The Buckeye State offers a 0% corporate income tax rate and was ranked seventh in Chief Executive Magazine’s Best States for Business. Millennial homebuyers are flocking to cities like Akron, Cincinnati, Columbus, and Dayton, which have lower costs of living than other metropolitan areas, making this midwestern state a great venue for entrepreneurs to begin their new business ventures.
But once you have your business idea, have sketched out a business plan, and are ready to explore Ohio’s commercial opportunities, how do you set up your new entity? Read on for a step-by-step guide on how to structure your business, ease your tax burden, and grow your workforce.
1. Name your business
After you've created a business plan, the first step towards starting your new venture is naming it. But before you assume you can use the name you come up with, you have to make sure it complies with guidelines set by the Ohio Secretary of State. Here's what to do:
- Search your desired business name on the Secretary of State office's online database to make sure it hasn't been used.
- If you're setting up a sole proprietorship (more on business structures in a moment) and want to use something other than your legal name as your business name, you have to register a trade name with the Secretary of State by filling out a name registration form (Form 534a). This is also known as a doing business as (DBA) name.
- Register a trademark or service mark in Ohio by filling out Form 555 with the Secretary of State's office. The base filing fee is $125.
Once your business name is certified, you should consider also registering a matching domain name.
2. Explore your funding options
It's tricky to jumpstart any new business without financing help, so you should look into loans, grants, and other funding options that can provide access to working capital and help with startup costs. The Ohio Chamber of Commerce, for instance, lists federal and state grants available for qualifying Ohio businesses. And DataOhio is a government platform that provides a searchable database of grants and loans.
Some types of financing worth considering include:
- The Ohio Venture Fund invests in select early-stage tech companies.
- The Small Business Administration (SBA) provides counseling, certifications, and disaster relief for emerging companies. The SBA has Ohio offices in Columbus, Cincinnati, and Dayton.
- The Economic and Community Development Institute (ECDI) offers loans for small businesses in Columbia, Cleveland, Akron, Cincinnati, Toledo, and Canton.
- The Ohio Department of Development launched a program that offers low-interest loans to minority businesses.
You can also seek out other types of loans, like a business line of credit, from traditional banks and online lenders. But, new businesses that aren't yet financially solvent may not qualify for more traditional funding. So, be sure to also seek out zero-debt financing options (apart from grants) like bootstrapping, crowdfunding, and angel investments.
3. Decide on your business structure
According to the Ohio Small Business Development Center (SBDC), Ohio recognizes six different business structures, all of which set forth different tax requirements, liability protections, and decision-making powers. To help pick the best business entity structure for your needs, here's a quick run-through of how each type stacks up:
What is it?
Pros and cons
An unincorporated business owned by one person
✔ You can hire employees.
✔ All business-related profits are considered to be the owner's personal income (the owner reports personal and business income in the same tax return).
✘The single owner assumes all legal, financial, and tax liabilities, which means personal assets are vulnerable.
Limited Liability Company (LLC)
A company with one or multiple owners (or "members") who, for tax purposes, are legally distinct from the owners themselves
✔ Easy to set up
✔ Helps secure funding through loans or investments
✔ You can elect how to be taxed and minimize "double taxation" of income.
✔ Structure protects personal assets from legal liability.
✘Self-employment taxes apply.
✘Personal assets can still be legally linked to your business. For accounting purposes, you should separate business and personal expenses.
✘Members need to unanimously sign off on any transfer of management duties.
Legal entity distinct from the business owners, managed by shareholders who appoint a board to oversee operations and are liable for the business
✔ Typically easier to secure investment and transfer shares to new members
✔Owners are protected from personal liability.
✔ Can be structured as an S-Corp or C-Corp
✘“Double taxation” for C-Corps—the corporation pays income taxes on its income, and shareholders also pay taxes on dividends.
Where two or more people control a business and split profits, debts, and management. Partners assume liability for themselves and for their other partners
✔ Partners are taxed once (reporting their slice of business income on their personal tax return) and get pass-through tax treatment.
✔ Easier to set up than corporations
✘Investors can be wary of shared debts and liabilities across partners.
✘Personal assets are vulnerable in legal cases.
