Business Formation and Operation Using Series LLC in Ohio

Business Formation and Operation Using Series LLC in Ohio

The Ohio Revised Limited Liability Company Act took effect in February 2022. They made several significant changes to Ohio limited liability company (LLC) law. Among them, the Act authorized the formation and operation of a new type of business entity called a  “Series LLC.” Here’s what Ohio businesses and those considering incorporating here need to know. 

What Is a Series LLC?

A Series LLC is a limited liability company that can establish one or more subsidiary entities. Each is called a “series” or “series of assets” that are separate and distinct from each other and the LLC itself. Each series can have its members, managers, business purpose, obligations, assets, and liabilities. They can also independently transact business, sue and be sued, and grant liens and security interests. Assets owned by or associated with a properly maintained series are shielded from the liabilities of other series and the parent Series LLC, and vice versa. 

A Series LLC serves essentially the same function as an LLC holding company but is easier to create and (potentially) simpler to operate. An LLC holding company typically owns interests in one or more other LLCs. These must be organized, registered, and maintained as a stand-alone corporate entity. In comparison, it takes just one filing with the Secretary of State to form a Series LLC. After that, that entity can establish and operate multiple series at its discretion. This is provided it follows certain recordkeeping and administrative requirements. 

How Do I Form a Series LLC in Ohio?

Forming a Series LLC in Ohio differs slightly from forming a standard-issue LLC. As with any LLC formation, you must file Articles of Organization with the Secretary of State and pay a fee (currently $99). To make your new entity a Series LLC, you simply include a statement in the Articles of Organization that the LLC may have one or more series of assets subject to the limitations provided in division (A) of section 1706.761 of the Ohio Revised Code

What Are the Features and Benefits of an Ohio Series LLC?

Like any limited liability company organized in Ohio, a Series LLC must have at least one member and maintain a statutory agent. Ohio law also leaves all of the other decisions about how an LLC is structured and managed to the discretion of its members. These are who usually set forth the particulars in an operating agreement. Series LLCs (and LLCs generally) are not required to file annual reports in Ohio.  

It is relatively straightforward for an Ohio Series LLC’s operating agreement to establish or provide for establishing one or more series. The only requirements are that Series LLC must designate at least one of its members to be associated with each series and must give each series either: 

  • Separate rights, powers, or duties concerning specified property or obligations of the Series LLC
  • Or to profits and losses associated with specified property
  • Or obligations
  • A particular purpose or investment objective.

One significant benefit of a Series LLC is that a series can hold an asset indirectly. In other words, the parent LLC can retain title to an asset while associating that asset with a series, thereby shielding it from all liabilities except those the series incurs. This can create significant efficiencies for Ohio businesses historically relying on holding company structures, such as real estate ventures, hospitality groups, construction firms, and investment funds. To also secure these benefits, the Series LLC must merely maintain records that account for the assets associated with each series separately.

What Problems Might Arise with an Ohio Series LLC?

Although Series LLCs have been around for years (more than 20 states allow them), they are new to Ohio law. For now, some potentially complex business formation and operation questions related to Ohio Series LLCs remain open, such as:

  • What constitutes adequate record-keeping to maintain the separateness of a series?
  • Can a series file for bankruptcy separate from its parent LLC?
  • Will states with no Series LLC laws honor the legal separateness of a series created by an Ohio business?
  • Is a series a separate taxable entity?

In time, court decisions, regulations, and statutory updates will likely resolve these and related questions. But for now, the newness of Ohio’s Series LLC structure is something businesses here should keep in mind. 

Wrapping Up

Ohio’s recent authorization of Series LLCs is a potential boon for business owners for business formation. Adopting a Series LLC structure can lead to significant cost savings and administrative efficiency. But it also comes with some legal uncertainty. Businesses considering forming a Series LLC in the Buckeye State should discuss their options with an experienced commercial lawyer. Contact Brenden Kelley Law at 216-644-3359 today to schedule a consultation.

Connect with us: Business Law | Contact Us

Explore our other Blog Posts for Business Owners: Navigating the Resources of Small Business Administration in the U.S., 5 Important contracts to know when starting a Small Business and Choosing the Best Corporation in Ohio: S-Corp or C-Corp?

Additional Resource: For a general overview on starting a business in Ohio, you can refer to the “Starting a Business” section on the Ohio Secretary of State’s website: Starting a Business – Ohio Secretary of State.

Navigating the Resources of Small Business Administration in the U.S.

Navigating the Resources of Small Business Administration in the U.S.

Small businesses are the backbone of the American economy. 61.7 million Americans work for small businesses, defined as businesses with less than 500 employees. The U.S. Small Business Administration was put together to help support these businesses through loans and other resources. However, many small business owners are unfamiliar with these resources, which are well-designed to help you with your unique challenges.

Find out about the tools and services the SBA provides to help you plan and grow your business.

Plan Your Business: Laying the Foundation

Success as a small business owner requires intention and planning. Some people may accidentally “fall” into entrepreneurship, perhaps after a job loss in a difficult economy. But those businesses that thrive are those that have a plan. The Small Business Administration can help with this.

Market Research and Competitive Analysis

Do you know who your audience is? Do you understand the competition? Is there space for your business in the area you most want to go into? Answering these questions requires the thing a new business has the least of: data.

