How to Incorporate in Oklahoma vs. How to Start a Oklahoma LLC

When it comes to choosing between forming an LLC and incorporating your business, regardless of which state you start your business in, you can typically base your decision off one of the following factors:

• Ease of maintenance
  LLCs have fewer moving parts compared to corporations. They often require fewer forms for registering, and generally the costs to start an LLC are much lower than you’d see from incorporation. Corporations require issuing of stock, organizing a board, keeping minutes, and holding votes. With an LLC you can crack open a beer and call it a day. What you gain in ease of starting an LLC, you lose in perpetuity. An LLC is basically null and void if there is a divorce, death, or a member resigns from the company.
• Investors
  If you’re planning to follow the traditional path of regular and ongoing equity grants to employees, multiple rounds of financing, and reinvestment of as much capital into your business as possible, with the goal of an ultimate sale to a big, maybe public, company in exchange for cash and/or stock, LLCs are typically not the way to go. Investors frequently don’t want to complicate their personal tax situation by becoming a member in an entity taxed as a partnership. Some investors (such as venture funds), can’t invest in pass-through companies because they have tax-exempt partners which do not want to receive active trade or business income because of their tax-exempt status. Investors in early stage businesses usually just want to make an investment, acquire a capital asset (the stock), and not have any intervening tax complications (like a Form K-1 and potential taxation in other states) until the stock is sold and there is a capital gain/loss disbursement.
• Desired tax structure
  The LLC is a desired form of business largely because of the preferred tax treatment that it provides to its members. In short, the LLC provides the limited liability of a corporation or limited partnership and the tax treatment benefits of a general partnership. The most obvious tax benefit of the LLC is flow-through tax treatment. A corporation, although providing limited liability, does not protect its shareholders from double taxation. When a corporation produces income, it is taxed at the corporate level due to its status as a separate legal entity. Additionally, when the profits of the corporation are distributed to a shareholder in the form of dividends, the individual shareholder’s gross income increases, so the corporate owner is taxed again at the shareholder’s individual tax rate. An LLC may allow its owners to escape double taxation by receiving partnership tax treatment, as the income is included directly in the individual partner’s income.

One additional issue to consider is the idea of prestige. Corporations get to attach Inc. to their names. Think Amazon or Apple, Inc. Sounds fancy, and with that designator it definitely carries a bit more formality to the company name than “Breaking Badminton Sports Shop, LLC.” However, forming an LLC is just easier, more flexible, and more popular than incorporating, which is why it is the fastest growing business entity in the US.

We just touched on the overall differences between LLCs and corporations, each state handles business entities differently. Here are a few advantages and disadvantages a business owner might find in Oklahoma.

• Asset Protection
  Oklahoma does not permit an LLC owner’s personal creditors to foreclose on the owner’s LLC ownership interest or get a court to order the LLC dissolved and its assets sold for damages. On top of that protection, Oklahoma law regulates charging orders for creditors. In Oklahoma, a charging order is the only legal procedure that personal creditors of a Oklahoma LLC member can use to get at a member/debtor’s LLC ownership interest. A charging order directs the LLC to pay to the creditor any distributions of income or profit that would otherwise be distributed to the LLC member. To obtain a charging order, the creditor must obtain a personal judgment against the named LLC member. After the judgment is entered, the creditor can apply to the court for a charging order. Since a creditor with a charging order cannot participate in the LLC’s management, it cannot order the LLC to make a distribution or that the LLC be sold to pay off the debt. Creditors who obtain charging orders against LLCs end up with nothing because they can’t order any distributions and the LLC can choose not to make any.
• Anonymity
  An Oklahoma LLC is not required to disclose the names of its owners or managers to the public. This protects the privacy of the members or owners of the LLC, and allows them to hold property without their name appearing in the county land records. Even though there is a registered agent listed, the actual owners of the LLC do not have to be listed. Most states don’t have this option, and if you form an LLC in Oklahoma, and if you don’t like junk mail and spam phone calls, you should definitely take advantage of this benefit.
• Franchise Taxes
  The State of Oklahoma assesses franchise taxes against corporations, which are not assessed against LLCs. The rate is $1.25 for each $1,000 of capital invested or used in Oklahoma. Capital is defined as a company’s financial assets and manufacturing equipment, as well as buildings used to store or produce goods. Basically Oklahoma is taxing corporations for money they have in the bank and property they use to conduct business. The maximum amount of franchise tax a corporation can pay is $20,000. While the amount of the tax is likely insignificant for most professional corporations, the failure to pay the tax can result in a suspension of the corporation’s charter. LLCs win this one going away.
• Corporate and Income Taxes
  Oklahoma has a flat corporate income tax rate of 6%, which puts the state, as of 2019, at #10 for lowest corporate taxes. According to The Tax Foundation, Oklahoma collects only $699 in property taxes per capita, which is less than half of the national average of $1556. Oklahoma’s corporate income tax per capita is the second lowest as well at $40, while the national average is three-times that, at $122. For an LLC you’d be looking at a tax rate of .5% to 5%. But let’s be real, Oklahoma hits you with a 5% of income over $7,200, and if you’re running any sort of profitable LLC, you should hit that mark pretty easy. So for argument’s sake, if you incorporate you’re looking at a flat 6% tax, and if you form an LLC you’ll be paying 5%. Not super high, and not super low, so it’s kind of a wash on this front.

