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How to start a sole proprietorship in Ohio

A sole proprietorship is one of the easiest business structures in terms of formation and operation. If you want to start a sole proprietorship in Ohio, then you can take advantage of the numerous programs that the state offers to small businesses. The state also has one of the best business climates in the nation, and it supports both small businesses and large industries. We have created this guide to answer your queries on how to start a sole proprietorship in Ohio and will cover various areas of sole proprietorship formation and operations, like obtaining a tax ID, choosing a business name, filing taxes, bank account opening, and business licenses, among others.

Sole Proprietorship in Ohio

There are over 28 million non-farm sole proprietors in the USA today and this includes freelance professionals, independent contractors, and different types of self-employed individuals and economy workers. According to the Internal Revenue Service (IRS), there has been a 1.9 percent increase in this type of entity since 2018-2019. There are several reasons why more and more entrepreneurs prefer to form a sole proprietorship in Ohio, and one of the prime reasons is that of diverse industries. You can create and successfully operate this type of entity in any industry, from advanced manufacturing to aerospace, advanced mobility, logistics & distribution, cybersecurity, financial services, and technology, among others. There are certain other factors that also aid in the growth of a sole proprietorship, like the availability of a talented workforce, a robust startup ecosystem, low business costs, and access to state incentive programs.

What is a sole proprietorship in Ohio?

If you are wondering how to start a sole proprietorship in Ohio, then it’s important to gain some insight into the type of entity it is. A sole proprietorship is also known as an individual entrepreneurship or sole tradership business and has been on the rise as far as new businesses formed in the state of Ohio are concerned. This entity type can be established easily as opposed to other entity types like a limited-liability company or a C Corporation. If you want to start a sole proprietorship in Ohio, then this type of entity will be considered an unincorporated business. This simply means that the owner of such a company will be responsible for any liabilities and profits earned by the said entity. A sole trader business will also have a different type of tax structure and will not be required to file any corporate taxes.

Important features of sole proprietorship in Ohio

When you search for a sole proprietorship in Ohio, you will find that this type of company is always operated independently and managed by an individual. This is considered to be quite a favored structure as it has several promising features and characteristics. Some of the top key features are:

  • As a sole proprietor, you will enjoy complete autonomy and full control over your entire business, from strategic to operational processes, including decision-making.
  • A sole proprietorship in Ohio will enjoy a higher degree of privacy as such a business is not obligated to disclose confidential reports to state government agencies or authorities.
  • When you form this type of entity, since you are the company’s owner, you will not have to share any profits earned by the company, unlike in a corporation or partnership.
  • One of the salient features of a sole proprietorship is that it is required to fulfill minimal or basic administrative and filing obligations; thus, documentation in such entities is minimal.
  • When you look for the advantages of a sole proprietorship in Ohio, you will find that this type of structure benefits small businesses, including home-based entities.
  • The tax structure of a sole proprietorship is quite simple and hence different from that of other entity structures.
  • The process of dissolution or closure of a sole proprietorship in Ohio is also quite simple.

Steps to Start Sole Proprietorship in Ohio

One of the most important questions that entrepreneurs are confronted with is how to start a sole proprietorship in Ohio. Although this type of entity is easy to form, certain state and business requirements must be fulfilled to ensure the smooth operation of the company in the long run. Let’s examine the important areas to focus on before starting a sole proprietorship in Ohio.

1. Prepare a business plan

Once you have decided to form a sole proprietorship in Ohio, it becomes extremely important to list every aspect of your business in order to create a clear blueprint. This process is integral to your query of how to start a sole proprietorship in Ohio and will help you identify state resources as well as the operational and financial aspects of the business. The plan will provide a brief overview of every aspect, from the business idea to products or services being offered, unique value propositions, target customers, and competition. The sole purpose of creating a business plan or a strategic plan is to ensure good decision-making and enable maximum resource allocation. Some of the most common aspects of a sole proprietorship business plan are:

  • Executive Summary
  • Business Concept
  • Company Description
  • Competition and Market Analysis
  • SWOT analysis
  • Marketing and Sales Strategy
  • Product or Service Line
  • Organization and Management
  • Operational Plan
  • Financial Projections

2. Choose an Ohio business name

If you are planning to start a sole proprietorship in Ohio then one of the first requirements will be reserving or registering a business name. A sole proprietorship company can use the name of the owner as the company name. Such a name will help create a brand image or identity, e.g., if you choose your company name as John Dixon PC Repairs, then your targeted audience will know the type of service you offer. This will help in creating a niche in the market. This will also ensure proper communication of business objectives and the nature of business activity to all present and future customers. It is also important to search sole proprietorship in Ohio for the availability of the chosen name. Here are some easy tips that you can follow while selecting a sole proprietorship name:

  • Follow Ohio state’s naming guidelines
  • The sole proprietorship name cannot be similar to that of any other company or competitor
  • Try to avoid company names that are hard to pronounce or spell
  • The chosen name should be easy to remember
  • You should consider the products or services being offered when choosing a name
  • When you think of a name, ensure it is appropriate and remains relevant as the business grows or evolves
  • Always conduct a search for sole proprietorship in Ohio for availability as a domain name for a website
  • You can use AI-powered business name generators like Namelix, BrandCrowd, Wix, Renderforest, etc., to create brandable business names

3. File a trade name

You can form a sole proprietorship in Ohio using the owner’s name (your name) as the name of the company. However, if a sole proprietorship company wishes to conduct its business under any other name that is different from that of the owner’s name, then such a company will be required to file an Ohio trade name with the Secretary of State’s office. This is also known as a “DBA” (doing business as) or fictitious name. There are certain aspects to consider while choosing a trade name and name registration. Let’s look at some of them:

  • You will need to follow trade name or fictitious name rules and regulations
  • Choosing a trade name or Ohio DBA name and filing the application will be governed by OH Rev Code § 1329.01 (2023)
  • It is important to ensure that the chosen name is not similar to that of any other company in state database
  • Conduct a trade name search or a business entity search
  • If your chosen name is available, then file the Ohio trade name application

Let’s look at an example to understand how this works.

