How to Start a Business in Ohio - A Primer and Overview

The first aspect of starting a new business is quite obviously figuring out how to make money.  Once that idea is firmly rooted in solid business planning, the second aspect of starting a new business should be the legal aspect.  The law firm of Harris & Engler advises entrepreneurs in Ohio on all aspects of business formation, the legal issues that come up during the regular operation of your business, and the growth of your business.  You need to be aware of the legal aspects of operating and forming a business in order to protect both your business and yourself personally from potential expensive liabilities.  

1.  The First Step - Form a Legal Entity with the Ohio Secretary of State

People form entities such as a Limited Liability Company (LLC) or Corporation (Co.) in order to form a protective shell for the business enterprise.  The primary reason for forming a LLC or Corporation is to insulate onesself from potential liabilities.  

When properly operating a LLC or Corporation, when something goes wrong it is the entity itself that is sued rather than the owners of the company.  What this ultimately means is that the only assets that can be seized in case of an adverse judgment are those of your business rather than personal assets such as your house.  This is why people form business entities such as LLCs or Corporations.

However, it is not just the formation of an entity such as  LLC or Corporation that insulates the business owners from potential liabilities, it is the practice of the owners' compliance with the legal requirements of "following business formalities."

If a business owner mixes things such as personal funds with business funds in the operation of their business, then it may be possible for an adverse party to sue the business and get to the assets of both the business and the owner.  This means that if things are not done right, the business owners' house can be seized and foreclosed upon to use as collateral to pay off business debts.  The law firm of Harris & Engler advises new business owners in central Ohio on how to comply with business formalities in order to make sure that the owners are doing all they can to protect themselves and their business.  Not only do you have to form a protective entity such as a Corporation or LLC, but you must know how to operate it in compliance with the law in order to reap the advantages of owning a business.  

In order to officially form a legal entity, you simply have to file the Articles of Incorporation with Ohio's Secretary of State.  

A. Filing the Articles of Incorporation

An attorney at Harris & Engler can properly advise you on what business entity will be best for your goals.  Most businesses formed in Ohio are single-member LLCs - that is a business owned by just one person.  If you are forming a company with a lot of other people, or you expect to take on investors, then it may be the best idea for you to form your business as a Corporation.  The corporation entity structure has advantages to the LLC basically only if it is going to be a large company or a company that has a lot of investors or shareholders.  The attorneys at Harris & Engler can help you set up your business from the very beginning to either be a single-member LLC that you plan on passing along to your children, or a Corporation that you plan on actively seeking investors for.  If it is determined that it is the most advantageous for you to form a Corporation, then you will have a choice of what state to incorporate in.  Delaware, Nevada, New Jersey, and South Dakota all have State laws that make it advantageous for corporations to be initially formed in those states and have the laws of one of those states govern the company.  However, because these states are so popular for corporations to form in (for different reasons), the initial filing fees and yearly fees are much higher than it would cost to file in your local state.  This is why it is generally the most advantageous to file in your home state unless you expect the business to quickly become a multi-million dollar business.  

There is a filing fee in order to form your business, in Ohio the filing fee is only $99 to register your business.

B. Naming a Statutory Agent

When filing your Articles of Incorporation with the State where you choose to incorporate you will need to name a statutory agent for the company.  A statutory agent is basically a person or company who is listed on the Articles of Incorporation and you can trust to receive service of process if your company ever gets sued.  There are generally 3 options for who should be your statutory agent: yourself, your law firm, or a company that provides statutory agent services.  The law firm of Harris & Engler usually recommends that you list your lawyer or law firm to be your statutory agent because once you get served with a summons there are very tight deadlines that you must comply with in order to avoid having a default judgment filed against you, and a lawyer at Harris & Engler will be in the best position to advise you of any lawsuits filed against you and your options thereof.  Secondly, when you name yourself as a statutory agent, you must give up some personal information by listing perhaps your personal address - or if you do not have a permanent address then you cannot be assured that you would actually receive a service of process years down the road (and you want to receive this in order to avoid having a default judgment filed against you).

C.  Creating and Maintaining Corporate Books

The creation and maintenance of Corporate Books is one of the factors that will prevent a potential adverse party from going after your personal assets rather than just the assets of your business if you are being sued.  The law firm of Harris & Engler creates and maintains corporate books for our business clients and makes sure that our clients are compliant with the requirements of State and Federal law.  The corporate books are basically the internal laws that govern the operation of your company.  This is where you name the President, Treasurer, Secretary, CEO, CFO, et cetera for your company.  This is also where you maintain your minutes of required company meetings, stock issuance certificates, and all the other governing and important documents for your company.  The law firm of Harris & Engler creates, maintains, and advises our clients on the use of their corporate books during the business formation process.  