Oklahoma LLC or Oklahoma Corporation? Final Answer.
The idea that a corporation not only pays state income taxes but also has to fork over $1.25 for every $1,000 in capital is kind of rough, and something the Oklahoma LLC doesn’t have to worry about. For our money, the Oklahoma LLC offers you almost all the benefits of a corporation at a lower price point.

To start a corporation in Oklahoma, you must file Certificate of Incorporation with the Secretary of State. You can file the document online, by mail or in person. The Certificate of Incorporation costs a minimum of $50 to file. Or skip the pain of having to fill out a bunch of forms that ask for private information and hire Active Filings to file for you.

To start an LLC in Oklahoma, you must file Articles of Organization with the Oklahoma Secretary of State. You can file the document online, by mail or in person The Articles of Organization cost $100 to file.

What is a Franchise Tax?
Despite it’s name, a franchise tax isn’t a tax on Taco Bell and Pizza Hut. However, it is a “privilege” tax on entities for doing business in that state. Oklahoma levies an annual franchise tax on all corporations (not LLCs) that do business in Oklahoma, whether they are Taco Bell, Pizza Hut, or the local florist.

How is Oklahoma’s franchise tax calculated?
Oklahoma’s franchise tax is calculated at the rate of $1.25 for each $1,000.00 of capital employed in or apportioned to Oklahoma. Only those corporations with capital of $201,000.00 or more are required to pay the franchise tax. The maximum amount of franchise tax that a corporation may pay is $20,000. Corporations must still file an annual franchise tax return even if their tax liability is zero. Foreign corporations (corporations domiciled outside Oklahoma) are also required to pay a $100.00 registered agents fee even if they have no franchise tax liability.

When is the franchise tax due?
Oklahoma Franchise Tax is due and payable July 1st of each year unless a Franchise Election Form (Form 200-F) has been filed. The report and tax will be delinquent if not paid on or before September 15th. A penalty of 10% with 1.25% interest per month is due on payments made after the due date.

What is the Oklahoma Annual Certificate? 
Since LLCs aren’t subject to Oklahoma’s Franchise Tax, they are required to submit the Oklahoma Annual Certificate. Like an annual report, the annual certificate ensures that the state has up-to-date contact and ownership information for your LLC. LLCs submit a report each year to Oklahoma’s Secretary of State.

How do I file an annual report in Oklahoma? 
You can mail in your report, and save a little bit of money, or you can file online and pay an additional service fee of 4%. You can pay by check, cashier’s check or money order, or you can pay online using your credit card.

How much does it cost to file an Annual Certificate in Oklahoma? 
Oklahoma charges a filing fee of $25.

When are Oklahoma Annual Certificates due? 
Your certificate is due every year on the anniversary of your LLC’s formation. For example, if your Oklahoma LLC’s Articles of Organization were processed and approved on September 12, 2019, your first Oklahoma Annual Certificate would be due September 12, 2020.

