How to Start an S-Corporation in Ohio (2024 Guide)

Start an S-Corporation in Ohio

If you want to start an LLC in Ohio, there are things that you should consider. Ohio is the home to a thriving business community, making it an attractive location for entrepreneurs. One popular business structure is the S-Corporation, which offers several tax and operational advantages. This comprehensive guide will explore the process of starting an S-Corporation in Ohio, including the costs, steps, advantages, and disadvantages associated with this business structure.

Webinarcare Editorial Team will help you gain knowledge through thorough research and market study. Before starting your S-corp, all the steps in this article must guide you.

What is an S-Corporation?

An S-Corporation is a type of corporation that elects to be taxed under Subchapter S of the Internal Revenue Code. This tax treatment allows S-Corporations to enjoy pass-through taxation, meaning the corporation’s income, deductions, and credits flow through to the shareholders, who report this information on their individual tax returns. This structure helps to avoid the double taxation experienced by C-Corporations.

An S corporation (S corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other companies. It’s a tax classification that might result in significant financial savings for corporations and LLCs but in different ways. S-corp is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

Limitations and Requirements of S-Corp

As you have decided to have an S-Corp structure for your business, you must know the limitations and requirements to qualify for S-Corp status. We have listed some important points to consider following for your reference-

  • Be a domestic corporation.
  • Not be an ineligible corporation, such as specific financial institutions, insurance providers, or domestic corporations engaged in overseas sales.
  • Have just one type of stock.
  • Have a maximum of 100 shareholders or members.
  • Have only permitted individuals, certain trusts, and estates as stockholders or members.

You can apply for an S-Corp in Ohio if qualified for the limitations and requirements.

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How to Form an S-Corporation in Ohio?

To create S-Corp in Ohio, you must follow the below guidelines that include forming a business name, hiring a Statutory Agent, filing your Articles of Organization, creating an operating agreement, requesting an EIN, and filing a form 2553.

Step 1: Register a Business Name in Ohio

After you have decided on the idea to start an S-Corp in Ohio, deciding the name for your corporation is significant. Legal procedures should be taken into account when choosing your partnership name. Choose a business name that will enable you to develop a strong brand identity.

If you want to set up an S-Corp, there is a complete guide on Ohio Business Name Search for a proper business name. Here are some guidelines you must follow while naming your S-corp.

  • Avoid profanities
  • The name should be available, and no other entity should have the same name in Ohio.
  • Limit of restricted words that need a license in Ohio
  • Do not use a business name that sounds like a government agency or entity (like “police,” “county,” and “state”)

Step 2: Hire a Statutory Agent

The next step in starting an S-corp in Ohio is hiring a Statutory Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents (such as subpoenas), all notices of lawsuits, and other official government correspondence. Forming an LLC with an S-corp will be easier if you have Statutory Agent in Ohio.

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Step 3: File For Articles of Organization

The Articles of Organization is an important document to start your limited liability company (LLC). Ohio Articles of Organization is a simple document that contains the business name and address as well as the name and address of the person who received lawsuits on behalf of the organization. For the Articles of Organization to be filed in OK Secretary of State, you need to pay a filing fee of $99. In Ohio, the filing fee of forming an LLC is $99.

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Step 4: Creating an Operating Agreement

After you have filed your Articles of Organization, the next step is to create an operating agreement in Ohio. The operating agreement is essential and necessary since it will cover your corporation’s important documentation and rules. The operating agreements usually include the following:

  • Article I: Organization
  • Article II: Management and Voting
  • Article III: Capital Contributions
  • Article IV: Distributions
  • Article V: Membership Changes
  • Article VI: Dissolution

After creating the LLC operating agreement, you can benefit in several ways since it will discuss how decisions for the business will be made, including management and member voting structure.

Step 5: Request for an EIN

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your general partnership. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

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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Step 6: File Form 2553 for your S-Corp Business

Once you have obtained your EIN and Articles of Organization to form an S-Corp, you must file Form 2553, Election by a Small Business Corporation, to apply for S-corp status. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or at most 75 days after the beginning of the tax year in which the election is to take effect.

If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS.

In Ohio, you can file your form 2553 in the Department of the Treasury Internal Revenue Service Center – Kansas City, MO 64999 Fax: 855-887-7734.

