How to Convert Ohio Corporation to LLC | The Ultimate Guide

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Convert Ohio Corporation to LLC

When it comes to business structures, corporations and limited liability companies (LLCs) are two of the most popular options in Ohio. Each business structure has advantages and disadvantages, so business owners must choose the best fit for their needs. There may come a time when a corporation realizes that converting to an LLC would be more beneficial. This comprehensive guide will walk you through Converting Ohio Corporation to an LLC, discussing the reasons for conversion, the steps involved, and any potential challenges you may face.

Webinarcare Editorial Team will help you easily understand the conversion process, so you must be guided by all the factors gathered in this article.

How to Convert Ohio Corporation to an LLC

Understanding Corporation and LLC in Ohio

Understanding the differences between corporations and LLCs in Ohio is essential for aspiring business owners and entrepreneurs. Both business structures offer distinct advantages and disadvantages, and comprehending their characteristics is crucial in making informed decisions.

Corporation

A corporation is a legal entity separate from its owners, known as shareholders or stockholders. It provides limited liability protection to its owners, meaning shareholders’ personal assets are typically shielded from company debts or liabilities. Corporations in Ohio have the advantage of being able to issue stock to raise capital, making them an attractive choice for businesses seeking significant investment opportunities. However, corporations also come with additional formalities, such as regular shareholder meetings and extensive record-keeping requirements.

Limited Liability Company (LLC)

A limited liability company (LLC) is a flexible business structure that combines the advantages of both corporations and partnerships. LLCs offer limited liability protection to their owners, called members, shielding their personal assets from business debts or lawsuits. Unlike corporations, LLCs do not require as many formalities as regular meetings or extensive record-keeping. This aspect makes LLCs more suitable for small businesses or entrepreneurs who prefer a less burdensome administrative and compliance structure.

Understanding the distinctions between corporations and LLCs is crucial to determine which structure aligns best with your business goals, resources, and needs in Ohio. By evaluating liability protection, taxation, ownership structure, and operational flexibility, entrepreneurs can make confident decisions when establishing their business entity in Ohio.

It is suggested that you speak with a legal professional before you begin converting your Ohio corporation to an LLC. They’ll understand what’s best for you and your company. To safeguard your personal assets from business debts, you can always start an LLC in Ohio.

– WEBINARCARE EDITORIAL TEAM

How to Convert Ohio Corporation to an LLC

Converting a corporation to an LLC in Ohio involves several steps, which may vary depending on Ohio laws and regulations. Here is an outline of the steps required to convert Ohio corporation to an LLC:

Step 1: Research and Understand the Conversion Process

Before embarking on the conversion process, it’s crucial to research and understands the specific requirements and steps involved in converting a corporation to an LLC in Ohio. Familiarizing yourself with the relevant state laws, regulations, and necessary forms or filings will help ensure a smooth transition. 

The Ohio Secretary of State will often have valuable information about the conversion process, including required forms, fees, and filing procedures. Look for sections related to business entity conversions and corporation dissolution. In converting to an LLC, hiring an LLC Service in Ohio is best since it provides guidance and assistance.

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Step 2: Obtain Shareholder Approval

The second step in converting Ohio corporation to an LLC is obtaining approval from the corporation’s shareholders. This typically involves holding a shareholder meeting and voting on a resolution to approve the conversion. Be sure to review the corporation’s bylaws to ensure that the proper procedures are followed.

Step 3: Prepare and File a Plan of Conversion

Ohio requires that a Plan of Conversion be prepared and filed with the Ohio Secretary of State. This document outlines the terms and conditions of the conversion, including the name and structure of the new LLC, the conversion’s effective date, and any other relevant information. 

In terms of naming your Ohio LLC, you must adhere to the following when choosing your LLC’s name:

  • The name must include “Limited Liability Company,” “LLC,” or “L.L.C.“
  • 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 with 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 Ohio 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 a 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 every five years, which costs varies by county.

Be sure to review Ohio’s specific requirements for a Plan of Conversion, Or you can hire the Best Ohio Statutory Agent Services for easier processing. 

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Step 4: File Articles of Organization for the New Ohio LLC

Along with the Plan of Conversion, you must file the Articles of Organization in Ohio for your new LLC. This document establishes the new LLC that includes information such as the LLC’s name, Statutory Agent, and management structure. 

For your LLC name, you must check the availability of your desired LLC name by searching the Ohio Secretary of State Business Search‘s website.

Regarding your Statutory Agent, he must receive and forward legal and tax documents on behalf of your LLC, such as service of process, state tax notification, and filing Biennial Report. Your Statutory Agent must have a physical address in Ohio and be available during regular business hours. The cost of Statutory Agent in Ohio ranges from $50 – $150.

With all of the information included in the Articles of Organization, you must pay the filing fee of $99, which you can pay with the Ohio Secretary of State.