Can I file my Oklahoma annual report online? 
You definitely can. Oklahoma adds a 4% service fee if you file online. By our math that shakes out to a whole extra dollar fee to save yourself the hassle of mailing a check or money order.

Mail your Annual Certificate to:

Oklahoma Secretary of State
421 NW 13th Street
Suite 210
Oklahoma City, OK 73103

In Oklahoma, do I also have to file an income tax return for my LLC?
Yes, you’ll have to file an income tax return for your LLC. For tax purposes a single member LLC is considered a sole proprietorship by the IRS. Sole proprietors are responsible for individual tax reporting of earnings from their LLC. Owners can submit an IRS Schedule C with a Form 1040 tax filing to report income derived from their LLC. A separate tax filing is not necessary.

Okay, so what tax forms do I need to file for an LLC in Oklahoma? 
Single-member LLCs must file Form 2, or Form 2EZ for non residents. Multi-member LLCs must file Form PR-1.

What information is required on these various LLC tax return forms?
It should be noted that having a tax professional sort through and file all important documents is your business’ best way forward. A good accountant can organize all of your forms and pertinent information needed to correctly file your tax returns.

However, the basics for filing in Oklahoma are pretty straight forward. You’ll file Form 2 (Oklahoma Individual Income Tax Return) and Form 2EZ. As with all tax forms you’ll need to enter your name, address, social security number, date of birth, residency status, and married or jointly filing. Beyond the basic information you’ll also need:

• payroll documents
• bank and credit card statements
• accounting documents
• partnership agreements
• depreciation schedules
• gross receipts
• checking and savings account interest

Form PR-1 (Oklahoma Partnership Information and Composite Tax Return) requires businesses to report their income, gains, losses, deductions, credits, etc. A partnership does not pay tax on its income but “passes through” any profits or losses to its partners. Partners must include partnership items on their tax or information returns.

• Partners’ Distributive Share of Income Items (Form 1065, Schedule K)
• Partners’ Distributive Share of Deduction Items (Form 1065, Schedule K)
• Partners’ Distributive Share of Oklahoma Additions and Deductions to Income

Form 1065 gives the IRS a snapshot of the company’s financial status for the year. The partners must report and pay taxes on their shares of income from the partnership on their tax returns. Partners must pay income tax on their earnings regardless of whether the earnings were distributed.

A Schedule K-1 is a tax document used to report the incomes, losses, and dividends of a business’s partners or an S corporation’s shareholders. The Schedule K-1 document is prepared for each individual partner and is included with the partner’s personal tax return. An S corporation reports activity on Form 1120S, while a partnership reports transactions on Form 1065.

What tax form does a Oklahoma corporation need to file?
Oklahoma C corporations file form 512, S corps file 512-S.

What’s the Oklahoma corporate tax income rate?
Oklahoma has a flat corporate income tax rate of 6%. So if you make $10,000 or $10 million, you’re on the hook for 6%.

What’s the personal income tax rate in Oklahoma?
$0.00+ 0.5%

$1,000.00+ 1%

$2,500.00+ 2%

$3,750.00+ 3%

$4,900.00+ 4%

$7,200.00+ 5%

When are my business tax returns due?
Oklahoma corporation tax returns are due by the 15th day of the 3rd month after the end of the tax year. For calendar year filers, this date is March 15th.

What if I need an extension?
The State of Oklahoma recognizes the Federal tax extension (IRS Form 7004). Therefore, if you have a valid Federal business extension, you will automatically receive a corresponding Oklahoma business extension for your state taxes. Make sure to enclose a copy of your Federal extension with your Oklahoma tax return when it’s filed. If you do not have a Federal extension, or if you owe Oklahoma income tax, you can request an Oklahoma tax extension with Form 504 (Application for Extension of Time to File an Oklahoma Income Tax Return). You must file Form 504 (with payment, if applicable) by the original deadline of your return, usually March 15th. Remember to enclose a copy of your Oklahoma extension with your tax return when it’s filed. A tax extension gives you more time to file, but not more time to pay. At least 90% of your Oklahoma tax due must be paid by the original deadline if you want to get a state tax extension.