An LLC, or limited liability company, protects your personal assets from legal judgments and collection actions against your business. This type of legal business structure may also provide tax advantages.
Ask yourself these questions to determine whether your small business would benefit from establishing an Ohio LLC.
Do I have personal assets to protect?
When you operate a small business without a legal structure, you are a sole proprietor by default. Because your company is not a separate entity, you could lose your home or other assets if a customer sues your business or a creditor puts a lien on your property.
Do I have a unique business name to protect?
Establishing an LLC ensures that no one can steal your business name. If another business forms an LLC with a similar name before you do so, that business has a legal claim to the name. When you begin marketing your business, a unique name is essential.
Do I need an official structure?
If you work closely with partners, employees and/or other stakeholders, an LLC operating agreement sets out rights and responsibilities for each of these groups. You can use this document to establish division of profits and losses, create dissolution procedures and set protocol for resolving disagreements.
Do I want to pursue investors?
If you are thinking about funding for your business, you may be applying for loans or approaching investors. These entities are more likely to take your business seriously if you have an official structure like an LLC.
Do I want to avoid corporate taxation and requirements?
An LLC is a pass-through tax entity, which means owners report profits and losses on their individual tax returns. This creates a lower tax burden than for corporations, which must pay tax at both the business and individual levels.
Although LLCs have the liability protection and other benefits of corporations, they do not require board meetings and state reporting like corporations do.
Business owners who want to form an LLC must file paperwork with the Ohio Secretary of State. This requires Form 433A, which carries a filing fee for businesses based in Ohio.