D.  Choosing Corporate Tax Structure

This is one of the most important decisions you will have regarding the formation of your business, but really it is a very easy decision for most people forming a business.  There are basically two options for how your business is taxed, through Subchapter S of the Internal Revenue Code (IRC) or through Subchapter C of the IRC.  Most business owners want to be taxed through Subchapter S, but for owners of larger or more complicated businesses then Subchapter C will be the best option.  The main point to picking a corporate tax structure is to minimize your tax obligation.  

When your company is organized using Subchapter C taxation, then whenever the company recognizes earnings the company is taxed at the corporate income tax rate.  Then, in order for the people who work at or own the business, they must either be paid wages or dividends.  The employees or owners of the business then have to pay income tax on all wages or dividends received from the Company.  This results in double taxation: the same money that is earned by the Company is first taxed a corporate income tax and then an individual income tax.  This only make sense for a select few businesses (or large businesses).  Almost everyone else will want to be taxed through Subchapter S of the IRC, which is known as pass-through taxation.  

Subchapter S allows pass-through taxation because all earnings recognized as income passes through the corporate entity and goes straight to the owners of the business.  This means that the business does not pay income tax, only the owners of the business.  All money earned is simply counted as personal earnings of the owners.  The attorneys at Harris & Engler can get your business set up in a way that maximizes tax benefits to you.  

2.  Register the Business with the IRS and Obtain an Employer Identification Number (EIN).

The Employer Identification Number (EIN) is basically the Social Security Numer for your company and it is necessary to obtain one for tax purposes.  You will need a EIN in order to open up a bank account for your business.  You will need to open a bank account for your business as part of complying with the business formalities described above.  Once you have a business bank account set up, you will need to put into place measures that safeguard against intermingling personal funds with business funds and vice versa.  If you are buying personal items with your business credit card then you are putting yourself at risk of allowing potential adverse parties to get to your personal assets in addition to those of your business if they get a money judgment against you.

Many companies charge a small fee to register your business with the IRS in order to obtain a EIN.  Do NOT sign up for any of these services.  The IRS offers EIN registration as a free service and it takes all of 2 minutes to complete yourself.  The law firm of Harris & Engler offers EIN registration as part of its business formation services.  Not only will an attorney at Harris & Engler obtain an EIN for your business, but will explain to you what it means and how to use it.  

3.  Set up Your Business Bank Account

Next you will need to find a bank that offers you a business checking account for low or no fees.  You will need an EIN to open up a bank account for your business.  You will also want to get a company card and checks so that you can pay all of your business expenses with your business accounts (do not pay your personal expenses with your business accounts).  

4.  Maintain a Working Relationship with a Local Ohio Business Law Firm

There are many legal issues that regularly come up throughout the operation of your business.  Generally, you should have an attorney review any contract that you are potentially signing.  A contract acts as the law between the parties, and it is worth it to have an attorney review every single contract that comes your way before you put your signature on it.  

Every business experiences customers who do not pay.  The law firm of Harris & Engler can take over collection efforts for your delinquent accounts and get you paid the money that you are owed.  

Sometimes potential liabilities arise throughout the course of operating your business.  You will need an attorney to defend you against frivolous allegations or protect you and minimize the damage from legitimate claims. 

The law firm of Harris & Engler helps our clients in Ohio in all aspects of business ownership, such as advise on how to form a business, how to run a business successfully, how to hire employees, how to minimize your tax burden, defense against lawsuits, initiation of lawsuits on your behalf, debt collection, contract review, contract drafting, stock issuance and ownership issues, and business acquisitions and mergers.  The law firm of Harris & Engler is located in Columbus, Ohio, and you can contact an attorney today by calling (614) 610-9988.
Columbus Business Law Firm

Disclaimer:  Harris & Engler offers this website and the content on it for informational purposes only, as a service for our clients and friends.  The contents of this site are not considered legal advice for any purpose, and you should not consider them as such advice or as legal opinion on any matters. 

With Offices Located at: 30 Northwoods Blvd., Suite 350, Columbus, Ohio 43235
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