Business Startup Lawyers Serving Mentor & Northeast Ohio
Starting a new business can be the most exciting and most frustrating time you are likely to have. There are decisions regarding what type of business entity to register as, how do you protect the name of the business, do you want partners, how do you treat your staff – as employees or independent contractors, and how do you plan for the business to continue to support your family should something happen to you.
Setting Up Your New Business
The first decision to make when starting a business is what type of business entity you want your company to be. There are several choices and the decision depends on many factors including the size of the company you are anticipating, the type of services offered (based on new tax law changes in effect starting 2018), if you will have a partner and if the company will be for-profit or not-for-profit.
Here is a breakdown of each type of business entity:
The first option is to remain a sole proprietor which means that you have not created a corporation of any kind and have not registered the same with the Secretary of State of Ohio. A sole proprietor can register the name of the business with the Secretary of state of Ohio to protect it from being used by another company or entity. The sole proprietor uses the owner’s social security number for tax purposes. The sole proprietor has none of the protections of a corporation and all liability is personal to the owner.
Limited Liability Companies (LLC)
Another choice of entity is a Limited Liability Company or LLC. An LLC can consist of a single Member (owner) or multiple members. If the LLC has only one member, the income and expenses are shown on a schedule C on the Member’s personal tax returns. If an LLC has more than one Member then the Member must file a partnership tax return. An LLC may have employees or independent contractors.
The formation of an LLC allows for corporate protection for the Members under the provisions of the Ohio Revised Code. An LLC can own property, contract for services, and manage the assets of the LLC. It is a corporation that is separate from the creator or the Members and is the buffer of liability for the actions of itself from personal assets of the Members. The Ohio Revised Code requires certain actions to be taken to maintain the protection of the corporation and members of an LLC have to be careful to follow the regulations or the corporation can be “pierced” or treated as non-existent and the Members will be liable for the action of taken by or through the LLC.
A Corporation, which can take the IRS election to be an “S-corp” or it can remain what is commonly called a “C-corp,” is a corporation also formed under the provisions of the Ohio Revised Code. The regulations are more stringent than those for an LLC. A corporation has all of the abilities to act as an entity that an LLC has. A corporation can have shareholders and sell stock. The profits and losses of a Corporation are accounted for on a corporate tax return and any income or draws taken are reported as such on the personal tax returns of the recipients.
The exception to this form of taxation for a corporation is if the election to be taxed as an “S-corp” has been made. If such an election has been made, the profits and losses of the corporation are accounted for on the schedule C of the recipient. If the regulation set forth in the Ohio Revised Code for the formation and operation of a Corporation is not met, the entity can be ‘pierced’ and the individual shareholders can be held personally liable for actions taken through the Corporation.
A Corporation can choose to apply for approval of not-for-profit, or 503(c), status with the IRS. There are several regulations imposed by the IRS for a corporation to be designated not-for-profit. The corporation will need to establish a mission statement, a board, and a plan of how it will generate income to operate and what that income shall be used for. Many think that not-for-profit status is a choice made automatically approved if the company is “not going to make a profit,” but a not-for-profit entity may generate a profit as long as it is used in the ways designated by the regulations established by the IRS.
A partnership is an entity that can be created under the regulations of the Ohio Revised Code and registered with the Secretary of the State of Ohio. This entity requires two or more members and must file a partnership tax return. The Partnership has all of the rights and responsibilities of Limited Liability Companies and Corporations.
Moseman Law Office, LLC Can Help with Your Business Startup
It’s always good to have an attorney on your side when you’re starting a new business. The attorneys at Moseman Law Office, LLC understand the laws in Ohio for entrepreneurs and new businesses. Contact us today to set up an appointment to discuss your business and how we can help you be successful.
Moseman Law Office, LLC
Moseman Law Office, LLC is a full-service legal firm located in Mentor, Ohio, serving all of Northeast Ohio and providing personalized legal solutions to its clients.
Moseman Law Office, LLC
8500 Station St., Ste 210
Mentor, OH 44060
Phone: (440) 255-0832