Forming a Legal Business Entity: Incorporation, LLC, Partnerships
The decision regarding the best or most appropriate entity structure for your particular business is an important one. There are a variety of options available to Ohio residents.
Conducting business as a sole proprietor or in a general partnership can often reduce or eliminate many of the entity-based “paperwork” requirements and formalities that are associated with other entity structures but, with the elimination of some of these administrative requirements, potential downside exists in the form of personal liability for business obligations. Forming a corporation or limited liability company can provide protection from such liability and, with the proper legal advice and direction, many of the “paperwork” requirements can be minimized for the client.
While forming a corporation or limited liability company in the State of Ohio is a relatively straightforward administrative task, the choice made by business owners as to the proper entity form (or whether to form a legal entity at all) is an important and potentially complex one. Both the limited liability company and the corporation offer their owners similar protections and advantages. Both provide owners with protection from liability. Many view the limited liability company as a more flexible business structure while others view the structured nature of a corporation as a benefit.
Below is a brief description of some possible benefits of each structure.
Limited Liability Company
A limited liability company (called an "LLC") is a legal entity that, in the eyes of the law, exists separate and apart from its owners. The owners of the LLC are called "members" (as compared to a corporation, where the owners are referred to as "shareholders"). An LLC is formed by filing with the proper state governmental authority (usually the Secretary of State) articles of organization (or the equivalent under the laws of a particular state) and all filing fees are paid. Some state laws may impose additional pre or post-creation requirements as well.
Corporations / Incorporating
A for-profit corporation is a business structure formed by filing articles or incorporation (or similarly named documents) with the appropriate state agency (again, usually the secretary of state). A corporation is recognized as being separate and apart from its owners. (The owners are called "shareholders".) As a separate entity, it has its own rights, privileges, and liabilities apart from the individuals who form it.
The shareholders of a corporation are generally not personally liable or responsible for the debts or obligations of the corporation. A stockholder's personal liability is usually limited to the amount of his, her or its investment in the corporation and no more. A corporation continues to exist after the death of or transfer of shares by one or more of the shareholders. A corporation pays taxes on its profits, and its shareholders pay taxes on dividends, unless "S" tax status is elected - then the profits and losses of the corporation "pass through" to the shareholders.
I can work with you to explain the various benefits of each of these business entities along with other potential options that you may wish to consider. Not only can I prepare and file the required documents with the appropriate governmental office, I can assist you in obtaining a federal employer ID number, file an S corp. election if desired and appropriate, assist with State of Ohio licensing requirements and, of course, work with you to prepare the most appropriate company books and records. I can also provide you with practical advice and insight as to the most appropriate business structure for you.