Start an Ohio S Corp

Step 1: Choose a name 

When choosing a business name, keep in mind that this choice should last for the duration of your business. Pick something that you’ll be proud of for years. We suggest picking a name that is professional but also abides by the state’s naming rules. We can reserve your business name after you’ve come up with a list of potential choices. That way, your name will be safe in the meantime as you form your business.

Step 2: Appoint an Ohio statutory agent

The Secretary of State requires all businesses to have a statutory agent, otherwise known as a registered agent. You’ll name this person or entity in your formation documents. Let’s go over what they do.

What is a Statutory 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. It’s important to always maintain a statutory agent since having one keeps your business compliant. If you should happen to lose your agent for whatever reason, you’ll need to name a new one as soon as possible and inform the state of your situation.

Step 3: Elect directors or managers 

Successful companies need solid leadership from the very beginning.

Directors

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.

Managers

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. 

Step 4: File Formation Documents with the Ohio Secretary of State (SOS)

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.

Step 5: File Form 2553 to turn your business into an S Corporation

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. 

S Corporation Requirements and Limitations

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:

• Be a domestic, eligible business entity
• Have only certain types of corporate shareholders, such as individuals, estates, exempt organizations, and certain trusts — but not corporations, partnerships, or non-resident immigrants
• Have 100 shareholders or less
• Have only one class of stock
• Not be an ineligible corporation such as an international sales corporation, insurance company, or certain kinds of financial institutions

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. 

The Pros and Cons of Creating an S Corporation

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. 

Pros

Running an S Corporation can be beneficial in many ways, such as:

• Protecting your personal assets
• Eliminating corporate double taxation and instead focusing on your personal income tax
• Allowing you to use the cash method of accounting
• Enjoying more favorable income characterization

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.

Cons

Of course, there can also be drawbacks to S Corporations, such as:

• Additional expenses for formation and maintenance
• Restrictions on issuing shares
• More extensive IRS oversight
• More stringent eligibility requirements

Once again, we encourage you to speak to a tax or legal professional to determine if these factors are significant given your circumstances. 

What to Know Before Creating an S Corporation in Ohio

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. 

What’s the Difference Between an S Corporation and a C 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

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.

S Corporations

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. 

What Are the Requirements to Create an S Corporation? 

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. 

Can LLCs Choose an S Corporation Election?

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. 

We Can Help

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 and various other needs of your enterprise.