Converting Your Ohio Sole Proprietorship to an LLC in 2024

As a small business owner in Ohio, you may have started your business as a sole proprietorship due to its simplicity and low initial costs. However, as your business grows, you may want to start an LLC in Ohio, which is more suitable for your needs. Converting your Ohio sole proprietorship to an LLC can protect your assets and optimize your business’s growth potential.

In this comprehensive guide, Webinarcare Editorial Team will walk you through the step-by-step process of Converting your Ohio Sole Proprietorship to an LLC, enabling you to make an informed decision for your business.

How to Convert your Ohio Sole Proprietorship to an LLC

On this page, you’ll learn about the following:

What is a Sole Proprietorship and Limited Liability Company?
Steps on Converting Ohio Sole Proprietorship to an LLC
Ongoing Compliance For Ohio LLCs
Benefits of Converting Ohio Sole Proprietorship to an LLC
FAQs

What is a Sole Proprietorship and Limited Liability Company?

A sole proprietorship is the simplest and most common form of business ownership, where a single individual owns and operates the entire business. A sole proprietorship has no legal distinction between the owner and the business, meaning the owner is responsible for all the business’s debts, liabilities, and obligations.

On the other hand, a Limited Liability Company (LLC) is a legal business structure that combines the limited liability protection of a corporation with the pass-through taxation of a sole proprietorship or partnership. This means the owners, known as members, are not personally responsible for the company’s debts and liabilities. The company’s profits and losses are reported on the members’ tax returns. We reviewed some of the Best LLC Services and provided features as an add-on with their packages for you to check out.

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Having a sole properietorship had given you freedom and comfortability, but, starting an LLC in Ohio has a lot to offer, which is why it is a highly recommended business structure. It is suggested that you speak with a legal professional first before you begin coverting your sole proprietorship to an LLC. They will understand what’s best for you and your company.
– WEBINARCARE EDITORIAL TEAM

Steps on Converting Ohio Sole Proprietorship to an LLC

To convert Ohio sole proprietorship to an LLC, you must follow the guidelines that include choosing a name for your LLC, appointing a Statutory Agent, preparing for the Articles of Organization, creating an Operating Agreement, obtaining an EIN, opening a business bank account, registering for state tax and licenses, and lastly, informing clients and vendors of conversation.

Step 1: Choose A Name For Your LLC

The first step in converting your sole proprietorship to an LLC is selecting a unique and distinguishable name for your new entity. In Ohio, there are specific naming requirements and restrictions that you must adhere to when choosing your LLC’s name:

The name must include “Limited Liability Company,” “LLC,” or “LLC.“
The name cannot include words or phrases that imply the company is engaged in activities it is not authorized to conduct.
The name must be distinct from other registered businesses in Ohio.

In Ohio, if you do not wish to file your LLC right away but want to hold the name that you have decided on, then you can reserve your LLC name for some time. You must file a name reservation application in the Ohio Secretary of State to keep the name.

You can register your business under a different legal name if your preferred name isn’t available. Once you have chosen a name, you can submit an application for a DBA (doing business as). In this manner, you can choose any name you desire for your business. A DBA allows a company to operate under the name of the person or entity who owns it. If you have decided to file for Ohio DBA, you can file it in two methods, by mail, and in person. However, before filing a DBA, you should know that you need to renew your DBA for up to five years, which costs varies by county.

You can check the availability of your desired business name by searching the Ohio Secretary of State Business Search‘s website.

Step 2: Appoint a Statutory Agent

In Ohio, all LLCs are required to appoint a Statutory Agent. Statutory Agent is a person or entity responsible for receiving and forwarding legal and tax documents on behalf of your Ohio LLC, such as service of process, Ohio Biennial Report, and state tax notifications. Your Statutory Agent must have a physical address in Ohio and be available during regular business hours. In Ohio, the cost of Statutory Agent usually ranges from $50 – $150.

When selecting a Statutory Agent, consider their reliability, knowledge of state requirements, and ability to manage sensitive legal documents. You can serve as your own Statutory Agent, appoint another individual, or hire the Best Registered Agent Service.

Step 3: Prepare and File the Ohio Articles of Organization

To officially form your Ohio LLC, you must prepare and file Ohio Articles of Organization with the Ohio Secretary of State. The Articles of Organization is a legal document that outlines essential information about your Ohio LLC, including:

The LLC’s name
The Statutory Agent’s name and address
The LLC’s purpose
The LLC’s duration (perpetual or for a specific term)
The names and addresses of the initial members or managers

In Ohio, the filing fee for the Articles of Organization is $99. You can submit the document online through the Ohio Secretary of State’s website or by mail. Processing times may vary, so check the website for current information.

