Form Ohio LLC

If you are considering the investment of time, energy, and money that goes into a new business, it is important to take the proper steps to protect your investment and to protect your personal assets. If you conduct any business before your LLC is in place, all of your personal assets are at risk. 

Filing your Articles of Organization is not the only step in creating an Ohio LLC. Here is a summary of issues related to the proper formation.

What is LLC?

LLC stands for Limited Liability Company and indicates how liability is limited to the assets of the business.  Ohio business law allows owners to insulate their personal assets from the assets of a business.

The value of an LLC is best articulated by explaining what happens if you do not have the proper measures in place: 

Example: You decide to start a business that owns rental property in a college town and treat the venture as a sole proprietorship.  One of the tenants is a star college athlete on the basketball team. While moving in, he falls down the stairs and breaks both legs (and is no longer eligible for the NBA draft). 

When the athlete files the lawsuit, he is going to name you as a responsible party.  If the athlete is successful and receives a substantial judgment for the loss of his first NBA season, he will use that judgment to take whatever assets you have.

This includes your rental property, bank accounts (business and personal), your home, investments, vehicles, personal property, and a percentage of your wages until paid in full. 

Now what would happen if we had this identical situation, but the rental property business was an LLC instead of a sole proprietorship? As long as the proper procedures are followed, the athlete can only reach the assets of the business if it is sued; rental property and bank account of the business.

While you may have an insurance policy, there are limits to that policy including covered incidents and a total policy limit. In this example, even a policy limit of $500,000 - $1 million would not be enough to cover your total liability.

This may seem to be an extreme example, but business owners cannot control who uses their products, services, or enters their property.  It is always best to manage the amount of risk you have at any given time.

Does filing with the Ohio Secretary of State automatically provide Limited Liability in business transactions?  

No.   Filing your Articles of Organization alone does not automatically give a business owner limited liability; it authorizes you to create a business. 

Think of the state’s authorization as a building permit to create a business. There are steps that must be taken and maintenance that is required to achieve limited liability.

What steps must be taken to ensure an Ohio business owner has Limited Liability?

The key is to establish a separate entity; think of the business as a person separate from the owner.  For example, the entity needs a Tax Identification Number from the Internal Revenue Service, its own bank account, and the necessary internal documents of a business.  

To ensure all of the proper procedures are followed, the best investment is in a qualified counsel.

Feel free to contact me with questions.

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