distinguishes you from your competitors. If your name is too close to the name of another business, you could be subject to a copyright infringement lawsuit. If your name is different enough not to trigger a lawsuit but still somewhat similar to a competitor’s, you may get overlooked by potential customers.
Although you can change your business name later on, it can be difficult to do, especially after you’ve already set up a number of accounts and filed several forms with your chosen business name. Make sure it’s something you like that does a good job of describing your products or services and how you’re bringing something new and different to the table from your competitors.
First, make sure the name you want for your business is available in Ohio. You can determine its availability using the online search tool on the Ohio Secretary of State’s website. If your desired name is available, you can then start the reservation process.
To reserve a business name in Ohio, you must fill out a Name Reservation form and file it, along with a cover letter, with the Ohio Secretary of State. This can be done online or by printing the form and sending it via traditional mail.
Once you reserve your business’s name, you should file your DBA if you are opting for one. Whether you have a DBA is entirely optional and there are many businesses that operate without one. This is a very simple form and is often done at the same time as filing your business name.
DBAs enable sole proprietorships and general partnerships to trade under a name other than the owner’s or owners’ personal name (s). Filing a DBA permits sole proprietorships, general partnerships, corporations, limited partnerships (LPs) and limited liability partnerships (LLPs), and nonprofit entities to conduct business under a name different from the owner’s.
When you register your business name with the Ohio Secretary of State, you’ll have the opportunity to also register your DBA name. This can be done online or via traditional mail. You’ll want to have already determined that your desired DBA name isn’t already taken by another business, just as you’ve done for the formal name of your company.
Next, you should register your business’s name, logo and any relevant product or service names for trademark. However, you can’t necessarily trademark general, everyday things. For example, an ice cream company cannot trademark “vanilla” as an ice cream flavor unique to their brand.
However, you can trademark unique versions of these words, so other companies cannot use them in their own marketing materials. Using the example above, this ice cream business might call their vanilla ice cream “Obscene Vanilla Bean” and make it unique by using various food coloring to create a bright, neon ice cream mix that tastes the same as traditional vanilla but is unique to the company that serves this version.
You can register your company’s name, slogans, and any unique product or service titles or descriptions that are exclusive to your brand. This protects your intellectual property from being used by other companies, particularly your direct competitors.
Trademarks are addressed by Ohio Revised Code Section 1329.54(A) and defined as “any word, name, symbol, device, or combination of any word, name, symbol, or device, that is adopted and used by a person to identify and distinguish the goods of that person, including a unique product, from the goods of other persons, and to indicate the source of the goods, even if that source is unknown.”
Service marks are similar to trademarks but are inherently separate, as defined by Ohio Revised Code Section 1329.54(B). A service mark is “any word, name, symbol, device, or combination of any word, name, symbol, or device, that is adopted and used by a person to identify and distinguish the services of that person, including a unique service, from the services of other persons and to indicate the source of the services, even if that source is unknown.”
There are two primary benefits to registering a service mark or a trademark with the Ohio Secretary of State. First and foremost, doing so offers public notice of the creation of your business. When you register your trademark or service mark with a governing agency, it becomes available to the public for review.
At this time, any conflicts with service marks or trademarks already in existence will typically arise and can be settled before the company moves forward with their mark. The second benefit is that after a mark becomes registered, this evidence can be used if a party later makes a copyright infringement claim against the business’s registrant.
The second step in starting an LLC in Ohio is filing articles of organization. These are also sometimes called articles of incorporation. These documents tend to be very detailed and function almost like a business plan, so it’s important that you spend the time and effort necessary to ensure these are created and filed properly.
Articles of organization are a set of organizational legal documents that are used to start a limited liability company (LLC) in Ohio. These articles intend to establish the authority, rights, responsibilities, liabilities, and other commitments that exist between the LLC and its members. If there are ever any discrepancies or disputes between LLC members, the first step in resolving the matter is usually to review the LLC’s articles of organization.
The requirements for filing articles of organization in Ohio generally include:
You will file your company’s articles of organization with the Ohio Secretary of State, generally at the same time that you file for your business name, trademark, etc. After they’ve been approved, these articles become the legal foundation for the operation of your LLC as a registered business entity.
At this time, your company is bound by Ohio state laws under which your business was formed. Essentially, the articles of incorporation that you file will become the start of your company’s charter, which can then be fine-tuned and adapted to the unique needs of your business.
Several fees are associated with filing various forms for your business with the Ohio Secretary of State. Some of the most common fees company directors or owners run into when filing with the state include, but are not limited to, the following:
Next, you should select a statutory agent. In other states, this is sometimes called a registered agent. No matter which state you’re living in or doing business in, you don’t have the choice to opt out of having a statutory or registered agent.
