How to Start a Sole Proprietorship in Ohio

Last updated: March 13th, 2024
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Starting a business can be an exciting venture, and in Ohio, establishing a sole proprietorship is a straightforward process. While no formal setup requirements or fees are involved, it’s essential to take certain steps to ensure your sole proprietorship operates legally and efficiently. This guide will walk you through the process of starting a sole proprietorship in Ohio, providing you with the necessary information and resources to get your business up and running successfully.

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What is a sole proprietorship?

A sole proprietorship is the most straightforward type of business you can establish. Due to their ease of setup, they are popular with entrepreneurs and small business owners. The business and the owner are seen as the same legal entity in a sole proprietorship.

This means that you have complete control over your business, but you hold personal liability for any debts or obligations of the business.

A step-by-step guide to starting your Ohio sole proprietorship

1

Choose a business name

Choosing a business name is an important first step in establishing your sole proprietorship in Ohio. You have the option to use your legal name or a trade name, also known as a “doing business as” (DBA) name. A trade name allows you to operate your business under a different name, which can enhance your professional image and build trust with customers.

Unlike in many other states, DBAs are not recognized in Ohio. Sole proprietorships wanting to operate under an alternate name have two options: either register a trade name or report a fictitious name. The key distinction between the two is that a trade name must be unique and not match any other registered names, while a fictitious name doesn’t have to meet this criterion.

Here are the steps to filing your trade or fictitious name:

  1. Choose a business name: Crafting a memorable company name that communicates your business can attract new clients. Generating a pool of catchy and descriptive options can turn your company name into a powerful marketing tool that stays in the minds of your customers.
  2. Check availability: After choosing your business name, you must confirm it’s not already taken. Search government databases to verify availability.

There are two key resources to check:

  1. Check online availability: Ensure your business name is available as a .com domain and on prominent social media platforms. Securing corresponding domains and handles establishes a connection between your brand and online presence. This enhances brand recognition and simplifies locating your company on the web.
  2. Register the business name: Register your trade name by filing a Trade Name Registration form, filing online, or reporting using a fictitious name. Ohio Secretary of State provides the necessary forms on their website. When submitting the form, make sure to attach a filing fee.
2

Obtain an (Employer Identification Number) EIN

While obtaining an Employer Identification Number (EIN) is not mandatory for sole proprietors without employees, it is recommended.

An EIN is a nine-digit number issued by the Internal Revenue Service (IRS). It serves as a unique identifier for your business and can provide several benefits:

  • Opens up business banking opportunities: Having an EIN allows you to open a business account separate from your accounts. This separation helps you maintain clear financial records and simplifies tax filing.
  • Helps establish business credit: With an EIN, you can start building a separate credit history for your business, which may be beneficial when applying for loans or lines of credit.
  • Eases the hiring process: If you plan to expand your sole proprietorship and hire employees, having an EIN is necessary for payroll tax reporting and other employment-related requirements.
  • Enhances business privacy: Using an EIN instead of your Social Security Number (SSN) on invoices and contracts adds an extra layer of privacy and identity protection.
  • Prepares for business growth: If you have plans to grow your business and potentially convert it into a different business entity, such as a Limited Liability Company (LLC) or a corporation, having an EIN is a crucial step in the transition process.

Register through the IRS website or click here to obtain an EIN.

3

Obtain Ohio business licenses, permits, and zoning clearances

  • There are no general business license requirements for sole proprietors in Ohio. 
  • Depending on your business activities, you may be required to apply for additional licenses. There are many licenses in Ohio, and you will probably need one.
  • To identify the licenses and permits relevant to your business, visit Ohio’s licenses and permits webpage and the eLicense Ohio webpage.
  • These resources provide information on a wide range of state-issued licenses, permits, and professional licenses for regulated occupations.
4

Register for taxes

You are responsible for reporting all business income and expenses on your personal tax return.

When filing your personal income tax return using Form 1040, it’s crucial to include a Schedule C to provide detailed information on your sole proprietorship’s income, profits, and losses during the year.

As a self-employed sole proprietor, you must pay self-employment tax for Social Security and Medicare contributions. To fulfill this requirement, you must file Schedule SE.

