An LLC, or limited liability company, is one possible legal structure for a business. Establishing an LLC creates an entity that the law considers separate from the business owner as a person, which may have both tax and liability benefits.
Explore the possible advantages of creating an LLC for a small or medium-sized business.
The LLC structure limits each owner’s personal liability to his or her initial investment in the company. Without this provision, a creditor can go after individual business owner assets for unpaid company debt. The court can also seize personal assets to repay a legal judgment against the business. When the owners create an LLC, they place their individual property under a layer of protection provided that they carefully separate business and personal finances.
While the corporate structure also provides limited individual liability, corporations tend to have a significant tax burden. An incorporated company must pay taxes on profits at the corporate level when earning the money and at the individual level when distributing profits to shareholders.
With an LLC, on the other hand, the business owner can use the beneficial pass-through tax structure. Each partner simply reports his or her share of business profits and losses on an individual tax return, avoiding the double taxation that affects corporations. Individuals are also usually in a lower tax bracket than businesses, so they’ll pay a lower tax percentage than would be due with corporate tax. LLCs can also opt for taxation as a C corporation or S corporation if it is advantageous to do so.
Unlike corporations, LLCs have limited state filing and annual meeting requirements. They also usually cost less to establish than corporations do.
To start an LLC in Ohio, the business owners must submit Articles of Incorporation that establish the name of the LLC and other pertinent information. The filing fee is $99 and expedited service is available for an additional fee.