A business structure managed and owned by one controlling partner (a general partner) and at least one limited partner
✔ Liability varies depending on how involved partners are in the business.
✔ All parties only report income once on their personal tax return.
✘The are more compliance and paperwork boxes to check compared to general partnerships.
✘The controlling partner assumes legal liability, making personal assets vulnerable to lawsuits.
Limited Liability Partnership (LLP)
This structure typically starts off as a general partnership, with members who want to assume some liability without setting up an LLC (this structure is uncommon).
✔ Unlike a general partnership, each member is only liable for their own actions.
✘Businesses can't start out as LLPs.
4. Register your business in Ohio
In Ohio, business registration varies depending on the structure of your entity, but you'll typically need to create an online username and password with the Secretary of State's office to submit a filing. Here's a quick breakdown of formation documents you'll need and how to register different business types:
How to register
File your Articles of Organization (Form 610) with the Secretary of State online.
File a Certificate of Limited Partnership (Form 542) with the Secretary of State online.
File a Statement of Domestic Qualification (Form 536) with the Secretary of State online.
General Partnership and Sole Proprietorship
General partnerships and sole proprietorships don’t need to be formally registered with the state. However, if you operate the business under a name different from your or your partner(s)’ legal name(s), you’ll need to file a DBA.
To do so, file a name registration form (Form 534a) with the Secretary of State's office.
For extra fees, you can typically expedite these filings. More registration information is available on the Ohio Secretary of State's website.
5. Decide on a registered agent
Ohio state law requires businesses to list a registered agent (also known by Ohio authorities as a statutory agent) for their LLC, corporation, or limited partnership. The business designates this individual to collect legal documents on its behalf and be responsible for notifying the business owner of any lawsuits, notices, and official processes.
Small business owners can be their own registered agents in Ohio so long as they keep a physical office within state boundaries. Other agents you appoint also have to be Ohio residents or own Ohio-based businesses. You must file your statutory agent (and include their address) with the Ohio Secretary of State’s office.
While you can appoint a family member or someone else you know as your agent, you can also tap professionals through third-party agent services, which will charge annual fees starting at around $50. Professional registered agents can help with compliance monitoring, document scanning, and tax notifications. If you want additional services or same-day document processing, you'll have to pay more.
6. Apply for an Employer Identification Number
All US-based businesses need an Employer Identification Number (EIN) before they can hire and pay employees. An EIN is also typically required for applying for business bank accounts and loans (as a sole proprietor, you can substitute this number with your Social Security number if you don’t have any employees). You also need an EIN to pay taxes and run payroll for employees. The Internal Revenue Service (IRS) administers EINs; Ohio businesses can apply for one for free by submitting Form SS-4 online or by mail.
7. Get up to speed with Business Tax Credits
The Ohio government offers tax credits and other incentive programs for emerging businesses, which help relieve tax burdens, lessen operational costs, and encourage job creation.
Available tax credits include (but aren’t limited to):
- Job Creation Tax Credit: A refundable credit available to companies who create at least 10 new jobs, while also meeting other wage and payroll requirements. Applicants are approved by the Ohio Tax Credit Authority.
- Ohio Opportunity Zones Tax Credit: This credit incentivizes investment in areas deemed “economically distressed” by the federal government. Investments go to the Ohio Qualified Opportunity Fund, and the taxpayer gets a credit worth 10% of their investment.
- Ohio Community Reinvestment Area (CRA) tax exemptions: Local governments within Ohio can grant exceptions to taxpayers who construct new buildings or renovate existing ones.
Ohio-based businesses are also eligible for federal programs like the Work Opportunity Tax Credit, which relieves the tax burden for employers who hire workers who face barriers to employment (such as veterans who receive food stamp benefits and formerly incarcerated people).
Be sure to consult Ohio’s Department of Development website for more information on state incentive programs.
8. Stay on top of filing requirements and taxes
The Ohio Department of Taxation requires business entities to regularly file tax and other business documents with the state government. Exact requirements vary depending on business structure, but you’ll typically have to file:
- Commercial activity taxes (CAT)
- Employer withholding taxes
- Municipal income taxes
- Federal taxes (when applicable)
- Sales and use taxes for goods and services
When applicable, you’ll also need to pay taxes for specific industries like tobacco, alcohol, and natural gas distribution. Consult the Ohio Department of Taxation’s website for a full list of business taxes.