Step 4: Create an Operating Agreement

Although not legally required, Ohio Operating Agreement is a crucial document that outlines the structure, management, and financial arrangements of your Ohio LLC. The operating agreement should include the following:

The roles and responsibilities of members and managers.
The process for admitting or removing members.
The allocation of profits and losses among members.
The procedure for making major decisions.
The process for dissolving the LLC.

Having a written Ohio operating agreement can help prevent disputes and ensure a smooth operation of your LLC. It is advisable to work with Ohio Business Attorney to draft an operating agreement that meets the specific needs of your business and complies with Ohio laws.

Step 5: Obtain an Employer Identification Number (EIN)

An Employer Identification Number (EIN) in Ohio, or Federal Tax Identification Number, is a unique nine-digit number issued by the Internal Revenue Service (IRS) to identify your business for tax purposes. With an EIN, you can open a business bank account, file tax returns, and hire employees.

To obtain an EIN for your Ohio LLC, you can apply online on the IRS website, by mail, or by fax. The online application process is the fastest and most convenient method, as you will receive your EIN immediately upon completing the application. There is no fee to obtain an EIN.

The application of an EIN in Ohio can be through the following:

Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

Recommended: Professional services have the EIN included in their LLC formation package. We recommend using –
LegalZoom – ($0 + State Fee for LLC formation)

Step 6: Opening of Ohio Business Bank Account

When converting your sole proprietorship to an LLC, separating your personal and business finances is essential by opening a dedicated business bank account. Ohio business bank account helps maintain limited liability protection and makes managing your business’s finances and taxes easier.

To open a business bank account in Ohio, you will need the following documentation:

Your LLC’s Certificate of Formation
Your LLC’s EIN
Your LLC’s operating agreement (if applicable)
A resolution authorizing the opening of the account (if required by the bank)

You can check out the Best Banks in Ohio, which offers the best fees, services, and convenience for your business needs.

Step 7: Register for Ohio Taxes and Licenses

As an LLC in Ohio, your business may be subject to various state taxes and licenses, depending on the nature of your operations. Common taxes and licenses include:

Sales Tax: If your LLC sells taxable goods or services, you must register for Ohio sales tax permit and collect sales tax from your customers.
Employer Taxes: If your LLC has employees, you may be required to register for Ohio unemployment insurance and workers’ compensation coverage.
Business License: Ohio Business License is a legal document granted by a state government body that permits you to conduct business within the area under its jurisdiction. The price of business licenses and permits in Ohio ranges from $50 – $300.

To ensure you comply with all applicable Ohio tax and licensing requirements, you can check out the Ohio Department of Taxation for more information.

Step 8: Inform Clients and Vendors of the Conversion

After converting your Ohio sole proprietorship to an LLC, you must inform your clients, vendors, and other business contacts of the change. Update your contracts, invoices, and marketing materials with your new LLC name, and communicate the transition to ensure a smooth and professional process.

Ongoing Compliance For Ohio LLCs

As an LLC in Ohio, you are subject to ongoing compliance and reporting requirements, including:

Filing Biennial Report with the Ohio Secretary of State and pay the associated fee and which you can pay every 2 years.
Maintaining accurate and up-to-date records of your Ohio LLC’s finances, meetings, and decisions. You can manage your finances using spreadsheets, accounting software, or becoming a CPA in Ohio.
Adhering to any industry-specific licensing and regulatory requirements.

Benefits of Converting Ohio Sole Proprietorship to an LLC

In converting Ohio Sole Proprietorship, there are benefits that you should consider. Here are the benefits you must know before converting your sole proprietorship:

Limited Liability Protection

Converting a sole proprietorship to an LLC provides limited liability protection for the business owner. This means that the owner’s assets (such as their home or car) are separate from the business assets and are protected from being seized to pay off business debts or in case of a lawsuit.

Credibility and Professionalism

Ohio LLC can help improve the credibility and professionalism of the business. Many customers and suppliers prefer dealing with an LLC, which shows commitment and stability.

Tax Flexibility

With Ohio LLC, you can choose how your business will be taxed. It can be taxed as a sole proprietorship, a partnership, or a corporation. This allows you to choose the tax structure that best fits your business and may result in potential tax savings.

Easier Access to Funding

Ohio LLC may have an easier time obtaining funding from banks and investors than a sole proprietorship. Many lenders and investors prefer to work with an LLC, as it demonstrates a commitment to the business and provides legal protection.

Ownership and Management Flexibility

Ohio LLC allows you to have multiple owners (called members) and to divide ownership and management responsibilities among them. This can make growing your business easier or bring in new partners.

