A car commercial currently on the airwaves begins by reminding viewers that many great inventions – from the light bulb to the personal computer – started out in somebody’s garage. It’s a typical rags-to-riches success story with a moral that’s worth remembering. What eventually became a big business actually began as a small personal project between a close-knit group of friends or relatives.
As the business grew – from the garage to the basement to a nearby warehouse – someone realized the group should probably become more organized, establish clearer lines of responsibility, and jump through the legal hoops necessary to set up a formal business entity. If that sounds like a business venture you’re involved in, there are some legal consequences that you should be aware of. You may have already formed a legally enforceable business partnership without even knowing it.
Impact on Estate Planning
Failing to think carefully about these business decisions may impact your estate plan and your ability to pass down property to your loved ones. For instance, let’s say you purchased a minivan and have used it to deliver your widgets, or whatever your product might be, to your customers. Does the minivan belong to you or to the business as a whole? Tackling such questions now can save your family and your business partners a lot of grief later.
Learn Your Options for Business Formation in Ohio
In Ohio, the law provides several ways of formally establishing a business entity. The options include setting up a corporation, which involves naming a board of directors, forming a limited liability company (LLC), which is the route many mom-and-pop businesses take, and establishing some type of partnership.
Setting up a corporation or an LLC requires filing paperwork with the state. The forms can be found on the Ohio Secretary of State’s website. But before rushing to make everything official, it’s a good idea to sit down with an attorney to see if the route you’re taking is the right option for your business.
The Downside of a Partnership
A general partnership, on the other hand, can be formed without filling out any paperwork and without the parties involved even realizing they’ve done it. The intent to form a partnership is not required to actually form one. It sounds crazy at first glance, but here’s how the law works:
Under the Ohio Revised Code, a partnership is defined as an association of two or more persons, as co-owners, in business for profit. That can happen without anyone ever signing anything. Each general partner shares in the profits, but each partner is also personally liable for the debts. That means if the business goes into the red, the partners could not only lose the money they invested, but their personal assets as well.
Seek Help From an Attorney
To be clear, some partnerships do have written partnership agreements that spell out the terms of the business relationship among the members, and there are ways of limiting the liability in a partnership as well. This provides enough of a reason to consult an experienced attorney who can lay out all of your options so you can decide which type of legal entity is right for your business venture.
John Grundy has been providing quality legal services to businesses and individuals in Warren, Aurora, Youngstown, Cortland, Akron and all of Northeast Ohio for nearly 30 years. Feel free to contact our office to discuss your legal and financial options.