Example: Your name is Emma Wilson, and you want to start a sole proprietorship in Ohio as an IT Service Provider. You can use your own name like ‘Emma Wilson Systems.’ Alternatively, you can choose to use a business name like “Emma’s E-System.” Here Emma’s E-System will be considered as a fictitious business name, and you will need to file an Ohio trade name application. You must conduct a name availability search for a DBA before name registration.

You will be required to file form 524A – Trade Name or Fictitious Name Registration with the office of the Secretary of State, along with a fee of $25 and a cover letter. The sole proprietorship name registration form can also be submitted online at Ohio Business Central.

Do you want to start a sole proprietorship in Ohio?

4. Get EIN

If you start a sole proprietorship in Ohio, then you will have to file personal income tax along with other state taxes. Since a single individual runs a sole proprietorship company as the owner, hence filing of income taxes is done by using a Social Security Number (SSN). Alternatively, obtaining an Employer Identification Number (EIN) can also be quite beneficial. According to the Internal Revenue Service (IRS), there are certain criteria to be fulfilled by a sole proprietorship in order to apply for an EIN, and they are:

  • When a sole proprietorship company hires employees
  • The company plans to open a business bank account
  • If you have a Keogh plan
  • You have to file excise tax returns
  • When you convert or change the entity structure from a sole proprietorship to a partnership or LLC
  • If you file Chapter 7 (liquidation) or Chapter 11 (reorganization) bankruptcy

To obtain an EIN, you must complete and file form SS-4 with the Internal Revenue Service (IRS).

5. Obtain necessary licenses and permits

When you create a how-to-start a sole proprietorship in Ohio checklist, one of the important state processes to include is that of business licenses and permits. The importance of licensing lies in the fact that it ensures you are able to operate your company or conduct your business smoothly. Different states have different licensing requirements, and Ohio licensing can vary from the state level to the local or municipal level. When you file a sole proprietorship in Ohio, you may need to apply for and obtain the following types of licenses:

  • Professional licenses
  • Sales Permits
  • Vendor’s license
  • Local Zoning Permits

Apart from the above type of licenses or permits, if you conduct your business from home then you will need to obtain a home occupation permit. This permit is issued by the Planning and Zoning department in the county your company is based in. The requirements for licenses will vary according to the business activity and location. You may also need to apply for multiple licenses. You can search for a sole proprietorship in Ohio for free and the renewal requirements for specific licenses or permits.

Identifying licenses required specifically by your sole proprietorship may be challenging. We at IncParadise have made this process easier by offering our Business License Research Report service. This detailed research report contains a list of filing instructions, supporting document requirements, and fees for all Ohio business licenses and permits.

6. Open a bank account for your Ohio business

When you start a sole proprietorship in Ohio, one of the most important areas of your business will be financial transactions. More often than not, sole proprietors prefer to use their personal savings accounts to carry out business-related transactions, which can create complexity in the future, especially when it comes to filing taxes. Hence, if you apply for a business checking account, you can maintain a separate account for all company-related financial transactions. This will also ensure proper organization of all expenses, thus making the entire process of getting audited by the IRS easier. If you open a business bank account, it will increase your credibility amongst your clients and suppliers.

Alternatively, you can open a business account online with Cheqly. You can enjoy several benefits, including ease of transaction using the onboarding interface. This is a US business bank account and offers banking access to and from anywhere in the world. This is a Neobank for startups where you can enjoy no minimum balance and basic FDIC insurance.

7. Report and pay taxes

Generally, the tax requirements would vary according to the business structure chosen and operated. If you form a sole proprietorship in Ohio, then the taxes of this type of entity may be different from those of a corporation. Since it is a single-owner entity, the profits generated will be taxed as personal income. You will be required to file graduated individual income tax, and the rate ranges from 2.765 percent to 3.990 percent. There are certain jurisdictions in the state where local income taxes have to be filed. In order to identify such areas, you will need to search sole proprietorship in Ohio for local taxes. If your business activity focuses on selling certain products or services, then you will have to file sales and use tax as well as Commercial Activity Tax (CAT). You may also be required to file self-employment tax at a rate of 15.3 percent.

Ready to Start a Sole Proprietorship Business in Ohio

If you have made a decision to start a sole proprietorship in Ohio, then it is definitely quite easy to form and operate. You will not be required to register this type of entity with the office of the Secretary of State, unlike other types of entity. It is important to remember, though, that there are several state requirements, including annual compliances, that a sole proprietorship in Ohio needs to fulfill in order to enjoy a good standing with the state.

IncParadise, one of the top registered agents in the state of Ohio, can provide guidance and information to help you to file an Ohio trade name and form a sole proprietorship in this state. We also offer a wide variety of additional services, like filing a DBA and getting an EIN, among others.

Do you want to file a sole proprietorship in Ohio?