The next afternoon we began the important process of setting up a separate legal entity in order to secure the limitation of liability of my personal assets from the liabilities of the business. When I hear the word ‘entity’ I think of aliens coming in their spaceship to abduct me, but that’s probably because I watch too much Sci-Fi channel and then can’t sleep. Elliott explained that the entity he was referring to was a necessary legal entity for the business and that I could come out from hiding underneath the desk.
To create this entity we first registered the Articles of Organization with the Ohio Secretary of State. Then we made the necessary tax filings, and obtained the proper federal, state, and local authorizations. And by ‘we’ I really mean Elliott did all of these things while I played with the various colored paper clips and rubber bands on his desk.
Elliott informed me that failing to follow the proper protocols after registration with the state would result in the loss of a company’s limited liability status, and that there was a common misconception that filing with the state alone limits personal liability. I could tell Elliott really loved his work because the stuff he spoke passionately about was really boring to me.
When Elliott had completed this process, he assured me that now my personal assets as owner were separate from the company, and that the limitation of liability was in full effect. I thanked him and assured him that I would buy him more paper clips if I could keep the paper clip spaceship that I had created with the rubber band ‘entities’ inside.
Later when my wife asked me how the business was coming along, I told her about the entities in my paper clip spaceship, and I could tell that she was also relieved that I had Elliott’s legal guidance through this process.
For more information on starting your business, read Starting a Business: Part 1.
For the next step in starting your own business, read Starting a Business: Part 3.