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Step 5: Prepare the Operating Agreement

While not always required by state law, it’s a good idea to draft an operating agreement for the new Ohio LLC. This document outlines the LLC members’ roles, responsibilities, ownership percentages, and other important operational details.

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

Step 6: Notify Creditors and Other Interested Parties

Inform creditors, vendors, and other interested parties of the Ohio corporation’s conversion to an LLC. This can help ensure a smooth transition and maintain good relationships with those involved in your business.

Step 7: Update Tax Information

After converting to an LLC, you must update your tax information with the Internal Revenue Service (IRS) and the Ohio Department of Taxation. This includes obtaining a new Employer Identification Number (EIN) for the LLC and updating any tax accounts or registrations.

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.

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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, 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.

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

Step 8: Update Licenses and Permits

Depending on the nature of your Ohio business, you may need to update or obtain new licenses and permits for your LLC. Check with the appropriate local, state, and federal agencies to ensure your LLC complies with all necessary regulations.

Reasons for Converting Ohio Corporation to an LLC

When considering the conversion of a corporation to a limited liability company (LLC) in Ohio, it is essential to understand the potential advantages that this change in business structure may provide. Here are some common reasons for converting Ohio corporation to an LLC:

  • Tax Flexibility: One of the primary reasons Ohio business owners opt to convert their corporation to an LLC is the tax benefits. While corporations are subject to double taxation, where the company’s income and the shareholder’s dividends are taxed, LLCs are considered pass-through entities. This means the business’s income passes through to the owners’ personal tax returns, avoiding double taxation.
  • Simplified Management Structure: Another advantage of an LLC over a corporation is its simplified management structure. Ohio Corporations have a more complex structure with shareholders, Three directors, and officers, while an LLC is managed by its members or designated managers. This can make decision-making and operations more straightforward for small businesses.
  • Reduced Administrative Requirements: Ohio LLCs generally have fewer administrative requirements than corporations, such as lower Biennial Report fees and less stringent record-keeping rules. This can save Ohio business owners time and money, allowing them to focus more on growing their businesses.
  • Personal Asset Protection: Both corporations and LLCs offer limited liability protection, meaning the business’s debts and liabilities are separate from the owner’s personal assets. However, some business owners may prefer an LLC’s specific liability protections over a corporation.

Challenges and Considerations

When converting a corporation to an LLC in Ohio, it is essential to consider the potential challenges and implications of the conversion process. Here are some challenges and considerations to keep in mind:

  • Tax Implications: Although converting Ohio corporation to an LLC can offer tax benefits, it’s essential to consider the potential tax implications of the conversion. In some cases, the IRS may treat the conversion as a taxable event, which could result in additional taxes being owed. Consult with a tax professional to understand the tax implications of converting your corporation to an LLC in Ohio.
  • Legal and Financial Advice: Converting Ohio corporation to an LLC can be a complex process, and it’s essential to seek legal and financial advice to ensure that the conversion is done correctly in the business’s best interests.
  • Timing: Converting Ohio corporation to an LLC can take time, particularly if there are regulatory approvals or other requirements to be met. Be prepared for the conversion process to take several weeks or even months to complete.

Benefits of Converting Ohio Corporation to an LLC

Converting a corporation to a limited liability company (LLC) can benefit business owners. These advantages can include:

  • Tax Flexibility: One of the primary benefits of converting Ohio corporation to an LLC is the potential tax advantages. While corporations are subject to double taxation (the company’s income and the shareholder’s dividends are taxed), LLCs are generally considered pass-through entities for tax purposes. This means the business income passes through to the owners’ personal tax returns, avoiding double taxation.
  • Personal Asset Protection: Both corporations and LLCs offer limited liability protection, meaning the business’s debts and liabilities are separate from the owner’s personal assets. However, some business owners may prefer the specific liability protections provided by an LLC over a corporation, depending on the nature of their business and the potential risks involved.
  • Increased Flexibility in Profit Distribution: Unlike Ohio corporations, which typically distribute profits according to the percentage of shares owned, LLCs can offer more flexibility in profit distribution among members. This can be particularly advantageous for businesses with multiple owners who contribute differently to the company’s success.
  • Potential for Easier Transfer of Ownership: Depending on the specific rules and regulations in Ohio, transferring ownership of an LLC may be easier than transferring ownership of a corporation. This is an important consideration for business owners who plan to sell or transfer their business.

While the benefits of converting Ohio corporation to an LLC can be significant, it’s essential to carefully consider the potential challenges and implications of the conversion process.