A statutory agent in Ohio is the person named in your articles of organization who is designated to receive official communication on behalf of your business. Each registered business in the state of Ohio is mandated by law to have a statutory agent. A statutory agent handles legal documents and communication to the business from the state of Ohio, as well as any service of process should the company be named in a lawsuit.
All 50 states require that an LLC to have a statutory agent.
Your agent must be over the age of 18 and reside in the location where your business is registered. A statutory agent can be anyone, including yourself, a family member or friend, or a hired professional. They must have a physical mailing address; you may not have a statutory agent that has a P.O. box or other similar address.
Many businesses choose the latter simply to ensure that their company isn’t put at risk by simple mistakes or oversights that an untrained individual in this particular position may make. A professional statutory agent can ensure the business receives critical correspondence in a timely manner and can assist with the handling of important matters.
A statutory agent continues to act on behalf of an organization after it is formed, unlike an organizer or incorporator of a business whose duties typically end after the entity has been formed.
One of the most important responsibilities of a statutory agent is to obtain copies of any disputes, legal claims, or notices that may be brought against your company. The statutory agent of a business also receives state and federal correspondence, as well as important tax documentation.
If no statutory agent has been named, the Ohio Secretary of State’s office has the ability to receive service of process on behalf of the company. However, not having a designated statutory agent or one that is busy with other company tasks might create unnecessary delays in receiving critical notices or litigation.
Business owners or managers within the business can name themselves the statutory agent of the company. To do so, they would simply file the appropriate form with the Ohio Secretary of State with their own name instead of the name of someone else who would serve as the statutory agent.
However, this may not necessarily be in your best interests or the best interests of your company. It may be more beneficial to hire a professional statutory agent. For example, if you name yourself as the statutory agent for your business, you may need to list your home address as the point of contact for your company.
This means your home address will be on public record for individuals and entities that want to send official correspondence to your company. This may or may not be a concern for your business. However, hiring a designated statutory agent means that it will be their physical address on public record.
Additionally, some business owners hire statutory agents to ensure that someone is available for official contact during traditional business owners, so the owners themselves can enjoy irregular or less frequent work hours.
Once you’ve selected a registered agent, you should establish an operating agreement for your Ohio LLC. This is another important document that is often referenced throughout the life of a business, particularly when questions or concerns amongst LLC members arise.
An operating agreement is a crucial document for Limited Liability Companies (LLCs) since it lays out the company’s financial and operational activities, as well as applicable policies, restrictions, and stipulations.
The objective of the agreement is to manage the company’s inner operations, so the unique needs of the company’s owners are met. When members of the LLC sign the agreement, it becomes a formal contract that legally binds them to its conditions.
Generally, the only way to be released from such an agreement is if the other party(s) agree to it or the entire contract itself becomes null and void for some reason. For example, if one or more of the LLC’s members were under duress at the time the agreement was signed or one or more members were not fully informed, this may render the contract invalid.
An operating agreement may offer protection for members of the LLC from personal liability. If you do not have an operating agreement that designates members of the LLC and defines their roles and responsibilities, your company may function more like a partnership or sole proprietorship. This potentially could place your personal liability or the liability of your LLC’s members in jeopardy.
Even if your LLC’s members have made verbal agreements regarding specific terms, it’s important to have these in writing to avoid miscommunication or misunderstandings. If a dispute or conflict arises, you can easily refer back to the operating agreement to clarify things and potentially resolve the matter.
If you don’t have an operating agreement, the guidelines, policies, and regulations that apply to your business fall to the state of Ohio. This set of default rules is extremely broad, however, and is unlikely to offer your company much protection at all. It’s typically not in your best interest as a business owner to rely on governing bodies in Ohio to manage your company’s operation.
The state of Ohio does not require a business to have an operating agreement. However, it’s highly advisable not to do business without one. There aren’t any specific criteria that must be included in an LLC’s operating agreement. However, several topics are encouraged to be covered.
You do not need to file your operating agreement with the state of Ohio. However, this doesn’t mean you don’t have to have one. You should put together a comprehensive operating agreement for the benefit of your business and its investors, including but not limited to yourself.
Your operating agreement may include some or all of the following or more:
Next, you should apply for an EIN. This is an essential step for the financial health and viability of your company, and, unless you’re a sole proprietorship, it’s not something you can opt out of.
An EIN, also called an Employer Identification Number, is a unique identifier much like a Social Security number that allows a business to be identified by the Internal Revenue Service (IRS). Typically, EINs are used by businesses to report and file taxes. The number is generally nine digits long and has a specific format that may look something like XX-XXXXXXX.
An EIN is required for all LLCs in the United States per the Internal Revenue Service (IRS). Your company will need an EIN if you have any employees, if you operate as a partnership or a corporation, file certain types of tax returns with the IRS, or withhold taxes that aren’t wages from income.
