Forming an LLC in Northeast Ohio
Limited Liability Companies (LLC)
A Limited Liability Company (LLC) is a popular business format for many small business owners throughout Ohio. However, it is not always the best business entity for every company. Let’s look at LLCs in more detail to help you get an idea about whether this type of business entity is right for you and your company.
What is a Limited Liability Company?
State law governs Limited Liability Companies (LLCs). While the LLC laws in each state may vary slightly, the IRS taxes LLCs in the same manner, regardless of the state of formation. An LLC allows you to take advantage of some of the aspects you might like about corporations and partnerships without some of the aspects that make partnerships and corporations less desirable as a choice for a business entity.
LLCs may be organized for-profit and non-profit purposes in Ohio. The owners of an LLC are referred to as members. You may create a single-member LLC in which you own all shares of the LLC, or you may create a multi-member LLC with friends, family members, or business associates.
Advantages of a Limited Liability Company
As discussed above, there are many advantages to choosing an LLC for your company entity. Some advantages that may be of interest include:
- An LLC can be a “pass-through” entity for tax purposes. The profits and losses are “passed through” the company to the individual members. This advantage avoids double taxation and allows members to pay income taxes at their individual tax rates. This is the case only if you form a singer member LLC. If you have more than one member a partnership return will have to be filed.
- An LLC can choose to be taxed as a corporation, which can be an advantage for some companies.
- Members have limited protection from personal liability for company obligations.
- The members have a great deal of flexibility in deciding how to operate the business, including the day-to-day operations and who makes decisions for the business.
- LLCs may be perpetual in Ohio unless the Articles of Incorporation or the Operating Agreement states a period of duration for the company.
- LLCs in Ohio are not required to file annual or biennial filings with the Secretary of State. Amendments to the Articles of Organization are required for certain actions, such as changing the name of the LLC. Other documents are required for mergers, consolidations, and conversions.
Disadvantages of a Limited Liability Company
While an LLC may sound like the perfect business entity for your company, there are some disadvantages that you should discuss with an attorney before a final decision is made. Some disadvantages of an LLC as a business entity include:
- Members are considered to be self-employed unless the company elects to be taxed as a corporation, which results in personal liability for Medicare and Social Security taxes.
- To maintain the limited personal liability for members, the company must maintain the separation of personal and business finances of the members.
- Ohio law also requires an LLC to adhere to corporate formalities to maintain protection from personal liability. Failing to hold annual meetings or failing to maintain accurate records could result in the loss of protection from company obligations.
- Changes in ownership can be more difficult. The Operating Agreement for the LLC should specifically dictate how to transfer the shares of a member if the member dies or wishes to leave the company.
- Some lenders may require members to personally guarantee loans to the LLC, which creates personal liability for those members.
Is an LLC Right for Your Company?
Ohio business laws are favorable for LLCs, which is the reason many business owners choose a Limited Liability Company as the structure for their business. However, while forming an LLC may be simple, there are other steps that business owners need to take to ensure their business operates efficiently and effectively. There are also steps to ensure compliance with various state and federal laws, including obtaining required permits and licenses and setting up tax withholding correctly.
A Northeast Ohio business attorney can assist you in setting up your LLC to avoid potential liability and legal problems in the future. An attorney can also assist you in the future by drafting and reviewing contracts, negotiating business deals, responding to litigation, and, resolving conflicts between members. Having an experienced business law attorney at your side at every stage of business is a great asset for you and your company.
Forming a Northeast Ohio Limited Liability Company (LLC)
Contact Attorney Heather Moseman to schedule a consultation by calling (440) 255-0832 or by completing the contact form on our website.