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For an entrepreneur who is planning on raising capital and looking to reduce tax liabilities, an Ohio S Corporation could be the answer. But what is an S Corporation and how do you start one? At its essence, an S Corporation isn’t a formal entity like a corporation (C Corp) or limited liability company (LLC).
Rather, it’s a federal tax election under the Internal Revenue Service (IRS) which allows tax obligations to pass through (known as “pass-through taxation”) to company owners or stockholders. The owners then pay taxes on their personal income tax returns and at their individual tax rate. Keep in mind that Ohio has no state corporate income tax.
You can find lots of helpful information about how S Corporations work on our S Corporation information page. In addition, we’ll discuss the benefits of S Corporations and the steps to form one. Again, an S Corporation isn’t a stand-alone business structure. So, the first thing you need to know about starting an Ohio S Corporation is how to start a business in general.
We can simplify that part with our Ohio LLC Formation Service and our Ohio Corporation Formation Service which is the first step to getting your company up and running. Further, we offer continuing support with our various business development and maintenance services.
S Corporations are basically small business corporations that have restricted corporate shareholders but aren’t subject to corporate double taxation. The following are steps to creating an S Corp in Ohio.
When choosing a business name keep in mind that this choice will last for the life of your business. We suggest picking a name that is professional but also abides by the state’s naming rules. We can reserve your business name.
The Secretary of State requires all businesses to have a statutory agent, otherwise known as a registered agent.
A statutory agent receives official papers on behalf of your business (e.g., legal documents and notices). Statutory agents in Ohio are relatively easy to find online, and we can help you find one, too.
Successful companies need solid leadership from the very beginning.
If you form a corporation, you need to appoint initial directors to run the business. These people will need to be experienced with the ins and outs of the business, how it works, and more.
If you start an LLC, you’ll need to appoint people to manage the business. LLCs can appoint members (owners) or hire non-owner managers to run the company.
File Articles of Incorporation for your C Corp or Articles of Organization for your LLC with the Secretary of State. The act of filing these documents is what officially creates your business enterprise in the eyes of the state.
File Form 2553 with the Internal Revenue Service (IRS).
Form 2553 turns your C Corp or Ohio LLC into an Ohio S Corporation. Keep in mind that if you’re using an LLC, you first need to make a tax election with the IRS and the Ohio Department of Taxation to treat it as a corporation.
While S Corporations are straightforward small business entities, the IRS requires you to fulfill certain requirements before forming an S Corporation in Ohio. S Corporations must:
Keep in mind that an S Corporation in Ohio might not be for you if you’re looking to build lots of capital through a large shareholder base. So check with your legal and financial professionals about your best business options.
S Corporations are highly specific in their use. Therefore, it can be helpful to use a classic list of pros and cons to assist you in deciding if S Corp status is a good idea for your company.
Running an S Corporation can be beneficial in many ways, such as:
If tax liability is one of your biggest concerns when it comes to choosing the right business structure, an S Corporation might be the right selection for you.
Of course, there can also be drawbacks to S Corporations, such as:
Once again, we encourage you to speak to a tax or legal professional to determine if these factors are significant given your circumstances.
An S Corp designation isn’t meant to be a one-size-fits-all proposition, and S Corp status doesn’t work for many business owners. At the outset, one of the first things to know about starting an Ohio corporation is that it’s a C Corp or LLC by default until you file the right paperwork and qualify to make it an S Corporation.
First, C Corps can issue more shares and types of stock than an S Corporation. That said, for many people, the biggest difference, and biggest draw, is how S Corporations normally pay income taxes.
C Corporations pay double income taxes because the company pays taxes on business income at the corporate level, and then each shareholder has to pay a personal income tax on their income from the corporation.
On the other hand, S Corporations are subject to pass-through taxation. Pass-through taxation means that the company normally doesn’t have to pay taxes on its business income at the corporate level. Instead, tax is only levied on the individual shareholders who pay a personal income tax on their shares of the corporate income.
When considering how to form an S Corporation in Ohio you first have to form a business that falls within the limitations identified above. Then you have to file Form 2553 with the IRS within one of the proper timeframes.
Certainly, an LLC can elect to be an S Corporation. This can be great news because LLCs require less paperwork than starting a C Corp. So if LLCs are so easy to start, what’s the point of choosing S Corp status? Choosing to tax your LLC as an S Corporation could reduce some of your tax liabilities. Learn more about LLCs and taxation on our Tax Information for Limited Liability Companies page.
Sometimes, the largest challenge to a successful business is getting started. If you’re looking to start an S Corporation, then our S Corporation Service can do it quickly and accurately. You can trust us for help if you need assistance with the formation, maintenance, or compliance needs of your enterprise.
Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Creating an S Corp in Ohio takes advantage of the limited liability of a C Corp while also creating the benefit of pass-through taxation and other tax advantages.
Generally, a corporate name should be professional and something you can live with for the life of the business. Your name also needs to be distinguishable from the names of other entities and must include a designation as a corporation or limited liability company through the addition of “Corp,” “Inc,” “LLC,” etc. Check state laws, or use our name service to help ensure that you follow all requirements.
You don’t need to identify your LLC as an S Corp. Provided that you are following the Ohio name restrictions regarding the use of “LLC” or “limited liability company,” you shouldn’t need to specify S Corp status in your company name.
There is no S corporation tax return for Ohio. Rather, these taxes are paid with your personal income taxes. Review the specific requirements with both the IRS and the Ohio Department of Taxation to make sure you comply. And if you have any remaining concerns, of course, you can always consult a tax professional.