LLC vs S-Corp | What Entrepreneurs Need to Know in Ohio

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LLC vs S-Corp in Ohio

When starting a small business in the Ohio, one of the most important decisions you’ll make is choosing the right legal structure. Two popular options for small businesses are electing for S Corporation (S-Corp) or forming an LLC in Ohio. Both offer certain advantages and drawbacks, making it crucial to understand their differences and determine the best fit for your business. 

If you want to know more about LLC vs. S-Corporation, which is better and suitable for the business you will form, you should consider a few things. Before we get through this article, you should understand LLC vs. S-Corporation in Ohio. 

Webinarcare Editorial Team will help you define and understand the difference, and you must be guided by all the factors gathered in this article.

LLC Vs. S-Corporation in Ohio

LLC vs. S-Corporation: Definition

A limited liability company is a type of business structure that guards against the impact of business liabilities on your personal assets. However, while not a typical business structure, the S Corp is a tax status you can register with the IRS. Unlike an LLC, an S-Corp does not offer personal asset protection. The two are explained in detail here:

What is an LLC in Ohio?

A legal corporate organization that protects personal assets is a limited liability company (LLC). With this setup, the LLC member or owner can protect their personal assets if their company faces financial difficulties or becomes the subject of legal action. In some unique circumstances, the opposing party may pursue your personal assets if your firm is sued in court. When you are held personally accountable for the company’s debt, this is called “piercing the corporate veil.”

By creating an LLC in your state, you can take advantage of the pass-through tax benefit, which means that your personal income will be used to determine your income tax obligations rather than the revenue generated by your firm. 

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What is an S-Corp in Ohio?

Unlike a limited liability company (LLC) or other business structures, Ohio S-Corporation is not a type of corporate entity. It’s a tax classification that, though in various ways for corporations and LLCs, might lead to considerable financial savings. S-Corporations are similar to LLCs, except that the Internal Revenue Service recognizes them as corporations for taxation purposes. 

A well-known alternative to the LLC is the S-corp. In contrast to a traditional C-corp, an S-corp is better suited for small and medium-sized firms, such as those with 100 total stockholders. 

LLC Vs. S-Corporation in Ohio

Creating a business in Ohio requires careful consideration, especially when deciding whether a state LLC or an S-Corporation is more advantageous. An LLC is a legal corporate structure, but an S-Corporation is a tax categorization which some small firms are eligible for. Forming Ohio Corporations and LLCs can elect S-Corporation taxation by filing paperwork with the Internal Revenue Service (IRS). Making an S-Corporation may be less formal than establishing an LLC, and it typically offers less security. Additionally, S-Corporation in Ohio does not offer the same safeguards that business owners seek in an LLC. When starting a business, thinking about your alternatives from a legal and tax perspective is important.

It is suggested that you speak with a legal professional before you begin setting up 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

Tax Difference Between LLC and S-Corp in Ohio

There is a distinction between an LLC and an S-Corporation regarding taxation. Based on the differences in Federal and State taxes, you can determine whether S-Corporation or LLC in Ohio is best for your business.

Federal Taxes 

There are a few federal tax factors to consider when selecting whether to operate an LLC or S-Corporation in Ohio. Tax differs in terms of Pass-Through Taxes and Self-Employment Taxes.

  • Pass-Through Taxes: LLC and S-Corporation in Ohio are the same regarding pass-through taxation at the federal level. LLCs and S-Corporations do not pay federal income taxes as separate legal entities because of pass-through taxation. Only their owners must pay federal income taxes on their portions of the business income. The company does not pay twice the tax in this kind of taxation. Unlike LLCs and S-Corporations, C-Corporations in Ohio are mandated to have double taxation. It means that they must pay federal taxes at the entity level.
  • Self-Employment Taxes: Most LLC owners choose S-corporation taxation in Ohio to reduce their self-employment taxes. This is because if you own an S-corporation, you are not required to be self-employed. Instead, you can join the company as an employee and receive regular salary benefits. On the other hand, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings in calculating their self-employment tax. Distribution of shares defines S-Corporation shareholders in terms of their corporate incomes. 

