Small Business in Ohio - Most Businesses in Ohio are Classified as "Small Business"

Small business is anything but small.  In Ohio, over 95% of all businesses are small businesses.  (See 2016 U.S. Small Business Administration Profile on Ohio here).  Between 45% and 48% of all private sector employees are employed by small businesses in Ohio.  (See the Ohio Small Business Profile).  Generally, being classified as a small business matters for things such as qualification for government contracts, tax purposes, and the number of employees and revenue has an impact on the application of certain employment laws to the business.  The definition of what counts as a "small business" is different depending on the industry.  The biggest industries for small business in Ohio, by rank are: 
  1. Health Care and Social Assistance;
  2. Manufacturing;
  3. Accommodation and Food Service; 
  4. Retail;
  5. Other Services (except public administration);
  6. Professional, Scientific, and Technical Services;
  7. Construction;
  8. Wholesale Trade
  9. Administrative, Support, and Waste Management;
  10. Finance and Insurance.
(See the Ohio Small Business Profile).  Each industry has their own requirement, in terms of average annual revenue and number of employees for being able to be classified as a "small business."  Some of the requirements may surprise you, because small business is not so small.  For example, for Health Care and Social Assistance businesses, a physicians group will count as a small business if the average annual receipts are under $11 million per year and $7.5 million per year for dentists and other health offices.  Retail businesses count as "small businesses" if their average annual receipts are under $7.5 million (with some exceptions going over the $7.5 million threshold).  Construction businesses count as small businesses, if for General Building and Heavy Consruction businesses their average annual receipts are under $36.5 million, for special Trade Contractors their annual receipts average under $15 million, and for Land Subdivision construction, their annual receipts are under $27.5 million on average.  For Legal businesses, their annual receipts have to be under $11 million, $20.5 million for accounting firms, $7.5 million for architecture firms, and $15 million for engineering firms.  It's no wonder that small businesses make up the vast majority of all businesses across Ohio and across the United States.  

Income for Business Owners in Ohio

The limits for what counts as a "small business" is relatively high, which is why almost all businesses in Ohio are technically "small businesses."  The 0.1% to 5% of businesses in Ohio that are too large to be classified as "small businesses" employ over 50% of the private sector workforce, so although those businesses make up a very small part of the total number of businesses in Ohio, they make up a very large part of employing Ohioans.  Most small businesses in Ohio have just a single owner.  Beyond that, a large percentage only have between 1 and 3 owners.  Owners of incorporated businesses tend to make more money than owners of unincorporated entities.  For example, in 2015, the median income for individuals self-employed at an incorporated business was $46,149.00.  Individuals who were self-employed at an unincorporated entity (a sole proprietorship or partnership) made a median income of $21,821.00 per year.  (See more here).  Having your business incorporated does not necessarily lead to higher profits, but generally, as your business makes more money, then it makes a lot more sense to incorporate the business.  As your business grows, the business also needs to grow its network of professional help.

Help for Small Business Owners

While there are a number of programs with the SBA and tax incentives and other programs in Ohio for small business owners, all business owner really needs outside professional advice that they can trust.  The law firm of Harris & Engler has been advising small business owners across Ohio with regard to all kinds of issues that business owners face.  Whether you need help with getting your business properly set up and preparing the corporate books and corporate structure, adding employees, adding new owners, facing regulatory issues, an attorney at Harris & Engler can offer helpful advice.  You can talk to an attorney at Harris & Engler today by calling (614) 610-9988.

2018 Tax Changes to Ohio Businesses

Ohio is already a very business friendly state with the small business deduction allowing individual business owners to deduct 75% of their first $250,000 in business income (up to $187,500).  Now with the 2018 Tax Cuts and Jobs Act lowering the corporate tax rate to 21%, many Ohio business owners may be wondering if it now makes more sense to organize their businesses as C Corporations (subject to the 21% tax rate) or as a pass through entity (such as a sole proprietorship, partnership, or S corporation).  Pass through entities are called "pass through" because the income of the business "passes through" any taxation at the corporate level and the income is recognized as the owner's individual income, which is taxed at the individual tax bracket level.

Do Pass Through Entities Still Have Tax Advantages Over C Corporations?

The short answer is yes.  Although corporations organized for tax purposes as "C Corporations," now get a 21% tax rate, C corporation owners still get "double taxed."  This means that the corporation itself gets taxed on all net income at the 21% tax rate, but any net profit remaining after tax is still left with the company itself.  In order for the owners of C corporations to actually get any of that money themselves, the money is passed from the company to the owner in a number of possible ways: (a) as wages; (b) distributions; or (c) dividends.  Ultimately, when the business owner gets that money they have to pay individual income taxes on all money received from the business.  That same stream of money already had the business itself pay income taxes on it, and then the owner also has to pay income taxes once they personally receive the money as income.  C corporations are double taxed, first at the corporate level, and then second at the individual level.

Pass Through Corporate Entities Receive Additional Deduction Advantages in the 2018 Tax Act

If you've contemplated forming a corporation or changing your corporate structure to a C corporation now that the tax rate of 21% is lower than your individual tax rate, then you would be missing some of the advantages of being structured as a S corporation, partnership, or sole proprietorship in Ohio.  Along with the new tax act came new deductions for pass through entities.  Although the specifics of the deduction for Qualified Business Income of pass through entities contained in Section 199A of the Act is complicated, the long and short of it is that pass through entities are eligible for up to a 20% deduction of Qualified Business Income.  This means that if your small business made $100,000 in net profit, then you could deduct up to $20,000, and then only have to pay tax on $80,000.  This still maintains a significant advantage over the C corporation tax rate which would undergo a 21% tax on that same $100,000, and then once those corporate profits were transformed into personal income of the owners, that owner would pay their regular individual income tax rate.