Costs of Forming an S-Corporation

There are several costs associated with forming an S-Corporation in Ohio, including:

  1. Filing Fees: When forming a corporation in Ohio, you must file Articles of Incorporation with the Ohio Secretary of State and pay a filing fee of $99 for online and by mail filing.
  2. Statement of Information: After forming the corporation, you must file a Statement of Information (Form SI-550) within 90 days and pay a filing fee (currently $25). This statement must be filed annually after that.
  3. Franchise Tax: S-Corporations in Ohio are subject to the annual franchise tax, which is the greater of a minimum tax (currently $800) or a calculated tax based on the corporation’s net income.
  4. Other Costs: Depending on the nature of your business, additional costs may include obtaining licenses and permits, registered agent services, and professional fees for legal and accounting services.

Advantages of Forming an S-Corporation

There are numerous advantages to incorporating an S-Corp, but you should be aware of certain problems. Consider the following benefits of an S corporation:

Pass-through Taxation

S-Corporations enjoy pass-through taxation, which helps to avoid the double taxation faced by C-Corporations. This can result in potential tax savings for shareholders. Pass-through taxation is a tax system where the income, deductions, and credits generated by a business entity, such as Ohio General Partnership, limited liability company (LLC), or S-Corporation, are passed through to individual owners or shareholders instead of being taxed at the corporate level.

In this system, business profits and losses are reported on the owners’ or shareholders’ individual tax returns, and taxes are paid at their individual income tax rates. This avoids the issue of double taxation, which occurs in C-Corporations where income is taxed at both the corporate level and again when distributed to shareholders as dividends. Pass-through taxation is generally advantageous for small businesses and their owners, as it simplifies tax filings and often results in lower overall taxes.

Limited Liability Protection

Shareholders of an S-Corporation have limited liability protection, meaning their personal assets are protected from the corporation’s debts and obligations. Limited liability protection in an S-Corporation refers to the legal separation between the personal assets of the shareholders (owners) and the business assets, which protects shareholders from being personally responsible for the company’s debts and legal obligations.

In an S-Corporation, shareholders’ personal assets, such as their homes, cars, and personal savings, are not at risk if the business faces financial difficulties or lawsuits. The shareholders’ liability is limited to the amount they have invested in the company. This limited liability is a significant advantage of incorporating a business as an S-Corporation, as it provides a safeguard for the personal financial well-being of the business owners.

It is important to note that limited liability protection can only be supported if the shareholders maintain proper corporate formalities, such as keeping separate business and personal finances, holding regular shareholder meetings, and maintaining accurate business records. In such cases, courts may “pierce the corporate veil” and hold shareholders personally liable for the company’s debts and obligations.

Transferability of Shares

Shares in an S-Corporation are more easily transferable than those in an LLC, allowing for greater flexibility in ownership changes. Transferability of shares in an S-Corporation refers to the ability of shareholders to sell, gift, or otherwise transfer their ownership interest in the company to another person or entity. This is an important aspect of an S-Corporation’s structure, as it allows for flexibility in ownership and the potential for raising capital through the sale of shares.

However, there are certain restrictions on the transferability of shares in an S-Corporation, which are imposed by the Internal Revenue Service (IRS) to maintain the company’s eligibility for S-Corp status:

  • Shareholders: The number of shareholders in an S-Corporation is limited to a maximum of 100. Only individuals, certain trusts, and estates can be shareholders; other corporations and partnerships are generally not allowed.
  • Eligible Shareholders: Only U.S. citizens and resident aliens can be shareholders in an S-Corporation. Non-resident aliens are not allowed to hold shares.
  • One Class of Stock: S-Corporations can only have one class of stock. All shares must have the same rights and privileges, such as voting rights and distribution preferences. However, differences in voting rights are allowed if they are not tied to economic rights (e.g., distribution preferences).
  • Perpetual Existence: Perpetual existence refers to the concept that a business entity, such as an S-Corporation, can continue to exist indefinitely, regardless of changes in ownership or management. This means the corporation can outlive its original founders and shareholders and continue to operate even if individual shareholders pass away or decide to sell their shares.

This characteristic of an S-Corporation provides stability and continuity for the business, as it ensures that the corporation’s operations, contracts, and legal obligations remain unaffected by changes in ownership. It also makes it easier for the company to attract investors and raise capital. Potential investors can be confident that the business will continue to exist even if the original owners are no longer involved.

