Company registration in Ohio involves a critical first step: choosing the right business entity. Two popular structures are the Limited Liability Company (LLC) and the corporation, each offering unique benefits like limited liability protection and flexible tax structuring. This comprehensive guide will walk you through the process of forming both an Ohio LLC and an Ohio corporation, comparing their characteristics, annual maintenance requirements, and tax implications to help you make an informed decision for your Company registration in Ohio.
LLCs vs. Corporations
Maintenance
One of the primary advantages of Company registration in Ohio is its ease of maintenance. Ohio LLCs require minimal paperwork, offer flexibility in decision-making, and have low annual upkeep. This makes them ideal for small to medium-sized businesses that can handle only a low level of maintenance. Conversely, corporations demand a higher level of maintenance both day-to-day and annually. Corporations need to elect a board of directors, hold shareholder meetings, and maintain detailed internal records, such as meeting minutes and stock issuance.
Tax Structure
Taxation is another significant difference between LLCs and corporations. LLCs are pass-through entities, meaning the income and losses pass through the business to the members, who report them on their personal income tax returns. This structure simplifies tax season for business owners and reduces the paperwork involved.
Corporations, by default, are taxed as C corporations, which experience double taxation. This means the corporation’s net income is taxed at the corporate level, and then shareholders are taxed again on their personal income when profits are distributed as dividends. However, C corporations can benefit from lower tax rates on profits and opportunities for tax deductions such as health care and travel expenses. Alternatively, Company registration in Ohio can elect S corporation status to become a pass-through entity, avoiding double taxation and offering tax advantages like dividends not subject to self-employment tax.
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Prospective Investors
Company registrations in Ohio generally have an edge when it comes to attracting investors. They can issue stock, making it easier to raise investment capital. Investors prefer the traditional corporate structure, as it allows them to invest without complicating their personal taxes and ensures they are only taxed on distributed profits. While investors can invest in an LLC by owning a percentage of it, they must pay taxes on their distributive shares even if no profits are distributed, which can be a disadvantage.
Business Prestige
Both LLCs and corporations benefit from the prestige of their respective suffixes (“LLC” or “Inc”), which convey seriousness and stability. However, company registrations in Ohio often carry a higher level of prestige due to their traditional and established nature. Despite this, LLCs have become increasingly popular and respected in many states, including Ohio.
Beneficial Ownership Information Report
Regardless of whether you choose an LLC or a corporation for company registration in Ohio, you must file a Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN) once your company is officially formed in Ohio. This report provides identifying information about your company and those who control it but does not go on public record and incurs no filing fee.
Ohio-Specific Considerations for LLCs and Corporations:
No Corporation Franchise Tax
Ohio repealed its corporation franchise tax in 2014, offering significant savings for both LLCs and corporations in the state.
Ohio Commercial Activity Tax (CAT)
Ohio imposes a Commercial Activity Tax (CAT) based on gross receipts from business activities in the state. The tax brackets are:
– 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 + 0.26%
Ohio Individual Income Taxes
Company registration in Ohio taxes individual income at marginal rates that fluctuate annually. For example, in 2019, the rates ranged from 0% for income up to $21,750 to 4.797% for income over $217,400.
LLC Protection from Creditors
Ohio LLCs offer strong protection against creditors, who can only obtain a charging order against a debtor’s interest in the LLC. This means creditors can receive distributions if the LLC makes any, but they cannot force the LLC to make distributions.
No Annual Reports Required
Unlike most states, Ohio does not require LLCs or corporations to submit annual reports. This unique advantage saves Ohio business owners both time and money.
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Forming an Ohio Corporation
Company registration in Ohio, you must file the Articles of Incorporation with the Ohio Secretary of State. The process can be completed online, by mail, or in person. Online filing is the fastest and most secure method. The basic filing fee is $99 for up to 990 shares, with additional fees based on the number of authorized shares.
– Name of Corporation: Must include “Incorporated,” “Corporation,” “Company,” or an abbreviation.
– Principal Office of Corporation
– **Effective Date** (optional)
– **Authorized Number and Type of Shares**
– **Initial Stated Capital**
– **Original Appointment of Statutory Agent**
– **Signature**
– **By** (if applicable)
– **Print Name**
Forming an Ohio LLC:
company registration in Ohio LLC, you must file the Articles of Organization with the Ohio Secretary of State. The filing fee is $99, and the process can be completed online, by mail, or in person.
Required Information for Articles of Organization
– Name of Limited Liability Company: Must include “Limited Liability Company,” “Limited,” “L.L.C.,” “LLC,” “Ltd.,” or “Ltd”.
– Effective Date (optional)
– Period of Existence (optional)
– Purpose (optional)
– Original Appointment of Statutory Agent
– Signature
– By (if applicable)
– Print Name
Annual Report Requirement:
Ohio LLCs and corporations are not required to file annual reports. This exemption is a significant benefit, simplifying the ongoing maintenance of your business. However, you will need to ensure you file your business taxes each year to remain in good standing.
Ohio Business Taxes:
Ohio Commercial Activity Tax (CAT)
For company registration in Ohio, the Ohio CAT is imposed on gross receipts from business activities. Companies with over $1 million in gross receipts must file quarterly, while those with lower receipts file annually.
Ohio Individual Income Tax
The individual income tax rate is important for LLCs since the income passes through to the members. The marginal rates for 2019 are as follows:
– 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%
Filing Requirements
For the CAT, annual filers submit the CAT 12 form, and quarterly filers use the CAT Q form. Single-member LLCs file Schedule C with their individual tax return, while multi-member LLCs submit Form 1065 along with Schedule K-1.
Choosing Between an LLC and a Corporation for Your Ohio Business:
Deciding between an LLC and a corporation for your company registration in Ohio depends on various factors, including the size of your business, your need for investor funding, the level of maintenance you can manage, and your preferred tax structure.
An Ohio LLC is ideal for small to medium-sized businesses due to its simplicity in formation and maintenance, flexibility in management, and strong liability protection. If you do not prioritize attracting investors and prefer lower taxes and maintenance costs, an LLC is the best choice.
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Conversely, company registration in Ohio is suitable if you plan to grow your business significantly and seek investor funds. Corporations offer substantial benefits in terms of prestige and investor appeal but come with higher maintenance and a more complex tax structure.
Regardless of your choice, Ohio offers a business-friendly environment with no annual report requirements and the absence of a corporation franchise tax, making it an attractive state for company registration.
By understanding the unique aspects of LLCs and company registration in Ohio, you can make a well-informed decision that best suits your business goals and operational needs. If you need assistance, consider hiring a professional service like Active Filings to streamline the incorporation process and ensure your company registration in Ohio is handled efficiently and accurately.
