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Which Business Entity is Right for Me?
Starting a business in Ohio begins by selecting the appropriate legal “form” for your venture. In making this decision, there is far more to consider than simply whether one wants to “be the boss.” Choosing a business form without considering the legal and tax implications can lead to surprising, costly results. Seeking legal counsel at the outset of a business venture can help prevent unanticipated legal troubles from derailing your plans later.
Types of Business Forms in Ohio
There are three main types of business forms in Ohio: sole proprietorships, limited liability companies, and corporations. It is a common mistake to assume that corporations are only appropriate for large business organizations. It is also a mistake to assume that the simplest business form – sole proprietorships - is the best form for those without a business background.
Choosing the appropriate business form involves considering each form’s risk of personal liability and the tax consequences applicable to the business’s profits
- Sole Proprietorship: A sole proprietorship is one of the most basic “businesses.” The owner of the business makes all of the decisions on behalf of the business. There are few formalities with which the business owner must comply (like filing annual statements with the Ohio Secretary of State’s office). The tax treatment of profits from a sole proprietorship is also favorable: any profits are reported as income on the owner’s individual income tax return and taxed accordingly. This simplicity comes at a cost, however. A sole proprietor can be held personally liable for the debts, obligations, and wrongs committed by the business if the business does not have enough capital and assets to cover them.
- Limited Liability Company: A limited liability company, or LLC, is a bit more formal in structure than sole proprietorships. Still, some may find them to be surprisingly uncomplicated to operate. The main advantage of an LLC is that, in most cases, the owner or owners of the business are shielded from responsibility for the business’s obligations. This can be a welcome protection for owners who may fear that their small business will not have enough assets to address significant litigation or a failure of the business. Profits from an LLC are “taxed twice,” though. The profits are reported as income on the tax returns of the LLC, and then any profits passed on to the owners must be reported as income on their individual tax returns.
- Corporation: A corporation is one of the most formal business forms in Ohio. Some may believe that an “S-corp” is a more simplified version of the corporate business form, but this belief is incorrect. The only difference between a corporation and an S-corp is that the profits of the corporation are taxed twice (as they are with LLCs) while an S-corp’s profits are only taxed once, when they are distributed to the owners. Like an LLC, the owners of a corporation are generally shielded from legal liability for the corporation’s debts and legal obligations.
Experienced Legal Assistance for Business Formations in Ohio
The Ohio business law attorneys of Walker Novack Legal Group, LLC can help you evaluate the strengths and weaknesses of the various business forms available to you. During your free, no-cost consultation, our legal professionals will work to identify the most appropriate business form for you in light of your risk tolerance and desires regarding taxation. You may contact our firm to arrange your business formation consultation by calling (614) 423-8276.
Walker Novack Legal Group, LLC
5013 Pine Creek Drive
Westerville, Ohio 43081
P: (614) 423-8276
F: (614) 767-0695