When you start your new business here in Ohio, you will have numerous decisions to make that will affect its future. One of the most important of them will be choosing the type of entity under which you want to form your business.
You may have considered a sole proprietorship if you will own the business alone, or a partnership or corporation if you will own it with others. However, there is another option that may provide you with the protections and benefits you are looking for — a limited liability company.
What is an LLC?
Simply put, an LLC is a hybrid entity that provides you with the liability protections of a corporation and a partnership’s tax benefits. An LLC can have one member or many members, depending on your business. Its membership may be comprised of corporations, other LLCs and individuals, depending on the state. The flexibilities of an LLC make it an attractive option for many small and large business owners.
What does an LLC do for you?
Like most everyone else, you want to know what advantages you receive from your choices. When it comes to choosing to form an LLC, you would receive the following advantages:
- LLCs tend to be low maintenance. Corporations require you to keep certain records and hold annual meetings, so if you aren’t a fan of paperwork and too much structure, an LLC may be right for you.
- LLCs limit your liability for the company’s obligations and debts as long as no criminal activity occurred.
- LLCs either an S corporation or a partnership for tax purposes. Their profits and losses pass through the company to the individual income tax returns of their members.
In essence, an LLC provides you with a corporation’s liability protections without the hassles that come with it.
What doesn’t an LLC do for you?
Just about everything has a downside, including an LLC. The primary disadvantages of this type of entity include the following:
- LLCs taxed as a partnership may create a self-employment tax liability on its members.
- LLCs are not a trade on the stock market, so obtaining investment capital may present a challenge.
- LLCs don’t last forever, as corporations can. If a member dies or leaves, it could dissolve the company.
If you are willing to work with these disadvantages, an LLC may be the entity for your business. Forming an LLC requires filing Articles of Organization with the state.
Drafting and executing an Operating Agreement is not a requirement, but you may need to do so. This document includes details regarding the overall management of the business, responsibilities of each member, and procedures for adding or subtracting members. Without this contract of sorts, you could end up in costly and time-consuming legal battles with other members. To help ensure that your rights and your business remain protected, you may want to seek out the support of legal resources in your area.