Consider the following scenario: you are the sole owner of an LLC in Ohio with a $200,000 annual profit. And $150,000 is a fair wage in your area for someone doing the same job as you. Under the default LLC taxation, you must pay self-employment taxes on the entire $200,000 profit. However, if your business is taxed as a state S-corp, you must only pay payroll taxes on the standard wage of $150,000. The remaining $50,000 will still be subject to income tax.

Ohio State Taxes

At the state level, there aren’t any significant tax differences between regular LLCs and S Corporation LLCs. In terms of the annual LLC fee in Ohio, it costs $91, which can be paid to the OK Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $99 to the Ohio Secretary of State.

LLC Vs. S-Corp Ownership Comparison

LLCs and S-Corporations in Ohio have different ownership requirements that can impact your choice of business structure. Here’s a comparison of the key ownership requirements for each structure:

1. Number of Owners

Ohio LLC: An LLC can have any number of owners, called members, from starting Ohio Single Member LLC to multiple members LLC. There is no upper limit on the number of members an LLC can have.

Ohio S-Corporation: An S-Corporation is limited to a maximum of 100 shareholders (owners). This restriction can be a limiting factor for businesses that plan to have many owners or seek outside investment.

2. Type of Owners

Ohio LLC: An LLC can have various owner types, including individuals, corporations, other LLCs, trusts, and estates. Non-resident aliens can also be members of an LLC, like forming a Foreign LLC in Ohio.

Ohio S-Corporation: S-Corporations have more restrictive ownership requirements. Only U.S. citizens and resident aliens can be shareholders of an S-Corporation. Additionally, other corporations, LLCs, and certain types of trusts and estates are not eligible to be S-Corporation shareholders.

3. Classes of Ownership

Ohio LLC: An LLC offers flexibility regarding ownership classes. Members can have varying levels of management rights, profit distribution rights, and voting rights, creating different classes of membership interests.

Ohio S-Corporation: S-Corporations are limited to only one class of stock. While shareholders’ voting rights may differ, all shareholders must have equal rights to profit distribution and liquidation proceeds.

4. Profit Distribution

Ohio LLC: Profit distribution in an LLC is flexible, allowing members to allocate profits and losses in any proportion they choose. This can be outlined in the Ohio Operating Agreement.

Ohio S-Corporation: Profits and losses in an S-Corporation must be distributed to shareholders based on the percentage of shares each owns. This can be less flexible than the profit distribution options available to an LLC.

Ohio LLC offers more flexibility in ownership requirements, allowing for a greater variety of owner types, multiple classes of membership interests, and flexible profit distribution. In contrast, an S-Corporation has more restrictive ownership requirements, limiting the number and type of shareholders, allowing only one class of stock, and requiring proportional profit distribution based on share ownership. Consider these differences when deciding which business structure best fits your needs and goals.

Which is easier to incorporate in Ohio: LLC or S-Corp?

Filing an LLC or S-Corporation in Ohio requires planning and time. Even though it is not as simple as it appears, something manageable keeps it from being too difficult. LLC and S-Corporations can be formed using Statutory Agent. To establish an LLC in Ohio, you must submit the Articles of Organization to the North Dakota Secretary of State. Your Articles of Organization must include information about your Ohio LLC, as well as payment of the associated filing fee.

Furthermore, you must submit additional papers to make the Ohio S-Corporation election. Fill out Form 8832 to notify the Internal Revenue Service that you prefer to tax your LLC as a corporation rather than a partnership. Then you’ll submit Form 2553 to select S-Corporation status.

Remember that you must file annual tax returns and reports after forming your LLC to remain legally compliant.

Who Pays More Taxes in Ohio: LLC or S-Corp?