Accordingly, Congress specifically designed the new tax act to maintain tax advantages for pass through entities.  There are also some carve out exceptions to the 2018 deduction for pass through entities.  In essence, the exceptions are designed to close any possible loopholes for people to be able to game the system by creating pass through entities to get a lower tax rate than they would have received if they were an employee receiving a W-2.

Ohio Business Lawyers

The law firm of Harris & Engler is located in Columbus, Ohio, and its business lawyers help Ohio businesses navigate through the ever changing legal landscape in order to maximize profits, protect their interests, and insulate from and mitigate liabilities.  If you would like to speak with an Ohio business lawyer about your business, then call (614) 610-9988.

Get Your Business Started with a Start-Up Kit

Columbus and greater Central Ohio community is a fantastic place to start a business.  There are a few different ways to own a business: as a sole proprietor, a partnership, a Limited Liability Company (LLC), a Corporation, and a Limited Liability Partnership (LLP), among others.  Sole proprietorships and partnerships arise automatically under the law. To put it another way, if you start doing an activity for the purpose of making money, then you've automatically formed a sole proprietorship (or a partnership if there is more than one person involved in the money making venture).  

You do not have to take any special action to form a business as a sole proprietor or partnership.  You do have to take special action to form a Limited Liability Company (LLC) or Corporation.  There are a large number of reasons why you would want to form a LLC or Corporation.  The biggest reason is to protect yourself from liability.

The attorneys at Harris & Engler provide business start up kits for individuals who need to form a LLC or Corporation.  The law firm of Harris & Engler is located in Columbus, Ohio, and its attorneys offer business start up services for clients across Central Ohio, including Delaware and Marysville.

Ohio Business Start Up Attorneys

The attorneys at Harris & Engler can cover all the legal aspects of starting a business by providing you with a start up kit for you business.  The attorneys at Harris & Engler can provide your business the following services:
  • Selection and registration of a company name
  • Filing Articles of Organization with the Secretary of State
  • Registration of an Employer Identification Number (EIN) with the IRS
  • Drafting your corporate books (Operating Agreement, Share Certificates, etc.)
  • Advise on how to structure your company's taxes
  • Advise on required corporate formalities
  • Website advise (if applicable - attorneys can help you prepare your website disclaimers and advise you on the laws surrounding advertising)
  • Consumer Sales Practices Act compliance (if applicable)
  • Advise on issues with hiring employees
  • Advise with respect to Ohio Department of Taxation issues (if applicable)
  • Statutory Agent services
If you are looking online for a start up kit for your business, you may be interested in talking instead with an actual attorney to handle your business start up needs.  The attorneys at Harris & Engler do their best to keep your business start up costs as low as possible. You can talk to an attorney today by calling (614) 610-9988 who can craft a custom start up kit for your business that falls in line with your financial needs and your business' unique issues.

The Advantages of Forming a LLC for Real Estate Holdings in Ohio

An LLC Offers the Landlord the Most Protection

The attorneys at Harris & Engler help landlords across Columbus, Delaware, and greater central Ohio.  In order to be best protected, a landlord should form a Limited Liability Company (LLC) for each separate rental property.  Many landlords in Columbus unknowingly overexpose themselves to potential liability by owning rental properties in their personal names.

What Can Happen If Landlords Own Rental Properties as an Individual

If a landlord owns a rental property as an individual then virtually all of that landlord's property is at risk if they get sued. If a tenant gets hurt on the landlord's property, or anyone the tenant invites on the property gets injured on the property, then the tenant or third party will be able to go after the landlord personally.

First, the tenant would attempt to invoke the landlord's homeowner's insurance policy (and the homeowner's insurance policy must be specifically issued to owner as a Landlord, and the insurance company must absolutely know that the property is a rental property).  After the tenant invoked the landlord's homeowner's insurance policy, if the injuries exceeded the amount of the policy then the tenant could go after the landlord's personal assets and other properties.  So if the landlord owns multiple properties, then all of the landlord's properties are at risk if they get sued.

Insulate Landlord Liability

A Landlord is best served by forming a separate LLC for each rental property.  This way if a tenant or guest gets injured on one of the landlord's properties, then the tenant would still file a claim with the homeowner's insurance policy, but if the extent of their injuries exceeded the policy limits, then they could only go after the assets of the LLC itself, and only the assets of the LLC would be that individual property owned by the LLC.

An additional reason for Landlords to form a LLC to own rental properties is in case someone sues the landlord personally and obtains a judgment for any other reason (not necessarily a tenant suing the Landlord, but for example, a business deal gone bad), then they could have access to all of the Landlord's assets, including all property owned by the Landlord.  If the Landlord forms a LLC for each rental proeprty, and someone sued the Landlord personally, then they could only have access to the Landlord's personal assets, and not the properties owned by the LLCs.

Attorney to Form LLC for Real Estate

The attorneys at Harris & Engler help Landlords and landowners alike form LLCs for real estate.  The law firm of Harris & Engler is located on the north side of Columbus, and its attorney help clients across Columbus, Delaware, and central Ohio.  You can call an attorney at Harris & Engler today at (614) 610-9988.

Attorneys for Business Employment Issues in Ohio

A business goes through its first monumental step when it goes from a business of just owners to one of owners and employees.  The law firm of Harris & Engler helps businesses in Columbus, Delaware, and nearby, with the full array of issues that a business faces as it grows and operates.

Columbus Ohio Business Expansion Attorneys

The attorneys at Harris & Engler can help you with your businesses' employment issues, whether that includes the hiring or firing of employees, unemployment claims, or defense of claims of discrimination with the Ohio Civil Rights Commission.  You can speak with a business attorney who is knowledgeable about employment issues at Harris & Engler 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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