How to Incorporate in Ohio vs. How to Start an Ohio LLC

A Guide to Choosing the Best Business Entity in Ohio

When you’re ready to start a business in Ohio, the first major decision is choosing the right business entity structure for your company. The Limited Liability Company (LLC) and corporate entities are the most popular structures in the US, and have the most desirable elements from all the business entities, such as limited liability protection and flexible tax structuring options. This Ohio LLC formation and incorporation guide will help you understand both business structures and explain their main characteristics. We’ll go over the details of starting an Ohio LLC and an Ohio corporation, what to expect with their annual maintenance, and the advantages and disadvantages of the LLC and corporation.

Once we’ve figured out which business structure suits your needs best, your next step is hiring Active Filings to get you where you need to be in the quickest amount of time. Our starter package begins at $25 (plus state fees). Hire us and you’ll quickly understand why Active Filings is America’s most reliable business incorporation service.

 

Hire us to form your LLC or Corporation in Ohio!

LLCs vs. Corporations

Here are the main elements true of all LLCs and corporations to help you begin making your decision:

  • Maintenance
    One of the biggest selling points for an LLC is the ease of maintenance. LLCs will need only minimal paperwork, have flexibility when a decision is needed, and have low annual upkeep. An LLC is the best choice if you have a small to medium-sized business and can only handle a low amount of maintenance. On the flip side, a corporation will require a high level of maintenance, both on a day-to-day and annual basis. Corporations have more legal formalities than an LLC, like electing a board of directors, holding shareholder meetings, and maintaining internal records such as meeting minutes and stock issuance.
  • Tax Structure
    An LLC is not a separate taxable entity from its owners. LLCs are pass-through tax entities, where income and losses pass through the business and onto the members to report on their personal income tax return. LLCs are the simpler and less expensive option in terms of time and paperwork for business owners during tax season. Corporations are more advanced for a business owner to take care of during tax season. A standard corporation defaults to a tax structure called a C corporation, and is known for what’s called double taxation, where a business’s net income is taxed initially by a corporate tax, and then taxed again on personal income, after shareholders receive their profits (dividends) and losses. C corporations are typically taxed at a lower rate on profits, and have opportunities for tax deductions such as health care and travel, and can retain its earnings to be reinvested into the company’s growth.
  • Prospective Investors
    A corporation has the advantage of appealing to investors more than an LLC, plain and simple. Entrepreneurs looking to expand their company in the future will most likely need investor funds, making the corporate entity the suitable choice. Investors are more comfortable investing their time and money in a traditional business structure that offers stock, like a corporation. Investors don’t have to worry about complicating their personal taxes when they invest in a corporation, and only get taxed on profits actually distributed to them. Investors view corporations as a dependable business structure that will provide them with a return on their investment. Having a corporate structure will profoundly impact the ability to raise investment money. On the other hand, investors can still invest in an LLC by owning a percentage of that LLC. Owners of LLCs will have to pay taxes on their distributive shares, even if they haven’t received a distribution on those profits, and can’t issue stock, which is a turn-off for many investors. A corporation should be considered if you are serious about gaining investors.
  • Business Prestige
    Businesses start with their appearance, and having the “LLC” or “Inc” ending on your business name will give it a level of prestige. These endings convey permanence and encourage trust from potential investors or clients, and show that you are serious about your business. While both entities provide a level of prestige, incorporating provides a higher level of prestige for your business, since the corporation is the oldest and most traditional entity type. Keep in mind the LLC has surpassed corporations in popularity in most states, and the prestige of an LLC is continually growing.

 

OH LLCs vs. OH Corporations

After exploring the main characteristics that apply to all LLCs and corporations, next is to dig into more specific characteristics of what makes an Ohio LLC or Ohio corporation unique from other states, which will bring us to the final answer on which entity is best for your business. Each state has its own set of statutes and tax laws that govern the way its businesses operate, and these unique details must be considered when choosing your business entity. The information in this section will provide these specifics for the Ohio LLC and the Ohio corporation.

  • No Corporation Franchise Tax in Ohio
    The state of Ohio repealed their corporation franchise tax back in 2014, saving both LLCs and corporations in Ohio a significant amount of money every year.
  • Ohio Commercial Activity Tax (CAT)
    The Ohio Commercial Activity Tax (CAT) is a tax imposed on the privilege of doing business in Ohio. This tax is measured by gross receipts from the business activities in Ohio based on the following brackets:
    Less than $150,000 = no tax
    $150,000 – $1 million = $150 tax
    $1 million – $2 million = $800 tax
    $2 million – $4 million = $2100 tax
    $4 million+ = $2600 base tax + .26%
  • Ohio Individual Income Taxes
    Ohio has a tax on individual income at marginal rates that fluctuate annually. The brackets for 2019 are as follows:

