You’ve got a new business, and your friends tell you that you need an LLC. You don’t want to sound stupid or anything, but what the heck is an LLC, and why should you want one?
LLC is short for limited liability company. You form an Ohio limited liability company by filing documents with the Ohio Secretary of State. One of the main reasons for forming an LLC is that an LLC protects a business’s owners from personal liability for the company’s debts. A corporation offers this same protection, but LLCs are simpler and are considered more flexible than corporations.
Structure of an LLC
The owners of an LLC are called members. An LLC can have one member (my law office is a one-member LLC), or it can have more than one member. An LLC can be managed by its members, or it can be managed by managers, who function like a board of directors. An LLC’s operating agreement specifies how the company will be managed, and how capital contributions will be paid and profits will be shared. An LLC is considered more flexible than a corporation in the ways that these financial arrangements can be set up.
Taxes
A one-member Ohio LLC is typically taxed in the same way as a sole proprietorship, with income reported on Schedule C of the owner’s personal tax return. An LLC with more than one member is usually taxed as a partnership, with profits flowing directly to the members’ individual tax returns. However, an LLC can also choose to be taxed in the same manner as a C corporation.
So should your business be an LLC? Forming an LLC is a good way to limit your potential liability, but for some businesses, a corporation is a better choice. It’s best to consult with legal and tax professionals about your particular situation.
Jane Haskins can assist you with finding the best structure for your business. Call 614-330-5463 or email Jane at jane@haskins-law.com to set up a free initial consultation.
