Legal Question in Business Law in Ohio

Re: having someone invest in business

Dear Inquirer: Form an LLC in which each investor becomes a Member, for a stated amount of invested capital and shares in profits (or losses)accordingly.

A limited liability company, like a corporation, is a legal entity separate from its members; it may be formed by two or more individuals or members. The members may themselves be a legal entity such as a corporation, association or trust. Limited liability companies offer the major tax advantage that a partnership does and a corporation does not. That is, taxation on profits is only at the individual level, and not also at the company level. Consequently, profits in a limited liability company avoid being taxed twice the way they are in a corporation. While this is also true for the �S� corporation form of business that allows owners to have the same tax advantage, a limited liability company has far fewer restrictions imposed on it than the �S� corp.

The limited liability company is also very favorable to members with regard to liability. In a corporation, owners are only liable up to (the limits of) their investment. In a partnership, partners have unlimited liability for contracts entered into, and for the wrongful acts committed by other partners. The limited liability company (LLC) members, however have only the liability that a corporate owner does, up to the amount of their investment.

While it is true that in a limited partnership (LLP) form of business, a limited partner has liability only up to the amount he or she invested, and that a limited partner may not take part in management, in contrast, a member of a limited liability company (LLC) may manage as actively as desired, while still maintaining the limited liability protection under the law.

Selection of the form of business entity, and the contracts for it, should be made with the assistance and guidance of experienced counsel, in order to maximize the benefits available under the law, minimizing risk.

Good luck.

Sincerely,

J. Norman Stark, Cleveland, Ohio