Choosing a Limited Liability Company is a good choice for many business owners because an LLC is typically less complicated than a corporation, it’s faster to get one, and it provides protection for your personal assets. This guide will provide you with all the essentials so you’ll learn about Ohio’s business environment, the steps to start an LLC in the state, and an explanation of Ohio’s formation times.
Discovering Ohio
Ohio shares borders with Michigan, Lake Erie, West Virginia, Pennsylvania, Kentucky and Indiana. It’s primary geography is mostly plains with fertile lands, but there are beaches along the shore of Lake Erie, sand dunes, clay, hills, valleys, and caves, not to mention the great Ohio River.
The state grows so much corn that it’s actually considered the start of the corn belt. Its fertile soil is one of its biggest natural resources. It’s also well-known for its production of coal, natural gas, and halite or rock salt, which comes from beneath Lake Erie. It produces around 5 million tons of halite per year.
Economic Overview of Ohio
Ohio has a Gross State Product (GSP) of $642 billion, and it experienced a growth rate of 22.9k% from 2018-2023. The top-performing industries in the state according to revenue are Property, Casualty & Direct Insurance, Hospitals, Commercial Banking, Drug, Cosmetic & Toiletry Wholesaling, and Health & Medical Insurance. The biggest employers in the state are Walmart Inc., the Cleveland Clinic Foundation, The Kroger Co., Amazon.Com, Inc., and Ohio State University. And the sectors that contribute to Ohio’s Gross Domestic Product (GDP) the most are Manufacturing, Finance & Insurance, Real Estate & Rental & Leasing, Healthcare & Social Assistance, and Professional, Scientific & Technical Services.
Business Environment in Ohio
Usnews.com has given Ohio a #29 rating for Business Environment, #42 for Employment, #34 for Growth, #16 for Affordability, and #35 for Economic Opportunity.
The cost of living index in the state is 92.5, while the national number is 100, the median household income is $62,262 (national average is $69,717) and the poverty rate is 13.4% (national average is 12.8%).
There are some Fortune 500 companies headquartered in the state, like Kroger, Cardinal Health, Marathon Petroleum, Nationwide and Procter & Gamble.
State-Specific Regulations and Incentives for Forming an LLC in Ohio
Ohio provides numerous incentives and programs for business owners who choose to start a Limited Liability Company in the state.
- Job Creation Tax Credit (JCTC): This is a tax credit which is both refundable and performance-based, and is granted based on a percentage of the payroll created and can be used for the business’s commercial activity tax liability. Companies are required to create 10 or more new jobs that pay an hourly wage of 150% or more of the federal minimum wage, as well as an annual payroll of at least $660,000. The Ohio Tax Credit Authority is required to approve the companies before they start hiring. There’s a term increase from 15-30 years for megaprojects that provide wages of 300% of federal minimum wage, make an investment of $1 billion in fixed investments, or create at least $75 million in new payroll in the state, and are located on a site that requires “robust” utility service as well as a technically skilled workforce.
- JobsOhio Economic Development Grant: This is a grant that’s available for manufacturing, high technology, R&D, corporate headquarters, and distribution projects involving significant capital investments and creation of jobs. The funds can be applied to equipment and machinery purchases, new construction and acquisition costs, improvements to infrastructure, and other investments to fixed assets.
- Ohio Opportunity Zones Tax Credit: This program encourages taxpayers to make investments in economically distressed areas. The federal government designates the Opportunity zones. The taxpayer makes the investment directly to the Ohio Qualified Opportunity Fund, and it will then be invested in a qualified Ohio property. The taxpayer then qualifies for a tax credit for 10% of the investment they made into the Ohio Qualified Opportunity Fund. You must make multiple investments until the credit reaches $2 million.
- Personal Property Tax Exemption: All business personal property in Ohio is considered exempt from property taxes.
- Sales Tax Exemption: The following are exempt from sales taxes: pollution control equipment, material handling equipment utilized by distribution and warehouse facilities, equipment used during research and development, and equipment and machinery used in manufacturing.
- The Data Center Sales Tax Abatement: Operators of data centers could qualify for a full or partial sales tax exemption to purchase equipment if they meet the investment and payroll requirements.
- Ohio Enterprise Zone Program: This program comes from county and municipal governments in the state and offers both real and personal property tax exemptions. Incentives are decided on the local level. An agreement on the incentive must be reached before the project can begin. Projects are required to be in an area designated by local government as an enterprise zone, and must be a new investment. The term increase for megaprojects goes from 15 years to 30 years.
- Ohio Community Reinvestment Area (CRA): This is a program that can provide real property tax exemptions if property investors either construct new buildings or renovate existing ones. Local communities and governments decide which projects the CRA will support. Some of the projects supported include industrial, commercial and residential projects. Projects are required to be in certain regions that the local government picks. And megaprojects get term increases from 15 to 30 years.
