Congratulations! You are embarking on a new business venture. One way to ensure future success is to choose the appropriate business model. As an experienced business attorney I can help you select the right business organization to fit your needs. Failure to pick the correct business organization can lead to loss of assets, excess taxes and ultimately bankruptcy.
There are seven different types of business arrangements that can be created in Ohio. These are: Sole Proprietorship, General Partnership, Limited Partnership, Limited Liability Company, C-Corporation, Nonprofit and Limited Liability Partnership. Each one has pros and cons depending on the individual’s business plan.
Sole Proprietorship –
Owned and controlled by one personPros
• No partnership agreement
• Taxed only once: Owner reports all income and expense on personal tax return.
Con
• Personal assets are more open to attack in a legal case.
General Partnership –
Owned and controlled by two or more people. Partners share profit, risk and management responsibilitiesPros
• Taxed only once: Each partner reports his or her share of partnership income on individual tax return. The business does not pay taxes as its own entity.
Cons
• Partners’ personal assets are more open to attack in a legal case.
• Must have approval of all partners before management duties are transferred.
Limited Partnership –
Owned and controlled by at least one general partner and at least one limited partner. General partners manage the business and limited partners just invest money.Pros
• Limited partners’ personal assets are generally less open to attack in a legal case.
• Taxed only once: Each partner reports his or her share of partnership income on individual tax return. The business does not pay taxes as its own entity.
Cons
• General partners’ personal assets are more open to attack in a legal case.
• Must have approval of all partners before management duties are transferred.
Limited Liability Company-
Can be organized by one or more person(s). Then, company interests are sold (like shares in a corporation). The people who buy the interests are called members. Unless the members agree otherwise, control of the business is distributed according to how much money each member has invested.Pros
• Members’ personal assets are generally less open to attack in a legal case.
• Taxed only once: Members report their share of business income on individual tax returns. The business does not pay taxes as its own entity.
Con
• Must have approval of all members before management duties are transferred.
C-Corporation-
Can be organized by one or more person(s). Then corporate shares are sold. Shareholders appoint board of directors, which appoints officers who carry out corporate policy.Pros
• Shareholders’ personal assets are generally less open to attack in a legal case.
• Easy to transfer shares.
Cons
• Taxed twice: Shareholders pay taxes on their earnings.
• Corporation also pays its own taxes.