How to start a business in Ohio

Starting a small business in Ohio can be a thrilling and rewarding experience for both established business owners and aspiring entrepreneurs. With endless options available for the type of business to run, the target market and the location to establish the business, Ohio offers a wealth of opportunities.

Ohio’s major cities – such as Cleveland, Columbus and Cincinnati – are popular destinations for entrepreneurs looking to establish a strong business presence. However, even if you intend to operate in a smaller town or specialize in more of a niche market, there are boundless possibilities and ample business resources to support your new business venture.

To successfully launch and operate your new Ohio business, you’ll need some basic business knowledge and an understanding of the procedures involved in forming a legal entity. To help you along, we’ve developed a comprehensive step-by-step guide that includes all the essential information to help you begin your small business in Ohio with confidence.

What are the steps to opening a business in the state of Ohio?

Step 1: Develop your business idea

Developing an idea for your Ohio business is the first step, even if you have one in mind already. If you’re struggling to come up with an idea, start by looking at your own interests and hobbies and consider how you could turn your passions into a profitable business. Research other businesses online and in your city that are doing well in your industry, as this may provide some valuable insight and inspiration for your own business idea.

It’s important to keep in mind that while a completely unique idea may sound enticing, you’ll need to be certain that there’s a market for your product or service. If nobody else is offering something similar already, it could be due to a lack of demand or a limited target audience.

There are a few actions you should take to finalize your idea:

• Discuss your Ohio business idea with your family, friends and others you trust to gain different perspectives and feedback. Their insights can help you determine whether your business idea is sustainable and viable.
• Research your industry and niche to find examples of other successful local businesses. This can help you identify potential gaps in the market and inspire new ideas for your own small business.
• Consider your target audience and how your business will serve them. If you’ll have a physical location or service a specific geographical area, research the demographics to ensure that they align with your target audience and business goals.
• Seek feedback from individuals you trust and be open to constructive criticism. Honest feedback can help refine your Ohio business idea and improve your chances of success.

Step 2: Create a small business plan

Developing a comprehensive business plan is crucial when starting a new Ohio business, regardless of whether it’s an LLC or another type of legal business entity. A well-crafted business plan can serve as a roadmap for your business, guiding you toward achieving sustainable profits and long-term success.

Your business plan should cover all pertinent details of your business, including your products or services, target market and financial projections. It should also outline your company’s structure, management hierarchy and marketing strategies. The more comprehensive your business plan is, the easier it will be for you to stay on track as you grow. Your plan can also be used to secure funding from investors or lenders, so it’s worth putting in the time to make it good.

Here are the key elements to include in a thoughtfully crafted business plan:

Step 3: Secure necessary funding

Starting a business in Ohio requires significant capital for expenses, such as leasing commercial space, purchasing inventory and outfitting a storefront. If you need extra funds to launch your business, it’s essential to consider funding options carefully to ensure you have the appropriate amount of initial capital to get rolling.

One option is to seek out capital lending solutions. Third-party lenders such as Heartland specialize in providing small business loans to new businesses to help cover startup costs and initial setup. With loan options ranging from $5,000 to $5 million, you’ll have no trouble finding a loan that suits your business needs. Working with third-party lenders can remove stress and provide you with access to the capital required to set up your business and prepare for your first customers to walk through your doors (or shop on your website).

In addition to working with lenders, crowdfunding or personal investments can also be viable funding options. However, regardless of the funding source, your business will require sufficient cash flow to operate. Understanding how to start a business in Ohio with the right funding stream is crucial because it can eliminate the financial stress that is common among new business owners. By obtaining adequate funding, you can focus on growing your business and achieving success.

Step 4: Choose your business name

Choosing the right name for your Ohio business is crucial to its success. Your business name should be easily searchable online, memorable to your target customers and representative of your values or the solutions you provide. If you’re keeping things local, you can also choose to incorporate words that carry geographical or historical significance that your customers will recognize and assign positive meaning to.

Once you’ve decided on a name, the next step is to check its availability. You can do this by performing a search on the Ohio Secretary of State’s website. If the name is available, you can form your LLC or other business entity using that name.

If you’re not ready to form your LLC or other business entity just yet, you can request a name reservation for 180 days by submitting an application and filing online. The cost of reserving a business name in Ohio is $39. However, it’s important to note that the reservation doesn’t guarantee the exclusive right to use the name. Other businesses can still use the same or similar names, so it’s crucial to secure your desired name as soon as possible by registering your business.

Pro tip! Reserve your website domain name

Maintaining a website is important for any Ohio business, as it allows customers to find and interact with your business online. Once you’ve chosen a name for your business, you should secure the corresponding domain name as soon as possible so that it matches your business name. It’s also important to create social media accounts with the same name to increase your online presence and promote your brand. Consistently using the same business name across all of your online profiles helps to increase brand recognition and makes it easy for customers to find and engage with you.