    Income Tax Calculation
    0 – $21,750   0.000%
    $21,751 – $43,450 $310.47 + 2.850%
    $43,450 – $86,900 $928.92 + 3.326%
    $86,900 – $108,700 $2,374.07 + 3.802%
    $108,700 – $217,400  $3,202.91 + 4.413%
    $217,400+   $7,999.84 + 4.797%
  • Ohio LLC Protection From Creditors
    LLCs in Ohio have a strong level of protection against creditors (a person who is owed funds or assets by a debtor). Creditors only have one remedy against the debtor of an LLC, which is a charging order that puts a lien on a debtor’s interest (funds and assets) and creditors then have a right to receive any distributions made to the debtor from the LLC, if the LLC makes a distribution. Often times, this leads to the creditor ending up with nothing, since creditors can’t order the LLC to make distributions (OH §1705.19).
  • No Annual Reports Due For LLCs or Corporations
    An annual report is meant to update or confirm the records for your business, and lets your business remain in good standing. In most states, its required to file an annual report for your LLC and corporation.Unlike most states, Ohio LLCs and corporations are not required to submit an annual report. This is a big perk for both LLCs and corporations in Ohio, saving them a significant amount of time and money.

 

Ohio LLC or Ohio Corporation? Final Answer.
Deciding whether an LLC or corporation is best for your company comes down to the size of your business, priority of investors, level of maintenance you’ll need, and the most beneficial tax structure for the future of your business.

The Ohio LLC will be your best choice if you have a small to medium-sized business. LLCs in Ohio stay true to character in terms of simple formation and maintenance, simple management, strong flexibility in decision-making, and limited liability protection. If growing your company large with investors is not your top priorities, you’re looking for the least expensive and sophisticated taxes and annual maintenance, and needing limited liability protection for your business, the LLC is your answer.

The Ohio corporation will be your best choice if you plan to grow your business big with the funds from investors, and you have the means for the amount of maintenance required. an Ohio corporation remains true to character in its substantial amount of paperwork, higher maintenance, and involved yet beneficial tax structure.

How to Incorporate in Ohio

If you’re looking to start an Ohio corporation, also known as incorporating, you must file the Articles of Incorporation with the Ohio Secretary of State. You can download the Articles of Incorporation packet online at the Ohio Secretary of State website. Once your Articles of Incorporation are approved, your corporation is officially formed.

You can file the Articles of Incorporation in the following ways:

  • Online at the Ohio Secretary of State website
  • By postal mail
  • In person at the Secretary of State office

Filing your Ohio Articles of Incorporation on the website is fast, secure, and is the preferred method by the Secretary of State. The fee for filing your Articles of Incorporation costs a minimum of $99 for up to 990 shares. If you plan to authorize more than 990 shares, the additional fees are on a graduated scale as follows:

Shares Price per share
0 to 1,000  $.10
1,001 to 10,000 $.05
10,001 to 50,000 $.02
50,001 to 100,000  $.01
100,001 to 500,001 $.005
500,000+   $.0025

You can expect your Ohio Articles of Incorporation to be approved between 3-7 business days. If you need an expedited approval time, there are three levels to choose from:

Expedite Service 1: For an additional $100 fee, your documents will be processed within 2 business days after submission to the Secretary of State.
Expedite Service 2: For an additional $200 fee, your documents will be processed within 1 business day after submission to the Secretary of State. This service is only available for walk-in customers who hand deliver the paper form to the Client Service Center.
Expedite Service 3: For an additional $300 fee, your documents will be processed within 4 hours after submission to the Secretary of State, if submission is made by 1 pm. This service is only available for walk-in customers who hand deliver the paper form to the Client Service Center.

To complete your Ohio Articles of Incorporation, include the following information:

Enter your corporation’s name exactly as you would like it to appear. Your corporation name must include one of the following words: “Incorporated,” “Corporation,” “Company,” or an abbreviation of one of those words.

Your corporation name can’t imply it is organized for a purpose other than what is mentioned in the Articles of Incorporation. The name can’t already be in use, and can’t sound similar to the name of any other company in Ohio.

List the city and county in Ohio of your corporation’s principal office.

The date your corporation officially becomes effective will be the filing date. If you would rather have your corporation effective on a future date (no later than 90 days after filing), specify that date and time here.

State the number of shares your corporation is authorized to issue (most corporations start out with around 1,500), whether the stock is preferred or common, and the par value of the stock, if applicable. Preferred stock usually doesn’t give shareholders voting rights, while common stock does.

Stated capital is the entire par value of all the shares outstanding (shares currently held by investors). List the amount of your corporation’s stated capital, if applicable.

A statutory agent is a person or entity who resides in the state and receives service of process from the government on behalf of a business. This page is part of the Articles of Incorporation and must be filled out and signed by all incorporators and the statutory agent at the bottom.

Have the incorporator(s) sign and date here. If the incorporator is a business entity, please type the entity name here instead.

Area to be signed if the incorporator is a business entity instead of an individual.

Print the name of the incorporator(s) here.

