Limited Liability Companies (LLC) in Westerville & Columbus, Ohio
A popular form of doing business in various parts of the world is a Limited Liability Company or LLC for short. These companies are formed in Ohio by filing “Articles of Organization” for a Limited Liability Company” with the Ohio Secretary of State. The State of Ohio charges a small fee to file the company, and it provides the form for the creation of the company. The form to file is provided by the Ohio Secretary of State is the only form permitted to be filed to create the company. It can be found online at http://www.sos.state.oh.us/SOS/Businesses.aspx.
The form for creating the organization looks simple, and it is. However, filing is only a start, and while it can be and is often done without counsel, there are preparatory steps that should precede the filing, and steps that should coincide and follow up filing. Often these steps should be addressed by counsel and an accountant to address business plans to enhance the chance of the business’s success.
What is an LLC and how limited is its Limited Liability?
As described by the Ohio Secretary of State online, a limited liability company is “a form of business organization characterized by limited liability, management by members or managers, and limitations on the transferability of ownership interest. A limited liability company may be formed as a nonprofit or for-profit business type.”
This is accurate as far as it goes, but does not provide much hard information. There are many forms of business that provide ‘limited liability’. For example, corporations, limited liability partnerships, limited partnerships, certain business trusts, etc., provide limited liability. The primary distinction between these forms of business is the manner of control over the business, investment risks and tax treatment. The advantage of the limited liability company form for small businesses is that the form allows for a great deal of flexibility in these areas of control, investment and tax treatment. This flexible form of doing business can be adapted to various terms for operations over time to accommodate changes in the business. Also, operating agreements can be struck among the investors as to how new shares or interests in the company are issued, and all of this can be done without a great deal of formality. These agreements are entitled ‘Operating Agreements’.
An important first step to filing for a certain type of business entity is to know what kind of entity should be filed. This requires a clear understanding of the investors, business management, risks and goals of the business and capitalization requirements. An Ohio LLC is often used as a business form for small companies that want to do business without a lot of special operating requirements, such as meetings, minutes, elections, etc., and that do not have special capitalization requirements. It is very flexible, as a business form, but there are a variety of ways to add complexity to this form to perform the goals for the business. Often people that use this form find that they can adapt to new challenges in a business organization as it evolves.
However, as far as limited liability goes, the smaller an organization is, the less likely that the work of the organization will be conducted by hired help who are not owners. Consequently, where the owners are directly involved in the work of the company, the owner may have tort liability to outsiders for mistakes in completing the work. An example of this is poor building construction that results in an injury to a person.
Where work is performed by an owner, he or she may have a personal liability that is unlimited for that work even though the work was performed under contract with their LLC. Consequently, limited liability under this scenario can be a misnomer and a false sense of security may arise without understanding the legal relationships and risk exposure to the owner(s) performing the LLC’s work.
The information contained in this entry is general and should not be applied to specific legal problems without first consulting an attorney.