How To Start An Ohio Sole Proprietorship

Starting your first business is a significant step, and one of the earliest decisions you’ll make is choosing your business structure. The structure you choose will play a role in various aspects of your business, from taxes to legal responsibility.

In this guide, you’ll learn about what a sole proprietorship is, its advantages and disadvantages, and a step-by-step process on how to register one in Ohio.

Related: How to start a business in Ohio

What is a Sole Proprietorship?

A sole proprietorship is an unincorporated business owned and operated by one individual who is responsible for all aspects of the business. There is no legal separation between you and your business, which makes it the simplest framework.

Apart from sole proprietorships, other business structures include:

• General partnership: Similar to a sole proprietorship, but owned by two or more people.
• Corporation: A more complex structure to start and administer but offers liability protection.
• LLC (Limited Liability Company): Combines the simplicity of a sole proprietorship with the liability protection of a corporation.

Related: Overview of business structures

Sole Proprietorship Advantages

There are several reasons why a sole proprietorship might be the right choice for your business in Ohio:

• Ease of setup: Sole proprietorships in Ohio are not required to register the business entity. The process is relatively simple, and you can start operating immediately after obtaining the necessary licenses and permits. However, you must register a trade name or report a fictitious name if you’re using a name other than your own.
• Cost: Establishing a sole proprietorship is cost free, with the possible exception of the cost of registering the name. This makes it an attractive option for small businesses and entrepreneurs looking to start their ventures on a budget.
• Tax simplicity: You won’t file a separate business tax return. Taxes are simpler than in other structures since profits are reported on the owner’s personal tax return.

Sole Proprietorship Disadvantages

While sole proprietorships have many benefits, there are drawbacks to consider as well:

• Personal liability: The biggest risk is personal liability. If your business incurs debt or faces legal issues, your personal assets are at risk. This is a critical factor to consider, especially if your business operates in high-risk environments.
• Potential tax disadvantages: Sole proprietors may face higher taxes. They pay both business income and self-employment taxes on profits, which can be more than what’s paid in other structures.
• Difficulty raising capital: It can be challenging to get funding. You can’t sell company shares, limiting options for business expansion or investment.

While sole proprietorships are simple and cost-effective, they have limitations, particularly in liability protection. If this is a concern, consider forming an LLC. An Ohio LLC offers personal liability protection and potentially lower taxes.

Related: How to form an Ohio LLC

Steps to Start a Sole Proprietorship in Ohio

Starting a sole proprietorship in Ohio involves a few simple steps to ensure your business is legally set up. Below, you’ll find a breakdown of each step involved in starting a sole proprietorship in Ohio.

Step 1: Choose a Business Name

In Ohio, a sole proprietor can operate a business using their own full name. Alternatively, if you’d prefer a unique business name, you’ll need to register a trade name or fictitious name. Let’s consider Rachel Thompson, who decides to start a local flower shop. Instead of simply using her name, Rachel would prefer to operate under the business name “Ohio Blooms.” In this case, she would have to make sure the name is available to use and register it.

Step 2: Confirm Name Availability

Before settling on a business name, verify it is available by searching Ohio’s name database. If your preferred name is taken, you may need to adjust it or file for consent to use.

Before registering your business name, ensure it’s not already in use. Ohio offers two options: a trade name or a fictitious name. Trade names provide exclusive rights and protection. Fictitious names are used when the desired trade name is unavailable. Both can be checked for availability on the Ohio Secretary of State’s website. Remember, registering a name in Ohio does not prevent others in other states from using it. For exclusive rights, consider registering a trademark with the United States Patent Trademark Office (USPTO).

Related: Search available Ohio business names

Step 3: Complete the Name Registration Form

Whether registering a trade name or using a fictitious name, you’ll need to fill out Form 534A: Name Registration, which can be downloaded from the Ohio Secretary of State’s website.

Related: How to register a business name in Ohio

Step 4: Understand Business License Requirements

Depending on your type of business and its location, you might need to obtain certain licenses or permits and this holds true regardless of your business structure. Some common registrations include:

• Local business license: Depending on your location, a local license might be required. Your city hall or economic development office can provide guidance.
• Ohio Vendor’s License: If you’re making taxable sales or services, you’ll need the Ohio Vendor’s License from the Ohio Department of Taxation.
• Commercial Activity Tax (CAT): Businesses with revenues over $150,000 must register for the CAT.
• Professional license: Certain professions require specific licenses. Check with state regulatory bodies for your field.
• Employer Identification Number (EIN): Some sole proprietors might need to obtain an EIN from the Internal Revenue Service (IRS). This is usually only necessary if you plan to hire employees, but some banks might require one to open a business bank account. Otherwise, your Social Security number will suffice.

Related: What business licenses are needed in Ohio

Wrapping Up

Starting a small business involves many important decisions, but choosing a business structure lays the foundation. Sole proprietorships provide an easy, cost-effective option for new entrepreneurs in Ohio. However, the lack of liability protection places your personal assets at risk.

Carefully assess your business goals and risk tolerance when deciding between a sole proprietorship and alternatives like an LLC. There is no one “best” entity – it depends on your specific needs and priorities. The key is understanding the implications so you pick the right fit.

Now that you know the sole proprietorship registration process and requirements in Ohio, you can move forward with confidence. Let us know which structure you decide on, and feel free to ask any other questions that come up along the way.