How to start a contracting business in Ohio

What it takes to start a contracting business in Ohio

A contracting business in Ohio answers to three sets of rules at once: the state's company and tax rules, the trade licensing rules, and the building rules of every community where you pull a permit. Most of the delays new contractors run into come from treating those as one thing.

• The company: form an LLC or corporation, name a statutory agent, get an EIN, and register for state and city taxes.
• The license: a state license if you do commercial work in one of the five licensed trades, and local registration where cities require it.
• The protection: liability insurance, any bonds your cities or customers require, and workers' compensation once you have employees.
• The payroll accounts: unemployment insurance and income tax withholding when you hire.

The order matters. Licensing applications and city registrations want the company's legal name and proof of insurance, and insurers want the company to exist before they write a policy. Form the company first, then license and insure it, then hire.

Form the company and name a statutory agent

Most new contractors form an LLC. It keeps business debts and claims separate from personal assets as long as the company is run as a separate business, and it costs $99 to file Articles of Organization (Form 610) with the Ohio Secretary of State. Our guide to starting an LLC in Ohio walks through the filing, the EIN, and the operating agreement.

Every Ohio LLC needs a statutory agent with an Ohio street address on the public record. For contractors this choice has a practical side. A contractor's address shows up on permits, lien filings, and bids, and disputes with homeowners, suppliers, and subcontractors come with the work. When a dispute turns into a lawsuit, the papers go to the statutory agent. If you are on job sites all day, a lawsuit delivered to an empty house or a truck is easy to miss. Our Ohio statutory agent service is $49 per year, and service of process is scanned to your portal the same business day, with a phone call if nobody acknowledges it.

If you will work under a brand name, such as "Smith Mechanical" for "J. Smith Holdings LLC," register the trade name before it goes on a truck or a bid. Licensing boards and cities generally want the license, the registration, and the invoice to show names that match the state record. Our trade name service files it for you.

Which Ohio contractors need a state license?

The Ohio Construction Industry Licensing Board (OCILB), part of the Ohio Department of Commerce's Division of Industrial Compliance, licenses five trades (ORC 4740.01):

• Electrical contractors.
• Heating, ventilating, and air conditioning (HVAC) contractors.
• Plumbing contractors.
• Hydronics contractors.
• Refrigeration contractors.

The state license is for commercial work. The statute defines the construction projects it covers to exclude residential buildings (ORC 4740.01(F)), and the Department of Commerce says local building and health departments regulate residential contractors. That does not mean residential trade work is unregulated. The Department notes that local departments may require the state commercial license for residential work, so a residential electrician or plumber should ask each building department whether it does.

Work outside those five trades, such as general contracting, carpentry, roofing, siding, painting, concrete, and remodeling, is not licensed by OCILB. For that work the licensing layer is local: city or county contractor registration, permits on each job, and whatever the building department requires. Our guide to Ohio business licenses and permits covers the local permit side in more detail.

Ohio contractor license requirements for the licensed trades

To sit for the OCILB exam, an applicant must meet the requirements in ORC 4740.06(B). The main ones:

• Be at least 18 years old.
• If not a U.S. citizen, show valid documents of legal U.S. residency.
• Have been a tradesperson in the trade for which the license is sought for at least five years immediately before applying, or have other experience the statute accepts.
• Alternatively, be a currently registered Ohio professional engineer with three years of business experience in the construction industry in that trade.
• Carry contractor's liability insurance, in the amount the board's specialty section sets, under only one contracting company name.
• Have no violations of the licensing law and no fraud or misrepresentation in getting a license or in conducting business.

Applicants must pass the licensing examination, which the board administers through PSI. If you fail, you can retake it no sooner than 60 days after your last attempt, and after five attempts you must file a new application (ORC 4740.06). Licenses for all five trades are renewed online through the board's eLicense system.

Plan for the timeline. The board's secretary or a designee has 30 days after a complete application to approve you for the exam, and the specialty section has 90 days from filing to authorize a license once you qualify and pass (ORC 4740.06). Exam scheduling sits on top of that. Apply well before you plan to bid commercial work.

How an Ohio contractor license attaches to your company

An OCILB license is issued in the name of an individual (ORC 4740.07(A)). A company gets the right to contract in the trade when that individual assigns the license to it.