Disadvantages of Forming an S-Corporation

Despite these advantages, moving to an S corporation only sometimes makes sense – or at the very least, necessitates a thorough review of certain situations. The following issues may arise in particular:

Restrictions on Shareholders

S-Corporations are subject to specific restrictions, such as a maximum of 100 shareholders and limitations on the types of eligible shareholders (e.g., only individuals, certain trusts, and estates).

Single Class of Stock

S-Corporations are limited to issuing only one class of stock, which can limit flexibility in raising capital or creating different ownership structures. A single class of stock in an S-Corporation refers to the requirement that the corporation only issues one type of stock with equal rights and characteristics for all shareholders. This means that all shares of stock must have the same economic rights, such as dividend distribution preferences and liquidation rights, as well as voting rights. The single class of stock requirement is one of the key criteria the Internal Revenue Service (IRS) sets for a corporation to qualify for S-Corp status.

Increased Complexity

Forming and maintaining an S-Corporation requires more paperwork, record-keeping, and compliance with state and federal regulations than simpler structures like LLCs.

Franchise Tax

S-Corporations in Ohio are subject to the annual franchise tax, which can financially burden some businesses.

In an Ohio S-Corporation context, the franchise tax is usually based on the company’s income, net worth, or a combination of both. Since S-Corporations are pass-through entities for federal income tax purposes, meaning that their income is not taxed at the corporate level but rather passed through to individual shareholders, they may be exempt from or subject to lower franchise tax rates in some states than traditional C-Corporations.

However, S-Corporations must still comply with Ohio franchise tax requirements, which may include annual filings and tax payments. It is crucial for S-Corporation owners to understand the specific rules and regulations in their state of operation and to consult with a tax professional to ensure compliance and minimize their tax.