- JobsOhio Research & Development (R&D) Center Grant: This program provides grants on a discretionary basis to companies that create new R&D centers in the state. These centers are required to develop and commercialize cutting edge technologies, or products in alignment with the targeted industries designated by JobOhio. The grant can supply funding to cover some of the costs generated by the new center over 5 years. The centers are required to create at least 5 new jobs, promote technology-based products and services, attract new tech services to the state, and make capital investments of at least $3 million. Applicants must have a corporation that’s been operating for at least 5 years and an annual revenue exceeding $10 million.
- JobsOhio Revitalization Program: This program provides grants and loans to companies that wish to redevelop underutilized areas in Ohio. The companies are required to create at least 20 jobs that pay the county’s average wage or higher. Grants range somewhere between $500,000- $5 million, and cover between 20%-75% of costs.
- JobsOhio Growth Fund Loan: This is a loan that’s designed to provide enough capital to fund expansion projects. Companies that are considered for the loan are in growth, established, or expansion stages, and have produced revenue with a strong business plan. There’s a fixed business rate at closing, which is based on project risk, as well as other factors. For real estate, the term is up to 15 years, and up to 10 years for equipment and machinery. There’s no job creation requirement for this particular program.
Pros and Cons of Establishing an LLC in Ohio
Forming an LLC in Ohio has both good and bad aspects.
The unemployment rate in Ohio is 3.6% currently, which is close to the national average of 3.7%. While Usnews.com gives the state a poor rating for employment because of that, a high unemployment rate can be good for businesses. You won’t struggle to find competent applicants, and you won’t have to compete as hard with other companies who offer comprehensive benefits packages that you may not be able to afford yourself.
It’s affordable to file for an LLC in Ohio. It’s under $100, regardless of whether you choose to start a domestic or foreign LLC. It ordinarily costs a lot more to file a foreign LLC than a domestic LLC, but Ohio really turns that notion on its head.
Ohio has some of the tech-friendliest cities in the country. And it’s developed funding and incentive programs for tech start-ups.
The bad aspects are worth noting, as well.
There isn’t much in the way of industry diversity in the state. This is important because it means that the business environment doesn’t support many industries. It also means that small businesses rely on the few industries that are big in the state, and if those industries take a hit, then the small businesses are the ones that will fail first.
It’s hard to grow your business or scale up. As we’ve already discussed, there are several big companies with headquarters in Ohio, so that means your business will compete with some of the biggest companies in the country for employees. And it’s understandably hard to attract employees to smaller businesses when they could have massive benefits packages and work for huge companies.
Procedure of Establishing an LLC in Ohio
To fully understand formation times, you must first understand the formation process. In this section we’ll provide you with a comprehensive guide so you’ll have all the information you need to form your own LLC in Ohio.
Necessary Documentation for Filing an LLC in Ohio
Saying that filing for an LLC requires a lot of paperwork and applications is an understatement. Here are the basic documents you’ll need to file an LLC in Ohio.
- Articles of Organization: As your application for an LLC and your LLC’s introduction to the Secretary of State, the Articles of Organization is the most important formation document you’ll pick up. It requires loads of information about your business, like its official business name, purpose, effective date, duration, business address, registered agent, contact information for each LLC member, and a tick box for whether your LLC is member managed or manager managed.
- Operating Agreement: An Operating Agreement isn’t a requirement from the Secretary of State, but the state government as well as most business consultants and advisors strongly recommend that new LLCs create one. It’s both detailed instructions for how your business will run and an agreement between LLC members that describes how they will behave, be paid, and more. It will start out with most of the information outlined in your Articles of Organization, like your business name, address, registered agent, contact information for each LLC member, etc. And then it should go on to describe the roles and contributions of LLC members, how profits and losses will be split up amongst them, what should happen if an LLC member dies, how to add or remove members, and instructions for managers, like meeting schedules and voting rights.
- Name Reservation Application: Your business name must meet several requirements, which I’ll go into detail about in the next section. But once you find one that’s feasible, you must submit a Name Registration form with the Ohio Secretary of State, which comes with a filing fee of $39.
- Employer Identification Number (EIN): Your business needs an Employer Identification Number or EIN, even if it doesn’t hire employees because this number is unique to your business and identifies it to government agencies, like the IRS. It also allows you to fill out tax forms without using your Social Security Number, open a business bank account, and yes, hire employees. You can apply for an EIN online from the IRS and receive it immediately.
- Tax Registrations: LLCs in Ohio aren’t required to file annual reports, but they do have to pay a commercial activity tax if they earn $150,000 in profits. For that, registering to collect sales taxes and more, you’ll need to register with the Department of Taxation.
- Business Licenses: One of the most important things that you’ll need is a state business license. But you’ll also need licenses, permits, and may be required to purchase a specific type of insurance from county and city governments. For state licenses, you can go to the Ohio.gov website, and for city and county licenses you can check with clerks in your area.
Legal Requirements for Starting an LLC in Ohio
Here’s our step-by-step guide that will help you start a Limited Liability Company in 5 simple steps.
