STEP 1: Choose the type of legal business entity to set up in Ohio
You’ve identified the gap in the market, developed your business plan and conducted your market research – now you’re ready to launch.
But first, take a moment to consider what type of business structure will best fit your needs and your growth aspirations. Choosing the right type of entity can help you to realise your entrepreneurial business goals – but the wrong-type for what you want to achieve could wind up becoming an obstacle further down the road.
Side Note: If you haven’t written your business plan yet, we’ve got the resource just for you. Download a free business plan template to guide you through the process.
There are four types of business entities you can set up in Ohio. Below, we take a look at the pros and cons of each so that you can decide which best suits your business needs.
Below, we unpack the four types of business structures you can open in New York, and the pros of cons
Type of business entities
1. Sole Proprietorship
The most common and simplest type of business to set up is a sole proprietorship is This is your most common and simplest type of business structure. If you want to be your boss, run a business.
A sole proprietorship is best suited if you are going to be running your business from home or won’t have a physical business premise. What makes a sole proprietorship attractive for small business owners is that it is quick and easy to set up and you retain complete autonomy of the running of your business.
Why open a sole proprietorship in Ohio?
The state of Ohio makes it extremely easy to set up a sole proprietorship, since you won’t have to file any legal documents.
As a sole proprietor in Ohio, you will be able to use your own name or you can also use a trade name. A fictitious business name or trade name must not be the same name, however as another company, so you will need to check with the Ohio Secretary of State whether the name you choose is not in use already.
If you are going to select a fictitious business name or trade name, you will need to register the name with the Secretary of State.
- Quick set-up: Because you don’t have to register your business as a sole proprietor (unless you will be trading with a different business name to your own name), getting set up is quick and easy.
- Complete autonomy over operations: As an informal business structure, there are no requirements to appoint members or directors – which means that you have total managerial control over your business.
- Personal and business liability: When running a sole proprietorship, one of the main disadvantages is that you will be held personally liable for all debts and liabilities accrued in the business.
- Limited business lifespan: The lifespan of your business is intrinsically tied in to your own lifespan, as you won’t be able to transfer ownership of your business to anyone else, like a family member.
- Business loan applications: Applying for a business loan as a sole proprietor can be difficult. There is also the risk that lenders can go after your personal assets to settle business debts.
- How customers may view your business: Sole proprietors are often seen as less professional than more formal business structures, which may limit the ability of your business to secure projects or deals.
There are different types of partnerships that can be formed in Ohio.
What is a partnership?
There are various kinds of partnerships that you can choose from, which include:
General partnerships: This partnership consists of two or more people who conduct business together. There is no formal filing required in Ohio for a general partnership, however a Statement of Partnership Authority can be filed with the Ohio Secretary of State. The partnership doesn’t pay tax from the business but rather from the profits and losses included in each partner’s personal tax returns and is subject to the owner’s personal tax.
Limited partnerships: Two or more persons in this partnership carry on as co-owners of a business for-profit. This a popular type of partnership because the partners can pool their assets, Many people decide to form capital and skill-sets a limited partnership because this business type allows for a pooling of owner assets, both monetary and skill sets.
Limited liability partnerships: This is an association of two or more persons to carry on as co-owners of a business for-profit. Each partner has managerial control, but partners have individual liabilities for partnership debts, which is capped at the amount of their investment.
Why register a partnership?
- Leverage combined skills and capital: Partnerships enable you to pool your skills and capital across the partners within your business, providing you with more money to scale and greater skills to run the business.
- Easy to open: Contrary to what some may think, starting a partnership isn’t too complicated. There is no special paperwork to be filed with the federal government and you should have only minimal local paperwork.
- Simple record-keeping: Unlike corporations, there are no requirements for record-keeping in a partnership.
- Operational and strategic decisions: With partnerships, decisions are not solely yours to make and you will need to discuss all operational and strategic decisions before charting a course of actions.
- Personal liability: Generally, each partner is personally liable for the debts of the partnership, and each partner can also be personally liable for the actions of the other partners within the business, dependent on the type of partnership structure you have chosen.
3. LLC (Limited Liability Company)
What is an LLC?
A popular type of business entity, a Limited Liability Company, or “LLC”, gives the liability protection of a corporation, but also provides you with the same ease of operation as a sole proprietorship.
An LLC also doesn’t have the same administrative burdens as a corporation has, like holding board meetings or recording minutes. It also has greater tax flexibility as income can be taxed as a pass-through entity. To form and LLC in Ohio, you will need to file the Articles of Organization with the Secretary of State.
Why register an LLC in Ohio?
- Limited liability: An LLC provides the owners with the same limited liability protection as that of a corporation.
- Distribution of profits: There are varying forms of profit distributions that you can select, providing you with greater flexibility.
- Record keeping: LLCs don’t need to keep record of meetings or resolutions, unlike corporations.
- Taxation: The business profits and losses flow through the company to the members, instead of having to declare the profits and losses on their individual income tax returns, as is the case with partnerships.
- Limited business lifespan:An LLC is dissolved when a member dies or the business undergoes bankruptcy.
- Access to loans: Getting business loans with an LLC could also prove a little more complex as lenders may favour a corporation over an LLC business entity. The members may have to personally guarantee the loan in order to be eligible.