Limited Liability Companies are quite popular in the state of Ohio. They became even more popular after Senate Bill 276 was introduced in the state assembly with the purpose of modernizing the LLC Act of 1994. In fact, 73.5% of all the active businesses in Ohio are limited liability companies. In 2019 alone, a total of 87,500 LLCs (88% of new businesses) were formed in the state of Ohio. The remaining percentage was taken up by corporations and partnerships. More on this can be found on the Ohio Senate website.
What factors make the LLCs popular in Ohio?
The LLC business structure is appealing to the many people because it accommodates several ownership structures, it is simple to administer, it offers protection to the owners’ assets, and offers an efficient method of taxation. Below are the reasons in detail.
Members can form “series LLCs”
The current law makes Ohio one of a few states that allow the formation of “series LLCs”. This a structure in which several LLCs are formed under one umbrella entity, each with its own assets, debts, ownership, and bank accounts. Forming Series LLCs helps in substantially reducing paperwork and administrative costs.
1. Limited personal liability
Unlike sole proprietorships and partnerships, LLCs are legally separate from their owners. They are responsible for their own assets, debts and obligations, and the owners’ assets are not potentially at risk of attachment in case the company is sued or fails to meet its obligations.
2. Tax advantages
Among all the available business structures, LLCs benefit the most when it comes to taxation since they do not have their own classification of federal tax. At federal level, they are automatically classified as sole proprietorships or partnerships depending on the number of owners. This makes them act as “pass-through” entities, meaning that their income and expenses are passed to the business owners, who then pay personal income tax on their share of the income. In comparison, traditional corporations are taxed twice in that they pay income tax and the members are taxed on their share of distributed profits.
3. Less complex to administer
Unlike corporations, LLCs are not required to have a board of directors, or to hold any annual shareholder meetings, or to keep minutes of their meetings or to maintain prescribed records.
4. Ownership flexibility
LLCs can have as many members as they want, and they can even have foreign members. In comparison, S corporations are also pass-through entities (for taxation) but they cannot have foreign shareholders and they cannot have more than 100 members.
5. Profit distribution flexibility
When distributing the business’ income, some LLC owners may get more if they contributed more funds or manpower during the startup phase of the company. In comparison, profits made by corporations are distributed according to the number and type of shares that individual shareholders have.
6. Flexibility in management
The members of an LLC can decide on who manages the business which can either be members or employed managers or a combination of these. They can spell out in the operating agreement how the company is going to be managed and how all operations are going to be run. Because it’s their agreement, they can amend it over time to meet the needs of the growing business.
In comparison, corporations cannot be flexible. They must have a board to oversee the policies of the business and they must have officers who conduct daily operations of the company. Shareholders must meet annually and all shareholder and board meetings and their resolutions must be recorded in minutes.
Help is available for LLC formation
All the factors detailed above make limited liability companies (LLCs) the best choice for small businesses and quite popular in Ohio. Professional websites, like the one run by TRUiC, have a lot of information and guides for forming an LLC in Ohio. Learn more….