• The applicant asks, when applying, to assign the license to the company that employs them. The board then issues a license to the company that names the individual and that person's position (ORC 4740.07(B)).
• A license can be assigned to only one contracting company at a time (ORC 4740.07(H)). One person cannot license two unrelated companies.
• Work done under an assigned license is treated as done under that individual's personal supervision (ORC 4740.07(E)).
• A license not assigned to any company goes into inactive status (ORC 4740.07(B)).

This is a business risk worth planning for. If the license holder is an employee rather than an owner and leaves, the company may lose the right to do licensed work until someone else qualifies. Put the arrangement in writing, and if two or more people own the company, cover it in the operating agreement. A lawyer can help you draft terms for what happens if the license holder exits.

Local contractor registration varies by city

Ohio has no single statewide registration for residential or general contractors. Cities, villages, and some counties run their own programs, and the rules differ widely: some require registration for any contractor who pulls a permit, some only for certain trades, and some ask for proof of insurance or a bond.

State law limits one part of this. A political subdivision that requires registration and a fee for a contractor in a licensed trade must also require that contractor to hold the state license in that trade (ORC 4740.12). In practice, a commercial plumbing contractor registering with a city shows the OCILB license along with the city's own paperwork.

• Call the building department in each community where you plan to work and ask what it requires before you can pull a permit.
• Ask about renewal. Many local registrations run on a calendar year, regardless of when you registered.
• Keep a folder of current insurance certificates and license copies. You will send them to cities, general contractors, and property managers over and over.
• If you work across a metro area, expect to register in several places. A Cleveland or Columbus suburb can have rules that differ from the next one over.

Insurance and bonds for Ohio contractors

Insurance is a licensing requirement for the five OCILB trades, and a practical requirement for everyone else. Customers, general contractors, and cities ask for certificates before work starts.

• General liability covers injury to others and damage to their property from your work. OCILB license applicants must carry contractor's liability insurance in the amount the board sets.
• Commercial auto covers trucks and vans used for the business. A personal policy may not cover business use.
• Tools and equipment coverage protects what you carry from job to job.
• Bonds are guarantees, not insurance for you. Some cities require a license or permit bond, and larger customers and public projects often require performance and payment bonds.

Talk to an insurance agent who writes contractor policies before you bid your first job, and ask how each coverage handles subcontractors. Bring your city registration requirements with you, so the policy limits match what those cities ask for.

Workers' comp, unemployment, and payroll for contractors

Ohio employers buy workers' compensation coverage from the state insurance fund run by the Bureau of Workers' Compensation, not from private insurers (ORC 4123.35). An employer under the law includes any business with one or more employees regularly in service (ORC 4123.01(B)(1)(b)). Sole proprietors and partners are not employees under the statute unless the business elects to cover them (ORC 4123.01(A)(2)). How that applies to LLC members, and when coverage starts, is covered in our guide to Ohio workers' compensation for an LLC.

Unemployment insurance costs more for new construction employers. Most new Ohio employers start at 2.7%, but a construction employer pays the greater of 2.7% or the construction industry's average rate (ORC 4141.25(A)(1)). Our guide to Ohio unemployment insurance registration explains the account setup and quarterly reports.

Be careful with subcontractors and helpers you pay as 1099 workers. Whether someone is an employee for workers' comp, unemployment, and tax purposes is decided under each program's own rules, and a crew member who works only for you, on your schedule, with your tools, may be an employee under them. Ask your accountant to review how you classify people before the first payroll.

What does it cost to start a contracting business in Ohio?

The state filing fees are small. Insurance, tools, and vehicles are where the money goes. Here are the costs you can pin down before you start, and the ones you will need quotes for.

Build the recurring items into your pricing from the first bid: insurance, city registrations, license renewals, and the agent fee all come back every year whether or not you are busy.

Taxes and job paperwork once you start working

Contractors face a few tax questions that other small businesses don't.

• Municipal income tax: Ohio cities tax net profits and wages, and a contractor working in several cities can owe more than one. Our guide to Ohio municipal income tax for businesses covers how that works.
• Sales tax on materials: how Ohio sales tax applies depends on whether you sell materials separately or install them as part of a construction contract. Ask your accountant before you set up invoices.
• Commercial Activity Tax: it applies only above the exclusion amount, which most new contracting businesses will not reach for some time.

On each job, keep the permit, inspection results, change orders, lien waivers, and the signed contract together. When a dispute comes up, that file is what you will hand your lawyer. For the full first-90-days sequence for any new Ohio business, see our new business checklist.