Taxes for LLCs and S-Corporations in Ohio depend on the tax purposes and the profit generated. LLCs are typically taxed at personal rates, and LLC owners can be treated as separate companies with their own federal tax identification numbers. You can check the Ohio LLC Cost for detailed information.

Ohio S-Corporation owners, on the other hand, must be paid a salary that includes Social Security and Medicare taxes. On the other hand, the owner can receive dividend income or some of the leftover profits without being classified as an employee and thus will not be subject to Social Security and Medicare taxes on that money.

Should I Incorporate Ohio LLC as an S-Corporation?

Forming an LLC may be advantageous because your business assets are separate from your personal assets if you are a sole proprietor. You are not restricted from converting your LLC to an S-Corporation. Although an S-corporation must have a board of directors, a maximum of 100 shareholders, and follow more regulations, it is ideal for larger companies with more shareholders.

How do you convert LLC to S-Corporation in Ohio?

You must submit Form 2553, Election by a Small Business Corporation, to the IRS to elect S-corp taxes if you want to form an LLC as an S-Corporation in Ohio. A Form 2553 must be submitted by 75 days following the creation of your S-Corp or by 75 days following the start of the tax year in which the election is to be effective. 

You must also submit Form 8832, Entity Classification Election if your LLS-Corp has passed the deadline of 75 days and you wish to elect to be taxed as a corporation. You would collectively transmit Forms 2553 and 8832 via certified mail from the USPS. You can send your Form 2553 to the Department of the Treasury Internal Revenue Service Center – Kansas City, MO 64999 Fax: 855-887-7734​ in Ohio.