- Pick Up an Articles of Organization Form: Your Articles of Organization form is considered the primary formation document in Ohio, so it’s important. It’s available through the Ohio Secretary of State.
- Select a Usable Business Name: There are lots of legal requirements involving business names. Your business name can’t sound too much like another business name that’s already being used in the state. To discover if the business name you’ve chosen is available, head to the Secretary of State’s website and search the business name database. Since your business is an LLC, it needs to contain suffixes to indicate that, like “LLC”, “L.L.C.”, “Ltd.” or “Co.”. Once you’ve found a business name you can use and ensure that it meets all of the requirements, then you must submit a Name Registration form with the Secretary of State.
- Designate a Registered Agent: Having a registered agent or statutory agent is a legal requirement of all LLCs in Ohio. It’s a person or business that receives official correspondence from government agencies and service of process for your business at their address. You’re allowed to designate anyone who meets all of the requirements for registered agents (such as having a physical address in the state), but many business owners choose to hire a professional registered agent service because of the vital role registered agents play in maintaining your company’s good standing.
- Carefully Choose Your Business Address: Your business address may seem simple and straightforward, but it can be a complicated issue. Business addresses are listed on the public record because it allows the Secretary of State, process servers, other businesses and customers to contact and find your business. In light of this, most business owners agree that it’s not the best idea to use your home address as your business address because it seems creepy for literally anyone to access your home address. Instead, you could research a virtual address in your area.
- Sign and File Your Articles of Organization: Make sure that you’ve entered all of the information requested, that it’s correct, and that you’ve got the proper number of copies. Once you’re satisfied that everything’s correct, you can sign and submit your Articles of Organization to the Secretary of State. Or, to protect your privacy, save yourself some effort and provide some peace of mind, you could hire an LLC formation service.
Time Frame for Establishing an LLC in Ohio
Here is how long it takes to get an LLC in Ohio, and all of the basics of formation time frames.
How Long Does the Initial Paperwork Take in the State of Ohio?
First, you need to know that approval times include the total amount of time it takes between submitting your paperwork and actually getting your LLC approved, and it does include processing time. Approval time to file by mail is 1 day, and it’s 1 business day to file online.
Processing Times in the State of Ohio
Processing times for mail filing, as well as online filing are 1 business day.
Common Delays in the LLC Formation Process in Ohio
There are a few things that could postpone your LLC formation, and some of them are completely out of your hands.
- Problems at the Secretary of State’s Office: If servers go down, the internet goes out or anything like that, then it will put off your formation process until the technical issues are resolved.
- Holidays and Weekends: In Ohio, LLC formation filings are only processed on business days, which don’t count weekends or holidays. So if you file on or right before one of these, it will cause a delay in your formation.
- High Volumes: During both the end and the beginning of the year, the Secretary of State receives mountains of filings. It takes a bit for workers to go through them all, and it may take longer for them to get to yours.
Expedited Processing for LLC Formation in Ohio
“Expedited” to happen more quickly than usual, which means that it can speed up your formation process considerably. Here’s a look at expedited processing in Ohio.
What Are the Expedited Options Available?
There are three expedited LLC options in Ohio for both online and mail filings: 2-day, next day, and same-day processing.
Additional Costs for Expedited Services in Ohio?
You should know that expedited processing fees are a fee you’re required to pay on top of the filing fee. So, the filing fee for the Articles of Organization is $99, and the additional fees for expedited processing is added to that.
2-day: $100 extra
Next-day: $200
Same-day: $300
Comparing LLC Formation Time Frame in Ohio with Other States
It’s important to take a look at the formation times of other states to find out if your state is faster, slower than average, or typical.
Brief Comparison with Key States
Let’s go over Ohio’s formation times again first. Processing times both by mail and online are 1 business day, and there are same-day expedited processing options available.
You won’t find mail filing options that are faster. However, Alabama, Alaska, Colorado, Kansas, Kentucky, Minnesota, Missouri, New York, South Dakota, Tennessee, Wisconsin, and Wyoming all have immediate processing for online filings. And there’s actually expedited processing options that are faster than same-day. In Delaware, Michigan, Montana, Nevada, and West Virginia, there are 1-hour options, New York has a 2 hour option, Louisiana has a 2-4 hour option, and California has a 4 hour option.
Numerous states don’t offer expedited processing. In Maryland, expedited processing takes 7 days. Online processing in Texas takes 13-15 days, it’s 14-16 days in Arizona, and 12-14 days in Washington. There are loads of states with slower mail processing. It takes 5-8 weeks to file by mail in Maryland, 6 weeks in Pennsylvania, 5-6 weeks in Washington, and an incredible 8 months in New York.
Why is Ohio a Favorable Place for Forming an LLC?
Ohio is a good place to start a Limited Liability Company because it has a high unemployment rate that means businesses don’t have to compete as hard as they would in other states to fill their positions, it costs less than $100 to file for an LLC in Ohio which is remarkably cheap, and the state is very tech start-up friendly.
