Does your “LLC” really limit your liability?

As a business owner, the question is not "if" you will be sued; rather, it is likely "when" you will be sued. To protect against personal liability, the Limited Liability Company (“LLC”) has become one of the more popular entities chosen by business owners to operate their respective businesses. The LLC provides the flexibility and ease of creation of a partnership while at the same time establishing a liability shield similar to a traditional corporation.

My experience in meeting with business owners is that there is a common misconception that so long as Articles of Organization are filed with the Ohio Secretary of State, the owners will get the full protection of the LLC. However, in order to be protected from personal liability, you must establish that the LLC is a separate entity from you as the owner (or owners). In order to do this, it is advisable to take some steps above and beyond merely filing the Articles of Organization.

First, you need to choose a business name and make sure it is available. In Ohio, the name of your LLC must contain some specific words, as well as be distinguishable from any other names on file (with some limited exceptions). Typically you complete this step before filing the Articles of Organization.

You should also negotiate and execute an Operating Agreement. An Operating Agreement will differ if the LLC is a Single Member LLC versus a Multimember LLC. Additionally, the Operating Agreement should address tax treatment, buy-sell options, management, capital contributions required from each Member and how profits and losses will be allocated. While there are template Operating Agreements available, an Operating Agreement should be tailored to your business, your Members and your specific situation to increase the likelihood of protection from personal liability.

At Hallowes & Ebbeskotte, LLC, we create and maintain a Company Minute Book for your LLC that includes all of your company documents, including the Articles of Organization, the Operating Agreement, Subscriptions to Membership Interests, Organization Minutes, Membership Interest Certificates, Descriptions of Membership Interests, and Capital Contributions.

Don’t forget to determine what tax and other regulatory obligations the LLC is subject to, along with any required registrations. These include requesting an Employer Identification Number (“EIN”), registering for Ohio payroll taxes and BWC coverage, and required notifications when new employees are hired.

Once the LLC has obtained an EIN, the Articles of Organization have been approved, any requisite local licenses and/or registrations have been obtained, and bank accounts have been opened on behalf of your LLC, you are ready for business.*

Remember, to protect yourself from personal liability, it is critical that you take the proper steps to establish the liability shield a limited liability company can provide. Visit http://thehelawfirm.com for more information on how the business law attorneys at Hallowes & Ebbeskotte, LLC can guide you through the necessary steps.

*Future posts will address the importance of refraining from co-mingling your personal funds and assets with the funds and assets of the LLC in order to maintain personal liability protection. Stay tuned…