FAQs

What is the minimum number of members required to form an LLC in Ohio?
Only one member is required to form an LLC in Ohio.
Can a single-member LLC in Ohio be taxed as an S-Corp?
Yes, a single-member LLC in Ohio can elect to be taxed as an S-Corp.
Are there any additional taxes or fees for an LLC in Ohio?
Ohio charges an annual franchise tax of $150 for LLCs.
What is the advantage of an S-Corp over an LLC in Ohio?
S-Corps in Ohio offer a pass-through entity with no self-employment tax for business owners.
Are there any restrictions for foreign LLCs doing business in Ohio?
A foreign LLC making sales in Ohio must file and pay sales tax just like any other Ohio business.
Are there any residency restrictions for LLC members in Ohio?
Ohio LLCs have no residency or citizenship restrictions for members, but at least one must have an Ohio street address for the registered agent.
Do LLCs and S-Corps have the same liability protection in Ohio?
Yes, both LLCs and S-Corps in Ohio offer limited liability protection for their members and shareholders.
If an LLC in Ohio expands to other states, will it need to register again?
Yes, an LLC in Ohio must register as a foreign LLC in any other state where it does business.
Do LLCs and S-Corps have the same management flexibility in Ohio?
LLCs in Ohio have less formal requirements for management compared to S-Corps, allowing for more flexibility.
Are there any pass-through tax advantages for LLCs in Ohio?
Yes, like S-Corps, Ohio LLCs offer pass-through taxation, avoiding double taxation for members.
Are there any comparisons between shareholder requirements when including an S-Corp in Ohio?
S-Corps in Ohio can have no more than 100 shareholders who must be U.S. citizens or legal residents.
Is it necessary to file Articles of Organization in Ohio when forming an LLC?
Yes, LLCs in Ohio must file Articles of Organization with the Ohio Secretary of State before doing business in the state.
Can an LLC in Ohio have additional taxes beyond the annual franchise tax?
Yes, LLCs that hire employees in Ohio must withhold and pay payroll taxes for those employees.
Are there any specific business activities that are ineligible for S-Corp status in Ohio?
S-Corps in Ohio cannot derive more than 25% of their income from passive sources such as investments.
Can LLC members or officers be held liable for the company’s debt in Ohio?
In most cases, LLC members and officers are not personally liable for the company’s debts in Ohio.
Do both LLCs and S-Corps offer a level playing field under Ohio business laws for Ohio state contracts?
Both LLCs and S-Corps in Ohio are eligible to bid on state contracts, but each contract may have specific requirements.
Are Ohio corporations subject to double taxation?
Yes, Ohio corporations can be subject to double taxation on their profits.
Is the process for converting an LLC to an S-Corp in Ohio straightforward?
Converting an LLC to an S-Corp in Ohio requires careful consideration of tax consequences and proper paperwork to be filed.
Can a foreign corporation do business in Ohio without having an incorporated business within the state?
Foreign corporations must register with the Ohio Secretary of State to do business in Ohio for any activity that brings them more than $500 per year.
Are LLC operating agreements optional in Ohio?
While not required by law, operating agreements for LLCs in Ohio are highly recommended to clarify company policies and procedures.
Can shareholders participate in the management of an S-Corp in Ohio?
Yes, shareholders of S-Corps in Ohio are allowed to participate in the management of the company to oversee its day-to-day business operations.
Are LLC members in Ohio required to file their business income and taxes on their personal tax return?
Yes, LLC members must report any business income on their personal income tax returns in Ohio.
How does the limited liability protection differ between the two entities for Ohio businesses?
LLC & S-Corp offer comparable limited liability protection for members, which makes it desirable to form a legal entity to create a separation between the employee and the company.
Is there any requirement to file an annual report for Ohio LLCs and S-Corps?
Both LLCs and S-Corps in Ohio are required to file an Annual Report with the Ohio Secretary of State every year.
Is the ownership of an LLC considered changeable, whether it be individual or institutional in Ohio?
LLCs in Ohio must file ownership changes with the Ohio Secretary of State and thus allowing changes of membership.
Is there a need to appoint registered agents for both legal entities for Ohio based businesses?
Both LLCs and S-Corps require the appointment of a registered agent in Ohio, who serves as an official communication receive point.
Are Ohio corporations required to have a Board of Directors?
Ohio corporations of all types must have a Board of Directors with at least one member but two or more directors is suggested.
Is there an availability for the preference of royalties or stock options within Ohio S-Corps to employees?
Ohio S-Corps can offer both royalties and stock options to employees like its general counterpart as allowable by the Articles of Incorporation.
What are the differences formed between the disposition of ownership in either entities for Ohio businesses?
Ownership can be freely transferred or freed in the cases of death under laws governing both entity formations but LLC agreements will usually hold restrictions ranging from Public Offering to ROFR and Call options according to the agreement.
What is an LLC in Ohio?