Step 5: Identify your business structure and business entity type

Choosing the right legal entity type for your Ohio business is a crucial decision that will have significant implications for how your business operates and is taxed by the Internal Revenue Service (IRS). The legal structure you choose will determine the amount of personal liability you face, the extent of paperwork and reporting required and how you can raise capital. This is why it’s so important to understand the different business structures so you can determine how to start a business in Ohio on the right track.

General partnership

If you’re looking at how to start a business in Ohio with a friend or other individual, forming a general partnership can be an attractive option. General partnerships don’t require state filings like LLCs and corporations do, which can make the setup process faster, less expensive and more straightforward. That said, general partnerships don’t offer any liability protection, which means that the personal assets of the partners could be at risk in the event of legal action or creditor collection attempts.

General partnerships often use the names of the owners in the business name, but they can also choose to register a fictitious name or DBA (“doing business as”) to be known by another business name. Note, however, that there aren’t any required tax forms at the federal level, so all of the profits earned by the partnership are taxed as personal income for each partner. This can be a disadvantage for partnerships with high earning potential, as the partners may face a higher tax burden compared to other business structures.

Sole proprietorship

A sole proprietorship is an unincorporated business owned by a single individual in Ohio. Sole proprietors can use their legal name or register a DBA to operate in their city or local community. However, sole proprietorships don’t offer liability protection, which means that the business can’t own any assets separate from the owner’s personal assets. This means that just like a partnership, any financial difficulties would be the responsibility of the owner, not the business.

Tax-wise, a sole proprietor is in the same boat as those in a general partnership, in that any profit earned is taxed as personal income. While sole proprietorships have low startup costs, they aren’t typically suitable for businesses that plan to grow and expand in the long run.

Limited liability company (LLC)

An LLC is a vastly popular business entity type for small business owners in Ohio, as it offers limited liability protection to their owners without being registered as a full-fledged corporation. This means that the business can own assets separate from the owner’s personal assets, and the owner’s assets are protected in the event of legal action, debt, or business failure. LLCs use an operating agreement to set forth all of the rules and obligations of each member, which protects their limited liability status.

Profits generated by an LLC are subject to pass-through taxation, which means that once income is divided among the owners, it’s taxed as personal income. An Ohio LLC isn’t the same as a registered corporation, hence why it’s called a Limited liability company, and not a Limited liability corporation. As for IRS forms, if you own and operate your LLC by yourself, you’ll need to file Form 1040. If you have other members or owners in your LLC, you’ll need to file Form 1065.

Subchapter "S" corporation (S Corp)

In Ohio, an S Corp is a registered corporation that can issue stock and provides limited liability protection to its owners. They can only issue one type of stock with a limit of 100 shareholders, but this structure suits a number of Ohio businesses. In fact, forming an S Corp is an excellent choice for small businesses that specifically want the liability protection of a corporation as well as the tax flexibility that LLCs enjoy. S Corps can choose either pass-through taxation or double taxation, depending on which best serves their needs. To elect S Corp status, the corporation must file with the IRS using Form 2553 "Election by a Small Business Corporation."

Subchapter "C" corporation (C Corp)

The C Corp structure offers limited liability protection to business owners and is a good option for larger companies looking to go public and raise capital by selling shares of their stock. C Corps are required to elect a board of directors, hold annual meetings and file an annual report. One disadvantage of a C Corp is double taxation. This means that the corporation has to file a corporate tax return and pay corporate taxes. Then, any dividends received by shareholders must be declared on their personal income tax returns and taxed again.

While double taxation is a potential drawback of C Corps, they offer many advantages — mainly the ability to raise capital by issuing stock, which can be owned by companies, organizations, investors and the general public. To remain compliant, C Corps are required to file Form 1120 with the IRS.

Nonprofit organization

Forming a nonprofit organization in Ohio requires a thorough understanding of the legal obligations that come with this unique entity type. Nonprofits have a primary goal of creating or changing something for the public interest, rather than generating profits for owners or shareholders the way that LLCs and corporations do. As such, any net profit must be invested back into the organization to further its primary mission.

Like other entity types, nonprofits are granted limited liability protection, but they are exempt from federal taxes. This means that they must maintain accurate records and file mandatory paperwork, including Form 990 "Return of Organization Exempt from Income Tax."

Step 6: Register your small business in Ohio

To register a small business in Ohio, you’ll need to select or delegate a registered agent, file formation documents called articles of organization and pay the state filing fee to register a legal business entity. If you do it online, the filing fee to register with the government agency as an Ohio LLC or corporation is $99.

What is a registered agent?

A registered agent is an individual or entity that receives legal notices and other official documents on behalf of a business in Ohio. They act as the point of contact for any legal correspondence that the business may receive throughout the course of its operation. A registered agent must have a physical address in Ohio (P.O. boxes are not permitted) and be available during regular business hours to receive any relevant legal correspondence. Business owners can choose to act as their own registered agents or they can hire a third-party service to act on their behalf.