Enhanced Privacy

In some states, such as Ohio, an LLC can offer more privacy than a sole proprietorship. This is because the business owner’s personal information may not be as public as it would be with a sole proprietorship.

Easier Transfer of Ownership

With Ohio LLC, transferring business ownership to another person or entity is generally easier. This can be beneficial if you decide to sell your business, bring on new partners, or plan for succession.

Continuity of Existence

Unlike a sole proprietorship, which ceases to exist upon the death or incapacity of the owner, Ohio LLC can continue to operate even if the owner passes away or becomes incapacitated. This provides stability and continuity for the business and its employees.

Compliance with Ohio Requirements

Some states require certain types of businesses, such as those in the professional services industry, to operate as Ohio LLC or another corporate entity. Converting your sole proprietorship to an LLC in Ohio ensures that your business complies with these regulations and avoids potential legal issues.

Access to Additional Benefits

Ohio LLC may be eligible for additional benefits, such as state-specific tax incentives or credits, not available to sole proprietorships. These benefits can help reduce your tax burden and support the growth of your business.

In summary, converting a sole proprietorship to an LLC in Ohio can provide significant benefits, including limited liability protection, tax flexibility, increased credibility, and easier access to funding. It’s essential to carefully consider these advantages and consult with a legal or tax professional before deciding to convert your business structure.

FAQs

Why should I convert my Ohio sole proprietorship to an LLC?

By converting to an Ohio LLC, you gain limited liability protection for your personal assets.

Can I still be the sole owner of an Ohio LLC?

Yes, Ohio LLCs can have a single member or multiple members.

What are the advantages of an Ohio LLC over a sole proprietorship?

Ohio LLCs offer limited liability protection and potential tax advantages.

How much does it cost to convert to an Ohio LLC?

The filing fee to convert a sole proprietorship to an Ohio LLC is $125.

Will I need a new taxation ID number for my Ohio LLC?

Yes, you will need to apply for a new EIN for your Ohio LLC.

Can I use my personal name for my Ohio LLC?

You can use your personal name as long as it is available for use in Ohio.

Do I need a lawyer to convert to an Ohio LLC?

You do not need a lawyer, but it can be helpful to consult with an attorney.

How do I choose a name for my Ohio LLC?

Name availability can be searched on the Ohio Secretary of State’s website.

How long does it take to convert to an Ohio LLC?

Typically, it takes around 3-5 business days for the conversion to be processed.

Do I need to file any paperwork when converting to an Ohio LLC?

You will need to file Articles of Organization with the Ohio Secretary of State’s office.

What is the process for converting a sole proprietorship to an Ohio LLC?

The process involves filing Articles of Organization and obtaining a new EIN number.

Are Ohio LLCs required to have annual meetings?

Ohio LLCs are not required to hold annual meetings.

Are Ohio LLCs required to have a registered agent?

Yes, Ohio LLCs must have a registered agent with an Ohio address.

What type of Ohio business entity is best for me?

The answer to this question varies depending on your individual circumstances and goals.

Can I change my Ohio LLC’s operating agreement after formation?

Yes, the operating agreement can be amended after formation.

Can I use an online service to convert to an Ohio LLC?

Yes, online services can assist you with the conversion process.

Do Ohio LLCs need a business license?

State and local regulations regarding business licenses vary, so it’s important to research local requirements.

Can I dissolve an Ohio LLC at any time?

Yes, an Ohio LLC can be dissolved voluntarily by its members at any time.

Do I need to publish notice of my Ohio LLC formation in a newspaper?

No, Ohio does not require LLCs to publish a notice of formation in a newspaper.

What is the liability protection offered by an Ohio LLC?

Limited liability protection allows the owners of the LLC to avoid personal liability for business debts and legal claims.

Can my Ohio LLC have a foreign owner?

Yes, Ohio LLCs can have foreign owners as long as they have an EIN and an Ohio registered agent.

What tax forms do I need to file for my Ohio LLC?

Ohio LLCs need to file an Ohio IT-4708 form and potentially other state and federal tax forms.

Do Ohio LLCs pay state income tax?

Ohio LLCs are subject to state income tax on their profits.

Are Ohio LLCs required to have bylaws?

Bylaws are not necessary for Ohio LLCs but an operating agreement is required.

Do I need permission from my sole proprietorship’s creditors to convert to an Ohio LLC?

No, you do not need permission from creditors to convert to an Ohio LLC, but your personal guarantees may still be in place for existing debt.

Can my Ohio LLC name be used by another business in another state?

Other states do not automatically reserve an Ohio LLC’s name, so there is a risk of another business using the name.

Can I operate multiple businesses under a single Ohio LLC?