An LLC, or Limited Liability Company, is a business entity that provides personal liability protection for owners and is recognized under Ohio state law.
What is an S-corp in Ohio?
An S-corp, or S corporation, is a tax designation available for qualifying business entities under Ohio state law that allows the business to pass through income or losses to the owners for tax purposes.
Which is better, LLC or S-corp for Ohio businesses?
The decision between establishing your business as an LLC or S-corp in Ohio depends on your unique circumstances and business goals. Consult with a legal or tax professional before making a decision.
Can an LLC elect to be taxed as an S-corp in Ohio?
Yes, LLCs in Ohio can elect to be taxed as an S-corp by filing Form 2553 with the IRS and meeting certain qualification requirements.
Are there any disadvantages to forming an S-corp in Ohio?
While S-corp status can provide tax benefits, it may not be ideal for all businesses, particularly those expecting significant growth or planning to seek outside investment.
How do I form an LLC in Ohio?
To form an LLC in Ohio, you must file articles of organization and meet other legal requirements. A legal or business professional can guide you through the process.
How do I form an S-corp in Ohio?
To form an S-corp in Ohio, you must first legally establish as a corporation through the Ohio Secretary of State’s office, meet certain incorporation requirements, and then file Form 2553 with the IRS to obtain S-corp status.
What are the tax implications for LLCs in Ohio?
LLCs in Ohio are not taxed as an entity, but rather pass-through taxes to members based on their ownership percentage.
What are the tax implications for S-corps in Ohio?
Like LLCs, S-corps in Ohio do not pay taxes, but pass-through income or losses to shareholders based on their percentage of ownership.
Can a single-member LLC be taxed as an S-corp in Ohio?
Yes, a single-member LLC can elect to be taxed as an S-corp in Ohio if it meets certain qualification requirements.
How many members are needed to form an LLC in Ohio?
Only one member is needed to form an LLC in Ohio.
Can an LLC have foreign members in Ohio?
Yes, LLCs in Ohio can have foreign members, but may face certain tax implications.
Can an S-corp have foreign shareholders in Ohio?
Yes, an S-corp in Ohio can have foreign shareholders, but may face certain tax or legal obstacles.
Are LLC owners personally responsible for the business’s debts in Ohio?
LLC owners in Ohio have limited liability protection, meaning they are generally not personally liable for the business’s debts or legal judgments.
Are S-corp shareholders personally responsible for business debts in Ohio?
S-corp shareholders in Ohio generally have limited liability protection, meaning they are not responsible for the business’s debts or legal judgments.
Can an S-corp in Ohio have more than 100 shareholders?
No, an S-corp in Ohio cannot have more than 100 shareholders to maintain its tax status.
What are the requirements for Ohio LLCs to be taxed as S-corps?
Ohio LLCs must meet certain IRS qualifications and file Form 2553 with the IRS to be taxed as an S-corp.
Are there any filing fees to elect S-corp status in Ohio?
No, there are no fees to elect S-corp status for Ohio businesses.
What documents are needed to form an LLC in Ohio?
To form an LLC in Ohio, you’ll need to file articles of organization with the Secretary of State’s office and potentially additional documentation, depending on your business and desired structure.
Can LLCs be managed by non-members in Ohio?
Yes, LLCs in Ohio can be managed by non-members, but must specify this in the operating agreement.
Can S-corps be managed by non-shareholders in Ohio?
Yes, S-corps in Ohio can hire non-shareholders to manage the business.
Can LLCs in Ohio be taxed as a C-corp?
Yes, LLCs in American State of Ohio can elect to be taxed as a C-corp by filing Form 8832 with the IRS.
Do Ohio LLCs need an operating agreement?
Ohio LLCs are not required to have an operating agreement, but it is strongly recommended to prevent confusion or disputes among members.
Do Ohio S-corps need a shareholder agreement?
Ohio S-corps are not required to have a shareholder agreement, but it is strongly recommended to govern relationships among shareholders and regulate potential disputes.
Can LLCs be dissolved in Ohio?
Yes, LLCs in Ohio can be voluntarily dissolved by filing a certificate of dissolution with the Secretary of State.
Can S-corps be dissolved in Ohio?
Yes, S-corps in Ohio can be voluntarily dissolved or involuntarily terminated through various legal means.
Can LLCs be converted to S-corps in Ohio?
Yes, LLCs in Ohio can convert to S-corps by meeting IRS qualification requirements and filing the appropriate paperwork.
Can S-corps be converted to LLCs in Ohio?
Yes, S-corps in Ohio can convert to LLCs by filing appropriate paperwork with the Secretary of State and other government entities.
What are the renewal requirements for LLCs in Ohio?
LLCs in Ohio must file an annual report with the Secretary of State’s office and pay a filing fee to maintain legal compliance.

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Conclusion

Ultimately, choosing an LLC and an S-Corp in Ohio will depend on your business goals, management preferences, and tax considerations. It’s essential to consult with a legal or financial advisor to determine which structure is best for your business in Ohio and help you navigate the formation process. Making an informed decision will set your business up for success and ensure you’re well-positioned for growth and profitability.

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