HOW TO FORM A BUSINESS IN OHIO
A GUIDE TO OHIO BUSINESS INCORPORATION AND START UP, INCLUDING Business Structuring, OBTAINING A FEDERAL TAX ID NUMBER (FEIN/EIN), S-Corp elections, and Payroll.
First, DETERMINE WHAT TYPE OF BUSINESS STRUCTURE IS NEEDED
There are meaningful decisions to make when choosing what type of corporate structure to form (Corporation, Partnership, LLC). A lot depends on what type of activity you will be participating in, how many owners there will be, and how much profit (or loss) you expect to reasonably have in the coming year. Every entity type has differences in the way income is taxed and how profits and losses can be allocated.
LLC (SINGLE MEMBER SMLLC OR MULTIPLE MEMBER MMLLC)
An LLC is a good choice of entity for self-employed individuals, real estate rental activities, or businesses that need flexibility when it comes to ownership and allocations of profit/loss. LLC's are taxed as a disregarded entity (sole proprietor) when there is only one member/owner and as a partnership when there are multiple members. Income from a disregarded entity is reported directly on the owner's personal income tax form on Schedule C. Income from a partnership is reported to the owners via form K-1, which is a tax form that shows each owner's share of income or loss and other items.
An LLC (both SMLLC's and MMLLC's) or a Corporation can elect to be taxed as a small business corporation (S-Corporation). S-Corporations are a good entities for self-employed individuals or businesses with one or multiple owners. There are certain restrictions on who can elect S-Corp status. S-Corporation income is reported to ownership via form K-1 and is taxed on an individual level.
FIND NAME AVAILABILITY AND FILE INCORPORATION DOCUMENTS - OHIO SECRETARY OF STATE
The name you choose for your business must be distinguishable from other names already on file with Ohio or it will send back your articles. You can check for name availability and download the forms you need from the Ohio Secretary of State. The most popular entity choices are domestic limited liability company (LLC) or domestic for-profit corporation.
You will need to fill out the forms for the entity you choose, sign and date where indicated and mail (or drop off) along with a check to the Ohio Secretary of State. We do not recommend paying the extra money to expedite your filing as the Secretary has been very fast in processing articles. You can check with the OHio Secretary of State website for your acceptance and Ohio charter number, usually 7-10 days after delivering your forms. We can assist you with all the rules and regulations to make sure your filing goes through the first time.
OBTAIN A FEDERAL TAX IDENTIFICATION NUMBER
You can file online for a your federal tax ID Number (EIN) by filing federal form SS-4, Application for Employer Identification Number. You will need a federal ID number to open your corporate checking account. This number is to the business what a social security number is to a person. You will report this number on your tax forms, on any payroll or 1099's that you issue, or on any W-9 that is requested from you.
If you are a corporation and wish to make the Small Business Election (S-Corp Election) you will need to timely file federal form 2553. This form must be signed by an authorized corporate officer and all shareholders. You will receive your notice of acceptance of S-Corp election from the IRS 4-8 weeks after filing. If you do not wish to make the small business election your business entity will be taxed at it's default tax classification (SMLLC - Disregarded Entity, MMLLC - Partnership, For-Profit Corporation - C-Corporation).
OPEN A CORPORATE CHECKING ACCOUNT
Find a bank that is convenient for you to open your business checking account. You will use this checking account to deposit all business income and pay out all business expenses. A business expense must be ordinary, necessary, and reasonable in purpose to be deductible as an expense. A business may also have any number of savings accounts, investment accounts, etc. as necessary.
Look for special offers from banks and make them compete for your business. Every bank is looking to start business accounts. Some offer up to $500 free cash to sign up your business.
OBTAIN NECESSARY FORMS FOR PAYROLL, WORKERS COMP, UNEMPLOYMENT, VENDORS LICENSE/SALES TAX, ETC. IF NECESSARY.
If you have employees (including yourself) and/or are involved in product or service sales, you will need to register and file with the appropriate taxing authorities. Doing business in Ohio is easier if you create an Ohio Business Gateway account. Some businesses might not have to deal with these taxing authorities until they hire an employee or start collecting sales tax or are subject to the Ohio Commercial Activity Tax.
Payroll and payroll tax reporting can be complex, even if you only have one employee. Remitting the proper amount of tax, on time, and to each separate taxing authority (Federal, State, Local, Workers' Compensation, Unemployment Tax) can be a burden. Every situation is different, but we do recommend checking out a payroll service to handle the payroll function. We have found that most business owner's time is better spent on higher end functions than those of a payroll clerk. Typical payroll service companies start around $50 per month to process payroll.