What are articles of organization?

The state of Ohio requires new business owners to file formation documents to set up a legal business entity. These documents are known as articles of organization (or sometimes, articles of incorporation), and they make the business legal and official. Specifically, your articles of organization will provide key information about your business as well as define the obligations of the owner(s).

Your articles of organization must contain certain specific information that will be reviewed and approved by the Ohio Secretary of State’s office. This information includes:

Entrepreneurs looking at how to start a business in Ohio can file their articles of organization on the Ohio Secretary of State’s website.

Step 7: Apply for an Employer Identification Number (EIN)

A Federal Employer Identification Number (EIN) is a unique tax identification number that the IRS assigns to registered businesses for tax identification purposes. If your business plans to register as a corporation, or if you wish to hire employees or open business bank accounts and credit card accounts, you’ll need an EIN. Obtaining an EIN will help you protect your personal identity as well, as you can keep your social security number private (sole proprietorships and partnerships use their personal SSNs if they don’t have an EIN).

An EIN can help you establish business credit, streamline business loan applications and prevent any tax penalties in the event that you were supposed to obtain one earlier on in your business. There is no cost to get an EIN, and the online application makes it easy to get your EIN right away.

Step 8: Open a small business bank account

Once you’ve received your shiny new EIN, you may want to consider visiting a local bank in Ohio to open a business bank account and perhaps obtain a business credit card. Separating your personal finances from your business transactions is highly beneficial for your business’ financial management and helps you avoid potential issues in the future. If you plan to hire employees to help conduct your business activities, you’ll most likely want to have a separate business bank account to manage your payroll.

Step 9: Obtain business licenses and permits

Ohio businesses aren’t required to have a state-issued business license (there’s no such thing) but they do need to comply with municipal regulations and requirements. Depending on the nature of your business activities and the rules for your city or municipality, multiple licenses or permits may be necessary.

Your business license responsibilities can vary and will depend on what your business does and where it’s located. For detailed information on how to obtain the appropriate permits and licenses, it’s recommended that you reference the website of your local government.

Step 10: Understand Ohio business taxes

There are a few taxes that Ohio business owners should be aware of as they conduct their activities and operations within the state. Businesses with pass-through taxation will need to pay personal income tax on both a state and federal level, but there are other taxes to consider.

Sales and use tax

A 5.75% sales and use tax is required for physical products sold by businesses in Ohio. Some services may also be subject to sales tax, including rental vehicles, hotel stays and event admission fees. Use tax may apply to businesses that purchase products sold outside of Ohio from retailers or distributors who don’t charge Ohio state tax on their sales.

Corporate income tax

The Ohio Department of Taxation doesn’t require corporations to pay a state corporate income tax. Registered corporations (C Corps and some S Corps) are only required to pay the 21% federal corporate tax rate.

Commercial activity tax

Businesses in Ohio that do more than $150,000 in annual revenue (measured by taxable gross receipts) are required to file returns and pay the Commercial Activity Tax (CAT) for the privilege of doing business in Ohio.

It’s crucial for business owners in Ohio to ensure that their business is compliant with all applicable tax laws and regulations. To make sure, it’s recommended that you consult with a licensed tax professional for guidance.

What is a DBA?

In Ohio, businesses have the option to use a DBA (doing business as) as an alternative name instead of their registered legal name. A DBA can be helpful for businesses that want to rebrand or use a name that better suits the services they offer as they grow. An example could be a lawn mowing business that wants to expand into full landscaping and property maintenance services and be recognized for more than just lawn mowing.

Frequently asked questions (FAQs)

Ready to work with a company that knows what it’s like to start a business?

Starting a business in Ohio is a thrilling venture, but there’s a lot to know before you begin. You bring the ideas, motivation and acumen, and we’ll supply tools and insight to help set you up for success.

As you’re learning what it takes to get started and putting in the work to make your business happen, we invite you to check out the Start-Up Path for Entrepreneurs. It’s a totally free, jam-packed resource with interactive worksheets and planning guides — the perfect pairing for the information included above.

Plus, you’ll get applicable advice from real entrepreneurs who have been in your shoes.

It gets better. You can move through it on your own schedule (we know you’re busy hustling) and reference it anytime as your business grows or shifts.

Prefer knowledge on the go? Tune in to our Entrepreneur’s Studio podcast. You’ll hear empowering and inspiring stories from Shake Shack founder Danny Myer, all-inclusive makeup studio owner Alex Bradberry and Ohio’s own Christina Tosi — yep, the brains behind the ultra-popular dessert shop Milk Bar.

Whenever you’re ready to start your Ohio-based business, we’ll be here to assist you.

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Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us