You can generally use your Social Security number instead of your EIN if you operate a sole proprietorship. Other than that, having an EIN is not only necessary but beneficial to help keep your business and personal lives as separate as possible.
You can apply for an EIN through the Internal Revenue Service online, by mail, or via fax. Online applications are the fastest way to obtain an EIN; once your information is verified while you’re connected, your business is immediately provided with your Employer Identification Number.
Some business owners don’t want to assume the extra time, effort, and responsibility of going through the process of getting an EIN. They may be preoccupied with one of the many other critical aspects of establishing an LLC in Ohio. In this case, you can work with a professional who will apply for and secure an EIN on your behalf.
Finally, you will need to ensure that your LLC complies with Ohio tax laws. If you do not, your business could be subject to fines and/or you may be subject to criminal charges.
You’ll need to file a variety of taxes as an LLC in Ohio. This includes state and federal taxes, income and sales taxes, and other taxes that may be specific to your location or type of business.
You’ll pay traditional income tax on the money you pay yourself from your business, which ranges between 0% and 3.99% in Ohio, depending on your income bracket. These taxes are filed with the IRS and the state of Ohio similar to if you worked for an employer instead of yourself. The highest tax bracket is an annual income of more than $110,650 at 3.99%, plus $3,123.05.
Ohio has a state sales tax of 5.75%. Local cities and counties may have ordinances of their own for up to 2.25% sales tax. Combined, the maximum sales tax in Ohio can be as high as 8%. Compared to other states, this is relatively high, particularly when stacked up against the five states that don’t have any sales tax at all, including Alaska, Delaware, Montana, New Hampshire, and Oregon.
If you are self-employed in the state of Ohio, you must pay an additional self-employment tax of 15.3% of your income. Fully 12.4% of these funds go to Social Security, and the other 2.9% goes to Medicare.
This means that if your business earns $112,000 per year, you could be subject to paying as much as 19.29% plus $3,123.05 in taxes annually.
Ohio state law requires businesses to withhold income tax from the wages of employees and to send these funds directly to the Ohio Department of Taxation on behalf of employed individuals. In almost all cases, state taxes are withheld from an employee’s paycheck along with federal taxes, and the employer is responsible for both. Your LLC is responsible for calculating the tax bracket that each employee falls into based on their income and subtracting the proper amount from employee pay to remit to the Department of Taxation.
Ohio has what is called a Commercial Activity Tax (CAT), or what is referred to in other states like Delaware, Nevada, Oregon, Tennessee and a few others as a gross receipts tax. If your business earns less than $1 million annually in gross receipts, your LLC will be subject to paying a minimum tax of $150.00. If your business makes more than $1 million in gross receipts but less than $2 million, you will be required to file and remit CAT quarterly and pay $800. Businesses that earn between $2 and $4 million in gross receipts pay $2,100 in Commercial Activity Taxes, and businesses that earn more than $4 million will pay $2,600.
Once your Ohio LLC has been established, there are a few more things you need to do, such as:
Your personal and business finances should never mingle, especially in an LLC, in which the goal is to keep company and personal dealings as separate as possible. It’s important to set up a dedicated bank account for business transactions and to keep accurate financial records of all debits and credits.
It doesn’t matter if you don’t have any funds to keep in your business bank account or if your company isn’t currently earning any money. You should set up your account as soon as possible and begin funneling all of your related financial transactions through this account for comprehensive and accurate recordkeeping.
In addition to a business bank account, you should also set up a separate savings account specifically for your taxes to go into until they are paid to the state of Ohio and the IRS. Whether you pay annually or quarterly, funneling money into a separate account specifically for this purpose makes filing taxes and making payments much easier.
Depending on the type of business you’re starting and what kind of startup capital you already have, you may or may not want to open a business credit card or a line of credit. These can be helpful for businesses that need a lot of startup capital; however, you also want to be sure that you’ll be able to generate revenue relatively quickly to begin making payments on the card. If you default on your business credit obligations, your credit score could tank, making it more difficult for your business to continue to do operations in the future.
Ohio currently does not require annual fees for LLCs. Once all the initial forms have been filled out and the fees paid, the state of Ohio presently does not require annual reports to be filed or annual fees to maintain your LLC.
However, we strongly recommend remaining in good standing with the state and keeping annual compliance if any requirements change. In addition, you may have to pay other fees, such as the registered agent service fee.
Finally, you should obtain the applicable business licenses and permits to legally conduct operations on-site. All businesses in Ohio must register with the Ohio Secretary of State to operate their business and are given a business license. Some industries also require additional permits. For example, if you own a salon, you’ll need to have both a business license from the Ohio Secretary of State and a permit from the Ohio Cosmetology and Barber Board.
Although starting an LLC in Ohio is an involved, potentially intimidating process, it’s necessary for entrepreneurs who want to successfully own and operate a business within the state.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.