How to Form an LLC in Ohio

If you’re looking to start an Ohio LLC, you must file the Articles of Organization with the Ohio Secretary of State. You can download the Articles of Incorporation packet online at the Secretary of State website. Once your Articles of Organization are approved, your LLC is officially formed.
You can file the Articles of Organization in the following ways:

  • Online at the Ohio Secretary of State website (recommended)
  • By postal mail
  • In person at the Secretary of State office

Filing your Ohio Articles of Organization on the website is fast, secure, and is the preferred method by the Secretary of State. The fee for filing your Articles of Organization costs a flat $99.

You can expect your Ohio Articles of Organization to be approved between 3-7 business days. If you need an expedited approval time, there are three levels to choose from:

Expedite Service 1: For an additional $100 fee, your documents will be processed within 2 business days after submission to the Secretary of State.
Expedite Service 2: For an additional $200 fee, your documents will be processed within 1 business day after submission to the Secretary of State. This service is only available for walk-in customers who hand deliver the paper form to the Client Service Center.
Expedite Service 3: For an additional $300 fee, your documents will be processed within 4 hours after submission to the Secretary of State, if submission is made by 1 pm. This service is only available for walk-in customers who hand deliver the paper form to the Client Service Center.

To complete the Ohio Articles of Organization, include the following information:

Enter your LLC name exactly as you would like it to appear. Your company name must include the words “Limited Liability Company,” “Limited,” “L.L.C.,” “LLC,” “Ltd.,” or “Ltd”.

Your company name can’t imply it is organized for a purpose other than what is mentioned in the Articles of Organization. The name can’t already be in use, and can’t sound similar to the name of any other company in Ohio.

The date your LLC legally becomes effective will be the filing date. If you would rather have your LLC effective on a future date (no later than 90 days after filing), specify that date and time here.

Leave this area blank if you would like your LLC to be perpetual. If you’d like your LLC to end on a specific date or exist for a certain number of years, state that information here.

Describe the purpose for creating your corporation. The purpose doesn’t need to be specific, and is best left as a general statement. For example, a business that provides writing services would use a purpose statement such as “To provide writing services and to engage in any other lawful activity for which corporations may be incorporated in this state.”

A statutory agent is a person or entity who resides in the state and receives service of process from the government on behalf of a business. This page is part of the Articles of Organization and must be filled out and signed by all persons executing these Articles of Organization and the statutory agent at the bottom.

Have the persons executing these Articles of Organization sign and date here. If the executor is a business entity, please type the entity name here instead.

Area to be signed if the incorporator is a business entity instead of an individual.

Print the name of the incorporator(s) here.

Ohio Annual Report Requirement

Ohio LLCs and Ohio corporations are not required to file an annual report, unlike most states. This unique perk in Ohio saves business owners a significant amount of time and money. The only annual maintenance task you will need to complete each year to keep your business in good standing is filing your business taxes.

When tax season hits, you’ll probably have a lot of questions regarding business taxes. Below, we’ll provide basic instructions and resources you’ll need to help you take care of your tax-related upkeep annually.

 

Ohio Business Taxes

The filings can get complicated and you may need the help of a tax service or CPA to complete these requirements, but regardless of your accounting skills, we’re here to help get you started.

Check out our Ohio Business Tax FAQ below:

What is the Ohio Commercial Activity Tax?
The Ohio Commercial Activity Tax (CAT) is a tax imposed on the privilege of doing business in Ohio. This tax is measured by gross receipts from the business activities in Ohio based on the following brackets:

Less than $150,000 = no tax
$150,000 – $1 million = $150 tax
$1 million – $2 million = $800 tax
$2 million – $4 million = $2100 tax
$4 million+ = $2600 base tax + .26%

Ohio businesses with over $1 million in gross receipts (sales and non-sales sources of income) must file the CAT tax on a quarterly basis instead of annually.

What is the Ohio individual income tax rate?
The Ohio individual income tax rate is a point of interest for LLCs, since the businesses income passes through the LLC and onto the members to report on their individual income taxes. Ohio’s tax on individual income is at marginal rates that fluctuate annually. The brackets for 2019 are as follows:

Income Tax Calculation
0 – $21,750   0.000%
$21,751 – $43,450 $310.47 + 2.850%
$43,450 – $86,900 $928.92 + 3.326%
$86,900 – $108,700 $2,374.07 + 3.802%
$108,700 – $217,400  $3,202.91 + 4.413%
$217,400+   $7,999.84 + 4.797%

What forms do you file for your Ohio business taxes?
For the CAT tax, businesses filing annually must file the CAT 12 form, while businesses filing quarterly must file the CAT Q form.

For single member LLCs, submit Schedule C as part of your individual income tax return.
For multi-member LLCs, submit Form 1065 along with Schedule K-1, included within the form.

When are my Ohio business tax returns due?
The CAT tax return is typically due May 10th every year. Quarterly returns are due by the 10th day of the second month following each calendar quarterly tax period.

Hire us to form your LLC or Corporation in Ohio!