Any Ohio business making retail sales needs to get a vendor’s license, which allows you to remit sales taxes to the Ohio Department of Taxation. You can purchase a vendor’s license, as well as look into other tax requirements, by creating an online account with the state government’s Ohio Business Gateway. And employers need to submit quarterly wage reports for unemployment insurance.
Unlike other states, Ohio does not always require businesses to submit annual reports, though trade names, fictitious names, and trademarks need to be regularly renewed.
9. Find a payroll solution
Once you’re ready to hire employees for your new Ohio business, it’s crucial to have a payroll solution up to the task. You need to pay your workforce promptly and accurately, but you also have to avoid compliance pitfalls. That means distinguishing employees from independent contractors to avoid misclassification penalties, adhering to overtime laws (time-and-a-half after 40 hours in a workweek), and administering statutory benefits. Bear in mind that some Ohio labor laws deviate from federal minimums. The minimum wage in Ohio, for instance, is $9.30 an hour; the federal minimum is $7.25 per hour.
A good payroll solution should ease your administrative burden so you can focus on expanding your workforce. Rippling, for example, comes with a Time & Attendance feature that tracks employee hours and notifies you when an employee approaches overtime. When it’s time to run payroll, you simply sync approved hours, hit submit, and Rippling automatically calculates net pay and withholds applicable taxes.
Even if you’re hiring beyond Ohio, Rippling can help you expand globally by:
- Paying employees and contractors around the world—in different tax jurisdictions and different currencies—in a single pay run
- Including hourly and salaried employees, along with contractors
- Managing people, systems, and data in a single platform
10. Support and scale your growing business with Rippling
Payroll is just a sliver of growing a business’s HR responsibilities. One of the best tools to help you scale is an HRIS (Human Resource Information System), which can handle time-consuming onboarding, benefits, and recruiting processes. You’ll be able to focus on the core facets of your business and eventually grow it globally.
With a single, integrated system, Rippling has an HRIS that can:
- Hire, pay, and manage your employees and contractors—whether they’re based in Toledo, Ohio or Toledo, Spain.
- Monitor local, state, and federal compliance issues with a plan of action for each one.
- Administer all employee benefits—whether it's health insurance, 401(k), commuter, and more—from a single place.
- Track and update recruiting data throughout every step of the hiring lifecycle.
- Run customized reports to help with long-term planning and other HR needs.
FAQs about setting up a business in Ohio
Do I need a business license in Ohio?
Most businesses need some form of licensing to legally operate within Ohio, but there’s no universal certificate. Different municipal, state, and federal permits may apply, and there are different regulations for different types of businesses. To view a checklist of all the licensing requirements across different industry categories, go to the Ohio government website and consult the “checklists” dropdown menu on the “starting a business” page.
Do I need a business bank account when launching a business in Ohio?
You aren't legally required to open a business bank account in Ohio. However, it's better to separate your business finances and personal expenses. This protects your personal assets and makes it easier to provide paperwork for tax purposes. Business bank accounts are generally required to apply for different small business loans from banks, like a business line of credit or credit card.
Remember that if you have employees, you need a business bank account to run payroll for them.
Do I need to get business insurance?
All Ohio employers need to provide workers’ compensation insurance to protect against injuries. Ohio law also requires employers to offer unemployment insurance.
While not always required, you should look into other insurance packages that protect your business, including:
- General liability protection
- Business personal property insurance
- Employee protection insurance
- Burglary insurance
- Coverage for special equipment
Speak to a lawyer or insurance agent to figure out what kind of coverage your business needs.
What is the corporate tax rate in Ohio
Ohio doesn’t have a corporate income tax and instead uses a gross receipts tax, also known as its commercial activity tax (CAT), pegged at 0.26% on in-state sales. As of 2023, the state’s individual income tax rate ranges from 2.77% to 3.99%. Ohio also has an average state and local sales tax rate (combined) of 7.24%.
Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.