FAQs

What is the process for converting an Ohio corporation to a limited liability company?
The process involves filing articles of organization with the Ohio Secretary of State and obtaining a new EIN from the IRS.
Is there a fee for converting a corporation to an LLC in Ohio?
Yes, there is a filing fee for filing articles of organization with the Ohio Secretary of State.
Do I need to get new business licenses for my Ohio LLC if I started as a corporation?
The requirements vary depending on your business activities and location, so you should check with the Ohio agency that issues licenses.
Are there any special tax considerations that I need to be aware of when converting to an LLC in Ohio?
There may be tax implications for any assets owned by the corporation that are transferred to the LLC, so you should consult a tax professional.
Can I convert back to a corporation after forming an Ohio LLC?
Yes, you can convert back to a corporation by filing articles of incorporation with the Ohio Secretary of State.
How long does it take to convert an Ohio corporation to an LLC?
The processing time for articles of organization varies, but typically takes a few days to a week.
Do I need to notify my Ohio creditors and shareholders before converting to an LLC?
While it’s not required by law, it’s generally a good idea to notify your creditors and shareholders of the conversion.
Will forming an Ohio LLC affect how I am taxed?
Yes, an Ohio LLC can choose to be taxed as a disregarded entity, partnership, S corporation, or C corporation.
Do I need to update my Ohio business name after converting to an LLC?
In Ohio, you’ll need to include “LLC” or another recognized designation in the name of your LLC.
How are profits distributed in an Ohio LLC?
Ohio LLCs can choose how to distribute profits among their owners, which are called members.
Will I need to draft new company bylaws or operating agreements when converting to an Ohio LLC?
Yes, you’ll need to draft new operating agreements for your LLC that outline ownership, management, and other key details.
Do I need a lawyer to convert my Ohio corporation to an LLC?
Although legal assistance isn’t required, it can be helpful to consult with a lawyer to ensure all legal requirements are met.
Can I continue to use my Ohio corporation’s EIN after forming an LLC?
No, you’ll need to apply for a new EIN for your LLC from the IRS.
Can I convert to an Ohio LLC if my corporation is currently in debt?
Yes, you can still convert your corporation to an LLC even if it has outstanding debts.
Is there a statute of limitations for converting a corporation to an LLC in Ohio?
No, there isn’t a specific timeframe for converting, but you should complete the process as soon as possible after deciding to form an LLC.
What happens to my Ohio corporation’s liabilities when I convert to an LLC?
Generally, the liabilities of the corporation continue to exist but are assumed by the LLC after the conversion.
Can I still apply for Ohio grants and loans with my LLC after converting from a corporation?
Yes, your Ohio LLC is still able to apply for various forms of financing and grant opportunities with the state.
Can a foreign corporation convert to an LLC in Ohio?
Yes, Ohio allows foreign corporations to convert to LLCs by filing articles of organization with the Secretary of State.
Will I need to file annual reports with the state as a Ohio LLC?
Yes, all Ohio LLCs are required to file annual reports with the state.
Can I convert to an Ohio LLC if I have shareholders outside of Ohio?
Yes, you can still convert to an Ohio LLC with shareholders from different states or even countries.
Do I need to have an Ohio physical location to convert to an LLC?
You don’t need to have a physical location in Ohio to form an LLC, but you will need to have a registered agent in the state.
What happens to my Ohio corporation’s federal employment identification number (FEIN) when I convert to an LLC?
You’ll apply for a new FEIN for your LLC when you file your articles of organization with the state.
Can I operate an Ohio LLC under a different company name?
Yes, an Ohio LLC can conduct business under a different name than its official, registered name as long as proper documentation is filed with the state.
Are Ohio LLCs required to hold annual meetings like corporations?
Ohio LLCs are not required to hold annual meetings unless their operating agreements dictate otherwise.
Can I still use my Ohio corporation’s bank account after converting to an LLC?
No, you’ll need to open a new bank account for your LLC once it’s officially formed.
Do Ohio LLCs offer limited liability protection for all members?
Yes, Ohio LLCs offer limited liability protection for all members, meaning they are not personally liable for the debts or obligations of the company.
Are there any restrictions on what types of businesses can convert to an LLC in Ohio?
Generally speaking, any type of business can be converted to an LLC in Ohio as long as the proper filings are completed.
Can I convert my Ohio corporation to an LLC if I’m currently involved in a lawsuit?
Yes, you can still convert to an LLC, but it’s important to consult with a lawyer about the particulars of your situation.
What is a Limited Liability Company (LLC)?
An LLC is a legal business entity that combines characteristics of a partnership or sole proprietorship with a corporation.
Does Ohio allow for the conversion of a corporation to an LLC?
Yes, Ohio allows for corporations to convert to LLCs.
What forms or documentation is necessary to file the conversion in Ohio?
There is not a specific form required to convert a corporation to an LLC in Ohio, but articles of organization must be filed with the Ohio Secretary of State.
What are the benefits of converting a corporation to an LLC in Ohio?
The conversion may provide increased tax flexibility for the company and a simplified management system in some cases.
How are creditors’ rights affected by the conversion?
In Ohio, it does not affect creditor’s rights. The converted entity continues with any existing […]
