A decade ago Ohio ranked below average on many lists of state business climates. In recent years, however, the Buckeye State has risen considerably in such rankings. Still, Ohio has its share of unique regulatory, tax and other requirements for new businesses. If you’re thinking of starting a business in Ohio, here’s what you need to know.
Many financial advisors specialize in helping business owners with their finances. They can help you protect your personal and business assets.
Make a Business Plan
A successful business startup begins with planning. Entrepreneurs typically begin by selecting a product or service offering. Most of the time, the offering ties in with the founder’s specific skill set or passions. Of course, the potential market for the offering is another key consideration.
Ohio’s biggest industries are financial services and manufacturing of many types including plastics, rubber, metals, electrical equipment, appliances and vehicles. Half the U.S. population is located within 500 miles of the largest city and state capital, Columbus. This makes Ohio a natural location for businesses providing transportation facilities and services.
Marketing a new business to Ohioans will be much like marketing to Americans in any other state. The state’s population is close to the average of all states in key metrics such as age, racial makeup, educational attainment and household income. One area where it stands out is cost of living, where it ranks second-lowest.
While not all new businesses have employees, entrepreneurs who expect to hire help have to be prepared with plans for recruiting, hiring and retaining workers. Staffing a new Ohio business should be a positive experience. The state’s workers have shown better-than-average increases in productivity in recent years.
When it comes to financing, nearly all new businesses rely to some degree on the founder’s personal savings. Other potential sources of funds include bank loans, investments from friends and family, stock sales and crowdfunding.
Ohio has dozens of state-backed financial incentive programs that can also lend a hand to the right new business. They range from research and development tax credits to low-cost loans for energy-saving improvements.
Choose a Business Structure
An important early decision when starting a business is the type of business structure that will be used. This choice can have significant impacts on personal liability, ease of attracting investors and other concerns.
Business entities are regulated by the states, and Ohio recognizes these types:
- Sole proprietors: This simplest and most common business form does not distinguish between owner and business. Sole proprietors are exposed to liability from the operations of their businesses. Ohio sole proprietorships are not required to register if they are doing business under the owner’s name.
- Partnerships: Partnerships are formed when two or more people create a business for profit. Like sole proprietors, partnerships don’t have to register with the state if they are doing business under the owners’ names.
- Corporations: Corporations are separate legal entities that protect their owners from liability but at the cost of more documentation and regulatory filings. There are two types of corporations, C corporations and S corporations. The latter type lets a company pass all profits directly to owner(s), who therefore avoid double taxation. As separate entities, corporations must register with the state and pay a fee.
- Limited liability companies (LLCs): Similar to corporations, LLCs protect owners from liability and also must register and pay fees to the state. However, the ongoing paperwork is less burdensome than for corporations.
- Limited partnerships. These partnerships have two kinds of partners, general and limited and offer some protection from liability to limited partners. Ohio limited partnerships have to register and pay fees to the state.
- Limited liability partnerships. To protect general partners from liability, a partnership can be registered as a limited liability partnership. This also requires paying a fee to the state.
Ohio entrepreneurs can find online forms and instructions for filing and paying fees at the Secretary of State website.
Register the Business Name
For a business organized as anything other than a sole proprietorship or partnership, the business name is registered with the Ohio secretary of state. Sole proprietorships and partnerships that do business as anything other than the owners’ names do have to either register a trade name or report using a fictitious name.
Ohio business owners can register their enterprise’s name online at the secretary of state’s website.
Get Tax Permits
In order to collect and pay taxes, businesses must set up accounts and get tax numbers from both the federal and state governments.
To get a federal Employer Identification Number, businesses can apply with the Internal Revenue Service. The EIN let employers withhold taxes on worker wages and salaries and file the business’s federal tax return.
To register for state tax numbers, visit the Ohio Department of Taxation website. Here businesses register and get information on relevant taxes including sales tax, municipal taxes and the state commercial activity tax.
When businesses hire or re-hire employees they are required to inform the Ohio New Hire Reporting Center. Worker’s compensation account setup can be done at the Ohio Bureau of Worker’s Compensation website. The Ohio Department of Job and Family Services provides information about the state’s new unemployment compensation tax system.
How Ohio Taxes Businesses
Ohio has no corporate income or franchise tax. However, it does have a commercial activity tax (CAT). Businesses with gross sales of at least $150,000 must register with the Department of Taxation to pay this annual tax.
The CAT consists of a levy of 0.26% of taxable gross receipts on revenues of more than $1 million. The CAT on the first $1 million revenue is a flat $150.
Ohio also collects a state sales and use tax of 5.75%. In addition, counties and regional transit authorities may also collect sales and use taxes. Business owners can find information about municipal and other local taxes with a search tool using their business address at the Department of Taxation website.
Obtain Permits and Licenses
Like most states, Ohio requires permits and licenses for a wide range of businesses. The Ohio Business Gateway provides convenient checklists for many different types of enterprises, from acupuncturists to zoos. These checklists describe in detail the permits from various state agencies that may be necessary.
Business owners should also contact their county and local government offices to find out if local permits are required for their business.
The Bottom Line
Ohio is an attractive location for business startups. The state’s low cost of doing business, high quality of life and central location provide a welcoming environment for a variety of industries. In addition, with a lengthy shoreline on Lake Erie, it benefits from business opportunities tied to maritime shipping. It can be a great place to start a business for the right person in the right industry.
Tips on Starting a Business
- Many financial advisors specialize in helping small business owners with their financial plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Some parts of starting a small business are the same no matter where you plan to operate. Here are some of the basic requirements for beginning an enterprise.
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