A popular form of doing business in
various parts of the world is a Limited Liability Company (“LLC”). 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 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 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
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.
© Copyrighted by Bale
and Associates, Ltd. 592 Office Parkway, Suite B, Westerville, Ohio 43082. Phone (614) 895-5600. All Rights Reserved. January 12, 2015.
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