Access the information and the most current versions of Form 1040Schedule C, and Schedule SE on the IRS website.

Additional state and local taxes

  • You must register with the Ohio Department of Taxation to fulfill your tax obligations.
  • Start by registering your sole proprietorship with the Ohio Department of Taxation by phone or online through the Ohio Business Gateway.
  • This registration process will help you determine the specific business taxes you may be required to pay, such as sales tax, employer withholding tax, unemployment compensation tax, workers’ compensation tax, and municipal income tax.

Additional steps

Completing your EIN application, federal tax registration, and securing necessary licensing checks the core boxes for establishing your sole proprietorship. With the legal basics covered, it’s wise to take extra steps to set up your new business for ongoing success.

5

Open business bank accounts

Keeping your business and personal finances separated is key for accurate record-keeping and protecting your assets. Think about opening:

  • Business bank account: A dedicated business account to manage income, expenses, and transactions maintains clear separation from your funds. This also lends credibility when working with vendors or applying for financing.
  • Business credit card: Opening a card in your business’s name further segments spending and builds credit history specific to your company’s financial profile.
6

Get liability insurance

Sole proprietors carry unlimited liability for business obligations, so insurance is critical. Policies can shield against unexpected claims or events. Consider:

  • General business liability insurance: Covers claims of property damage, bodily harm, or personal injury resulting from your operations.
  • Professional liability insurance: For service providers, it protects against alleged negligence, errors, or omissions in delivering your services.
7

Maintain business records

Ohio requires new businesses to maintain complete and accurate accounting records. Detailed record-keeping helps maximize tax deductions and organize your finances.

We recommend keeping records of the following:

  • Income earned
  • Expenses
  • Assets/liabilities
  • Inventory
  • Receipts

We recommend using bookkeeping software, spreadsheets, or an organized filing system to stay on top of your record-keeping. This will ensure you have all the necessary documentation come tax time.

Sole proprietorship vs. LLC

For some small businesses or startups, forming an LLC may be preferable to a sole proprietorship.

Here are some key advantages an LLC holds:

  • Liability protection: LLCs legally separate your personal and business assets. Sole proprietorships do not.
  • Credibility: An LLC’s structure appears more professional with customers.
  • Growth potential: LLCs are better suited if you plan to expand your business.
  • Tax flexibility: LLCs allow you to choose how your business is taxed. Sole proprietorships do not.

However, there are tradeoffs to consider:

  • Complexity: LLCs require an operating agreement and annual reporting. Sole proprietorships have less paperwork.
  • Cost: LLC formation and maintenance fees are higher than a sole proprietorship.

Tips:

  • Consult a tax professional to decide which structure best fits your business.
  • Weigh liability protection vs. simplicity based on your goals and risk factors.

FAQs

Do I need to register my sole proprietorship with the state of Ohio?

No formal registration process is required for sole proprietorships in Ohio. However, you may need to register your trade name or report the use of a fictitious name to the Ohio Secretary of State.

Can I use my personal name as my business name?

Yes, you can operate your sole proprietorship using your legal name. However, a trade or DBA name can provide a more professional image and help differentiate your business from competitors.

Are there any licensing requirements for sole proprietors in Ohio?

While no general business license requirements exist for sole proprietors in Ohio, certain occupations and business activities may require specific licenses or permits.

How do I determine which taxes to pay as a sole proprietor in Ohio?

Register your sole proprietorship with the Ohio Department of Taxation to determine which taxes apply to your business. The Ohio Business Gateway can help you establish your tax obligations, including sales tax, employer withholding tax, and other applicable taxes.

Should I consider forming an LLC instead of a sole proprietorship?

While a sole proprietorship offers simplicity and flexibility but does not protect personal liability, forming an LLC may be suitable if you anticipate significant growth or want to protect your personal assets.

What are the reporting and filing requirements for a sole proprietorship in Ohio?

Sole proprietorships in Ohio have no annual state reporting requirements. However, you must report income and expenses on your federal tax return. State-specific taxes like sales tax may also apply.

How do I transition from a sole proprietorship to an LLC in Ohio?

Transitioning to an LLC involves filing Articles of Organization with the Ohio Secretary of State and paying a filing fee. While not mandatory, an Operating Agreement is recommended.

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