Yes, Ohio LLCs allow for the joining of multiple businesses and multiple related activities.

What are the benefits of converting an Ohio sole proprietorship to an LLC?

Converting to an LLC offers owners limited liability protection, tax flexibility, and increased credibility with customers and creditors.

How do I convert my Ohio sole proprietorship to an LLC?

You must file Articles of Organization with the Ohio Secretary of State and follow all necessary state and federal tax requirements.

Can I continue to operate my business during the conversion process?

Yes, you can continue to operate your business while completing the conversion process.

Is there a deadline for converting to an LLC in Ohio?

No, there is no deadline for converting to an LLC in Ohio.

Do I need an attorney to convert to an LLC in Ohio?

While not required, consulting an attorney can help ensure your conversion is all-encompassing and compliant with state laws.

How much does it cost to convert to an LLC in Ohio?

The Ohio Secretary of State charges a $99 filing fee for Articles of Organization, but additional costs may be required depending on legal and accounting assistance needed.

Can I choose any name for my Ohio LLC?

No, your choice of LLC name must comply with Ohio’s business and trademark laws.

Do I need an EIN for my Ohio LLC?

If you have employees or plan on filing certain tax returns, an EIN is required. Otherwise, it’s optional.

How quickly can I complete the conversion process in Ohio?

It usually takes about a week for the Secretary of State to process your Articles of Organization after a complete application file submission.

What taxes does an Ohio LLC have to pay?

Depending on the taxing structure of your original sole proprietorship, your Ohio LLC may be responsible for federal, state, and local taxes including sales and property tax.

Can an Ohio LLC choose to be taxed as an S Corporation?

Yes, as long as all necessary requirements are met to elect S-Corp treatment with the IRS.

Who can serve as the Registered Agent for an Ohio LLC?

A registered agent can be any entity or person who has a physical address in Ohio and is available during normal business hours should legal documents require delivery.

Can an Ohio LLC be owned by a foreign individual or entity?

Yes, your LLC may have foreign investors or stakeholders, as long as they meet all legal requirements.

Is an Ohio LLC required to have an operating agreement?

No, but it’s highly recommended as it governs the overall organization and management of your company.

How many people can own an Ohio LLC?

There is no limit to the number of people owning an Ohio LLC or conducting business under its name.

Can an Ohio LLC also conduct business in other states?

Yes, you can register your Ohio LLC as a foreign entity in other states to carry your business, but extra requirements are applied.

Can an Ohio LLC fulfill service of process on its own behalf?

No, Ohio LLC’s service of process requirements require appointment of a registered agent.

Do Ohio LLC owners need liability insurance?

LLC’s in Ohio are highly encouraged to purchase liability insurance to protect against various complex business lawsuits.

Is business income taxed directly for an Ohio LLC?

No, the income does not pass through directly; it is treated either as a partnership or sole proprietorship.

What are the federal tax requirements when converting to an LLC in Ohio?

When converting a sole proprietorship to an LLC, usually there is no shuffling required for tax purposes for single-member LLCs .

Does Ohio offer any state business tax incentives?

Ohio offers tax incentives and technical assistance to help businesses grow, retain job creation, or improve productivity.

What will it cost to maintain an Ohio LLC annually?

For the State of Ohio, there is an annual registration of $125.

If I have employees in Ohio, are there specific withholding and insurance requirements?

Yes, requirements vary and can prove complex depending on the number of employees and wages paid.

Will I need to obtain a new EIN after converting my Ohio business to an LLC?

Yes – the IRS treats the formation of LLC as a new entity, requiring an updated application for EIN.

What documentation is required when converting to an LLC in Ohio?

Certificate of Tax Compliance if owned entity will have paid employees; however, only Articles of Organization need to be filed with the Ohio Secretary of State.

Will an Ohio LLC be responsible for sales taxes?

ohio LLCs may be responsible for collecting and paying the State of Ohio all required sales taxes if necessary depending on the base and business model.

Is there is the requirement to conduct annual meetings with a registered agent?

Ohio state law does not require an LLC to hold annual meetings with registered agents.

How long does the approval process usually take from submission to approval of Articles of Organization for an Ohio LLC?

The normal filing times vary based on Secretary of State workflow with a submission confirmation of almost immediate receipt.

Does a Registered Agent need to sign additional documents indicating their agreement to the position?

No, in Ohio only a signing agent during the original filing process is necessary.

Conclusion

Converting your Ohio sole proprietorship to an LLC is a significant decision that can provide valuable benefits, such as limited liability protection, tax advantages, and enhanced credibility. Following the steps outlined in this guide and consulting with legal and financial professionals, you can successfully navigate the conversion process and position your business for future growth and success.