FAQs

What is an S-corporation in Ohio?
An S-corporation is a type of corporation that is treated as a pass-through entity for tax purposes under Ohio law.
Can a single person form an S-corporation in Ohio?
Yes, a single person can form an S-corporation in Ohio.
How do I form an S-corporation in Ohio?
You will need to file Articles of Incorporation with the Ohio Secretary of State and then file for S-corporation status with the IRS.
Is there a minimum amount of money I need to invest to start an S-corporation in Ohio?
No, there is no minimum amount of money required to start an S-corporation in Ohio.
What are the benefits of forming an S-corporation in Ohio?
S-corporations offer some liability protection to owners and also provide a unique tax structure that allows profits and losses to be passed through to individual owners.
What are the disadvantages of forming an S-corporation in Ohio?
S-corporations are subject to some restrictions, such as having no more than 100 shareholders and requiring that shareholders be U.S. citizens or permanent residents.
Does Ohio recognize the federal tax status of S-corporations?
Yes, Ohio recognizes the federal tax status of S-corporations.
What is the corporate income tax rate in Ohio for S-corporations?
S-corporations do not pay corporate income tax in Ohio, but their owners may be subject to individual income taxes.
What is the filing fee for forming an S-corporation in Ohio?
The filing fee for Articles of Incorporation is $125 in Ohio.
Does an S-corporation need to file an annual report in Ohio?
Yes, S-corporations need to file an annual report with the Ohio Secretary of State.
How often is the annual report due for an S-corporation in Ohio?
The annual report is due every year by the last day of the anniversary month of the S-corporation’s formation.
Can an S-corporation in Ohio have foreign shareholders?
Yes, an S-corporation in Ohio can have foreign shareholders as long as they meet certain criteria.
Can an S-corporation in Ohio have multiple classes of stock?
No, an S-corporation in Ohio is not permitted to have multiple classes of stock.
What is the Ohio minimum wage for employees of an S-corporation?
As of January 1, 2021, the minimum wage in Ohio is $8.80 per hour for non-tipped employees and $4.35 per hour for tipped employees.
What is Ohio’s workers’ compensation requirement for S-corporations?
S-corporations in Ohio are required to have workers’ compensation insurance if they have employees.
Are S-corporations in Ohio required to have a registered agent?
Yes, S-corporations in Ohio are required to have a registered agent.
What is the minimum age to form an S-corporation in Ohio?
There is no minimum age requirement to form an S-corporation in Ohio.
Can an S-corporation in Ohio be taxed as a C-corporation instead?
An S-corporation in Ohio may elect to be taxed as a C-corporation, but this is not a common choice.
What happens if an S-corporation in Ohio exceeds the shareholder limit?
If an S-corporation in Ohio exceeds the shareholder limit of 100, it will lose its S-corporation status.
Can an S-corporation in Ohio convert to a different entity type?
Yes, an S-corporation in Ohio can elect to convert to a different entity type, such as a C-corporation or LLC.
Are there residency requirements for officers and directors of an S-corporation in Ohio?
No, there are no residency requirements for officers and directors of an S-corporation in Ohio.
What are the state tax requirements for an S-corporation in Ohio?
Ohio S-corporations may be subject to state taxes, such as sales and use tax and commercial activity tax.
Can an S-corporation in Ohio have nonvoting shares?
Yes, an S-corporation in Ohio may have nonvoting shares as long as they do not confer any preferential treatment to the holder.
Are there ongoing reporting requirements for S-corporations in Ohio?
Yes, Ohio requires annual reports to be filed and a host of other ongoing responsibilities to maintain good standing with the state.
Can I apply for S-corp status for my existing Ohio corporation?
Yes, you can apply for S-corp status for your existing Ohio corporation.
Can an LLC in Ohio elect to be taxed as an S-corporation?
Yes, an LLC in Ohio can elect to be taxed as an S-corporation if it meets the eligibility criteria.
Can an S-corporation in Ohio have a fiscal year that differs from the calendar year?
Yes, an S-corporation in Ohio may elect a fiscal year end instead of the calendar year-end.
What is the effective date of S-corporation status for an Ohio entity?
The effective date of S-corporation status in Ohio is the beginning of the election year. For example, if an election is made on September 15, 2021, the corporation’s S status will be effective January 1, 2021.
What is an S-corporation?
An S-corporation is a corporation that has elected to be taxed under Subchapter S of the Internal Revenue Code.
What are the requirements for starting an S-corporation in Ohio?
To start an S-corporation in Ohio, you need to have a valid business purpose, a board of directors, and at least one shareholder.
Can an S-corporation have more than one shareholder?
Yes, an S-corporation can have more than one shareholder, but no more than 100 shareholders.
What is the liability protection for an S-corporation in Ohio?
An S-corporation in Ohio provides limited liability protection to its shareholders.
What is the tax rate for an S-corporation in Ohio?
An S-corporation in Ohio is subject to Ohio state taxes at the same rate as regular corporations, but its income is only taxed once due to its pass-through tax status.
Can a foreigner start an S-corporation in Ohio?
Yes, a foreigner can start an S-corporation in Ohio, but they must obtain an ITIN number from the IRS before filing Form 2553.
What is the Ohio Secretary of State’s filing fee for an S-corporation?
The filing fee for forming an S-corporation in Ohio is $125.
Do I need an attorney to start an S-corporation in Ohio?
It is not required to hire an attorney to start an S-corporation in Ohio, but it may be beneficial to seek legal advice.
Can I change my business type into an S-corporation in Ohio?
Yes, you can change your business type into an S-corporation in Ohio by filing Form 2553 with the IRS.
Is there a deadline for filing an S-corporation election in Ohio?
The deadline for filing an S-corporation election in Ohio is 75 days after the beginning of the tax year.
Can an S-corporation avoid state taxes for profits earned outside Ohio?
Yes, an S-corporation in Ohio is not required to pay state taxes on profits earned outside Ohio.
Do I need to have a business license before starting an S-corporation in Ohio?
Yes, you need to obtain the appropriate business license(s) for your specific business in Ohio before starting an S-corporation.
Do I need a business plan to start an S-corporation in Ohio?
It is not required, but it is recommended to have a business plan when starting any business including an S-corporation in Ohio.
Can an S-corporation get a tax ID number in Ohio?
Yes, you can obtain a tax ID number from the IRS for your S-corporation in Ohio.
Does Ohio require annual reports for S-corporations?
Yes, Ohio requires S-corporations to file a biennial report with the Ohio Secretary of State.
Can an LLC elect to be taxed as an S-corporation in Ohio?
Yes, an LLC can elect to be taxed as an S-corporation in Ohio by filing Form 2553 with the IRS.
How long does it take to start an S-corporation in Ohio?
It usually takes a few days to a few weeks to start an S-corporation in Ohio, depending on how fast the registration is completed.
Can an S-corporation have multiple offices in Ohio?
Yes, an S-corporation can have multiple offices in Ohio, or even out of the state.
What happens if I miss the deadline for filing my S-corporation election in Ohio?
If you miss the deadline for filing your S-corporation election in Ohio, you must wait until the following tax year to elect this status.
Can I operate under a different name with my S-corporation in Ohio?
Yes, your S-corporation in Ohio can operate under a different name, but you need to file for a fictitious name.
Are there any restrictions on the shareholders of an S-corporation in Ohio?
Yes, shareholders of S-corporations in Ohio must be U.S. citizens or legal residents, and there can be no more than 100 shareholders.
Can I use personal funds to start an S-corporation in Ohio?
Yes, you can use personal funds to start an S-corporation in Ohio, but it is recommended to keep them separate from business funds.
Does an S-corp have to file Ohio state tax?
Yes, an S-corporation in Ohio must pay taxes to the state at the same rate as a regular corporation, but its income is only taxed once due to its pass-through status.
Do I need to have an office in Ohio to start an S-corporation in Ohio?
No, but you need to have a designated agent with an Ohio address for service of process and official communications.
How will forming an S-corporation affect my personal taxes in Ohio?
The owners (shareholders) of the S-corporation in Ohio report their share of company revenue and losses in their personal taxes.
Can I revoke the S-corporation election in Ohio?
Yes, you can revoke the S-corporation election in Ohio, but you need to file Form 8832 with the IRS.
Can I form an S-corporation for my online business in Ohio?
Yes, you can form an S-corporation for your online business in Ohio.