How is a conversion from a corporation to an LLC taxed in Ohio?
It may be taxed as a partnership or a disregarded entity, depending on certain factors specific to the LLC.
Can corporations choose to become an LLC in Ohio before they are officially incorporated?
No, the conversion to a limited liability company in Ohio must be completed by an existing corporation.
What does Ohio’s law require of corporations that want to change to an LLC?
Ohio LLC law only requires that the existing corporation must file Articles of Organization with the Ohio Secretary of State to convert from a corporation to an LLC.
Are current partnerships able to convert to an LLC in the state of Ohio?
Yes, current partnerships are able to convert to LLCs in Ohio.
Do all corporations qualify for conversion to LLCs in Ohio?
No, not all corporations qualify for the conversion to an LLC in Ohio. Intellectual property holding companies, insurance companies, and banks are excluded.
Do debt-to-equity ratio requirements apply to conversions of a corporation to an LLC in Ohio?
No, there are no debt-to-equity requirements when converting a corporation to an LLC entity in Ohio.
Is Ohio silent on the issue of whether or not a converted entity, as an LLC, is a legal successor of a former corporation?
No, Ohio law clearly states that after the completion of the conversion, the LLC is a legal successor to the existing corporation.
Is there availability for filing a short form of domestic conversion to LLC in Ohio?
No, Ohio does not offer a short form of domestic conversion to LLC.
What are the recordkeeping requirements of conversion and retention of corporate-related items in Ohio?
Ohio LLC law requires the LLC to keep copies of the certificate​ of formation of the converted business entity, as well as any provisions such as Articles […], together with each and every filing of articles of conversion.
Are distributions made to shareholders or members within two years before the conversion ordinance subject to Ohio transfer and sales tax for LLC laws?
Distributions made to shareholders and members pursuant to the conversion ordinance within two years before accounting, consolidation, and interest apply as long as they are provided for in written contracts of a limited liability company.
How is any future opening of a process to convert any existing general partnership to an LLC affected under Ohio law?
In Ohio, statutes pertaining to forming LLCs also pertain to general partnerships by providing the formation of limited liability.” Adoption Of Provisions For Organization And Regulation Of Limited Liability Companies.
Whose approval is required in Ohio to complete the conversion process?
In Ohio, approval of the existing corporation’s Board of Directors or its shareholders must be obtained for the conversion to flourish.
Are owners or shareholders in an existing corporation automatically members of an LLC when the entity converts?
Yes, the owners or shareholders in the original corporation are assumed members of the limited liability company once it has undergone a successful conversion.
What happens to an existing corporation’s economic structure when it is changed to an LLC?
The economic structure of a corporation is largely eliminated during the conversion to an LLC, meaning the company no longer has authorized or issued capital stock.
What is the existing corporation required to do in preparation for the conversion?
The existing corporation must prepare and submit articles of organization to the Ohio Secretary of State in order to be converted legally to an LLC.
Can Ohio corporations merge into other business organizational structures besides LLCs?
Yes, corporations may also merge into other business types such as limited partnerships, Sorna blends, or Closely held corporations and more, per Ohio LLC law.
Who should file the necessary documents for conversion to LLC in Ohio?
The existing corporation’s Board of Directors or shareholders are responsible for filing necessary documentation for Ohio LLC conversion.
Does Ohio law offer any protections or benefits to partners in a limited partnership participating in a merger event?
Certificates of merger governing partner protections and stand to distribute to Indiana LLC law grants papers for protection of partners choosing this form of business governance in event of a merger.
Have any court cases occurred regarding LLC conversions in Ohio?
Yes, a case involving third-party consent of creditors Aronson vs. Scioto Valley Ventureske explicitly argued whether Ohio LLC law required declaratory trustees and a bankruptcy trustee to consider a reconversion to a corporation in their post-complaint objection period.
Are there filing fees for submitting articles of organizations for an LLC in Ohio, and if so, what are they?
Yes, in Ohio there is a filing fee for articles of organization and consolidation that differs based on the current status of the converting entity, applications for articles of consolidation for names with priority that require expedited service, and other types of filing rituals but the usual fee fixated as of recently is $99.
Will converting an existing corporation to an LLC in Ohio affected the process for obtaining any necessary licenses or permits for the business entity?
Should a corporation convert to an LLC, the legal ramifications upon permit and license agreements may or may not vary dependent on individual agreements, laws, as well as special local variations […] with which each province may hold varied.

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Conclusion

Converting Ohio corporation to an LLC can offer significant benefits for your business, including tax flexibility, simplified management, and reduced administrative requirements. However, it’s essential to carefully consider the potential challenges and implications of the conversion process. Following the steps outlined in this guide and seeking professional advice, you can successfully convert your corporation to an LLC and position your business for continued success.

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