Forming a LLC in Ohio
Steps on How to Form a LLC in Ohio:A business is formed in Ohio by paying the filing fee and filing Articles of Incorporation with the Secretary of State. A Limited Liability Company (LLC) is the most common entity that is formed in Ohio due to its flexibility.
File Articles of Incorporation
Choose Management StyleA LLC can be structured to act as a partnership or a corporation. A LLC that is structured to act as a partnership is a member-managed LLC. A LLC that is structured as a corporation is a manager-managed LLC. The difference is one in management style. A member-managed LLC is appropriate for situations where the owners have equal ownership shares and want to share in the control of the company. A manager-managed LLC is appropriate for situations in which there are different percentages of ownership and assigned management roles, such as CEO, CFO, VP Sales, etc.
Single-Member LLCIn practicality, most new businesses are single-member LLCs. This is where only one person owns the entire company. A LLC provides the protection from liability that businesses want, and it can provide pass through taxation benefits.
Multi-Member LLCMulti-Member LLCs are a bit more complicated than single member LLCs. The law firm of Harris & Engler helps business owners with all of their incorporation documents. With a multi-member LLC, the operating agreement should have good buy-sell provisions for the owners of the LLC to be able to transfer their shares or buy out the shares of the other members.
TaxationA LLC that elects to be taxed under Subchapter S of the Internal Revenue Code (known as a S corporation) has pass through taxation. This means that as the business earns income, the income "passes through" the corporate shell and is treated just as income of the owner/s of the company. Many business owners in Ohio prefer to be taxed as a partnership or Subchapter S.
The alternative is to be treated as a C corporation for tax purposes. This means that as the company earns income, the company pays a yearly income tax on those earnings. In order for the owners of the business to receive their share of the company's earnings, the company has to issue dividends. Then the business owners have to pay income tax on all dividends (and all other income) they receive that year. This results in double taxation.
Operating AgreementThe sole underlying purpose of forming a LLC or corporation is limitation of liability. In Ohio, it is not required to create an Operating Agreement for a LLC (it is required for a corporation). However, Ohio law does require adherence to corporate formalities in order to avoid personal liability for business obligations.
An Operating Agreement creates the rules for how the company must operate. The Operating Agreement provides for management, possible expansion (sale of shares), meetings of directors and shareholders, how to kick shareholders out of the company, how to sell shares back to the company, and how to dissolve and wind up business.
Business owners forming a new LLC often overlook the importance of the Operating Agreement. However, this document, and adherence to it are necessary in order to protect against personal liability. You can call the Ohio business incorporation attorneys at Harris & Engler to help with all steps in forming a LLC in Ohio in addition to the critically important step of having a good operating agreement that accurately suits your needs.