Also Read

Why You Should Start Ohio S Corp

One of the key advantages of starting an S Corp in Ohio is the limited liability protection it offers to its shareholders. By structuring your business as an S Corp, you can shield your personal assets from any potential business liabilities, such as lawsuits or debts. This means that your personal assets, such as your home or savings account, are typically protected from any creditors or legal claims against your business. This peace of mind can not only protect your financial well-being but also provide you with the confidence to take the necessary risks to grow and expand your business.

In addition to limited liability protection, an S Corp in Ohio also provides its owners with favorable tax incentives. Unlike a traditional corporation, an S Corp does not pay corporate income taxes at the federal level. Instead, profits and losses are passed through to the shareholders, who then report them on their individual tax returns. This means that you can potentially avoid the double taxation that comes with being a C corporation, where profits are taxed at both the corporate and individual level.

Furthermore, as an S Corp owner in Ohio, you may also be able to take advantage of certain deductions and credits that are not available to other types of business entities. These tax benefits can significantly lower your overall tax burden and free up more capital to reinvest back into your business. By maximizing your tax savings, you can increase your company’s profitability and enhance your competitive edge in the marketplace.

Another compelling reason to start an S Corp in Ohio is the flexibility it offers in terms of ownership and management structure. Unlike a C corporation, which may have strict ownership and shareholder requirements, an S Corp allows for more diversity in ownership and freedom in decision-making. This can be particularly appealing to small businesses or family-owned enterprises looking to preserve their values and traditions while still positioning themselves for growth and innovation.

Moreover, forming an S Corp in Ohio can also enhance your company’s credibility and professionalism in the eyes of customers, vendors, and investors. The legal structure of an S Corp conveys a sense of stability and legitimacy that can help attract and retain valuable relationships with key stakeholders. By choosing to operate as an S Corp, you are signaling to the business community that you are committed to adhering to certain standards of governance and transparency, which can set you apart from the competition and open doors to new opportunities for growth.

In conclusion, transitioning to an S Corp in Ohio can be a smart business move for those seeking limited liability protection, tax advantages, flexible ownership structures, and enhanced credibility. By carefully considering the unique benefits of an S Corp and how they align with your business goals, you can position yourself for long-term success and sustainability in today’s competitive marketplace.

Conclusion

Forming an S-Corporation in Ohio can be a beneficial decision for small business owners seeking liability protection, pass-through taxation, and easier transfer of ownership. By meeting the requirements set by the IRS and following the necessary steps, business owners can take advantage of an S-Corp’s unique structure and benefits. However, it is essential to consider the potential drawbacks, such as increased paperwork and limitations on ownership, before making a final decision. Consulting with a legal or financial professional can help business owners determine if an S-Corporation is right for their needs and goals.

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