The SBA provides market research and competitive analysis resources. These include resources to help you find existing sources that can show things like household incomes and industry trends. They also have resources to help you do your research through surveys or focus groups. You can get time with a counselor to help you design your market research plan and put limited resources where they will be most effective.

Many free, reliable sources can help you with your research and analysis, such as the U.S. Census, consumer spending statistics, etc. The Small Business Administration brings them all together in one place.

Writing a Business Plan

You have to have a robust business plan, but knowing how to write one is a skill that not everyone possesses…including many business owners. Your business plan should go through everything from the initial structure to your five- or ten-year growth plan. A good business plan can help you attract business partners and angel investors. There’s no right way to write one, but the SBA provides advice and templates to help you create a business plan that is clear and understandable.

Reading example business plans can help you understand what needs to be in there and why. For example, you need to include your financial projections, your marketing strategy, and the legal structure of your business.

Startup Costs and Business Credit

Your new business needs money to start, but to get a business loan; your business needs a credit score. You can’t afford to risk unless you have a nest egg; this can be a problem.

The SBA can help in two ways. First of all, they have resources to allow you to calculate all of your startup costs. This is helpful if you’re trying to get investors or a grant. It can also help you estimate when you will start to turn a profit and, thus, how much you need to potentially set aside for your living expenses. The Small Business Administration has fillable spreadsheets and advice on which costs to consider.

Secondly, they have advice on how to build credit for your business. Your business’ starting credit score is based on your personal credit history, so it’s a very good idea to pay off your credit cards before starting a business. The SBA has resources for improving personal credit and establishing and managing business credit.

Launch Your Business: From Vision to Reality

Most businesses that fail do so soon after launch. A solid launch moves your business onto the trajectory of success. However, a mismanaged one will put you on the scrap heap of “That was a good idea.”

The Small Business Administration can help with several areas of properly launching your business.

Choosing the Right Location and Structure

Your business’s location might be affected by non-business concerns, such as a spouse’s job, the need to be near your parents, putting your kids in good schools, etc. However, if you have location flexibility, you can choose a jurisdiction that has favorable tax and regulatory conditions. For some businesses, you might also want to include the location of your target market, the level of competition in a particular area, or suggestions from business partners.

You might, for example, relocate to an underserved area to start your home improvement company. Or you might relocate yourself to a favorable tax and business license environment if running an online business.

As for structure, you may choose to stay as a sole proprietorship if you have no intention of hiring employees, become an LLC (if your business is higher risk), or establish a C corp or S corp. Forming a corporation can help you attract more investors, but C corps aren’t always favorable tax-wise. The SBA has a variety of resources to help you compare different business structures as well as research the best location.

Business Registration and Compliance

Most businesses need to be registered. Some states don’t require you to register if you are doing business under your legal name and aren’t in a regulated profession. However, doing so can provide tax benefits, make it easier to prove profit intent if you are a pass-through entity and get audited, and potentially protect clients by demonstrating that you are not their employee.

The Small Business Administration can help you navigate this and work out whether you should register your business. They can also help you with tax paperwork, getting a federal tax ID, or trademark protection.

Financial Management

Opening a business bank account can be complicated or straightforward. (All businesses should have a separate bank account, including sole proprietorships). The SBA can help you choose the right bank, which may or may not be the bank you are already using, and get together the paperwork you need. You should also get a business credit card rather than putting business expenses on a personal card.

You should also get business insurance. The Small Business Administration offers a clear explanation of what kind of business insurance you should get and how to do so. In some cases, you may be required to get certain types of insurance.

Grow Your Business: Expansion and Adaptation

Some people are happy with a business that is doing what they do best. Others have the goal of selling the business or want to grow it further. As your business grows, the SBA will help you develop it in various areas.

Financial Management and Employee Hiring

As your business grows, you will need to get more serious about financial management. Many business owners hire a CPA, but you still need to have basic bookkeeping skills yourself. Their resources explain how to do a cost-benefit analysis, how to choose an accounting method (most small businesses start at cash but may move to accrual later), and understand GAAP.

Hiring your first employee is a major milestone for your company. The Small Business Administration explains the basics of compliance and how to distinguish between employees and contractors. It also has resources on required and optional employee benefits. Labor law compliance is extremely important, and even when you are too small to have to abide by a lot of the regulations, it’s best practice to stick with them from the start.

Marketing, Sales, and Cybersecurity

Unfortunately, you can’t just put a product or service out there and hope for the best. Marketing and sales are part of doing business, and the SBA has advice on how to make a marketing plan, when to measure and update it, and how best to accept various types of payment. They also have an example marketing plan to help you understand how to write your own.

Most small businesses don’t have much in the way of cybersecurity, but they are often targets because they don’t have the same security infrastructure as larger firms. Most small business owners feel vulnerable, but can’t afford professional IT solutions. The Small Business Administration advises on best practices, such as training employees to spot phishing emails and using good antivirus software. The SBA and its resource partners also offer in-person and virtual cybersecurity training events regularly.

Emergency Preparedness

How would your business cope if your town was hit by a natural disaster? What about a data breach? For very small companies, what if a key employee (or you) winds up in the hospital? Most small businesses don’t have proper emergency preparedness. In this situation, the SBA addresses this by providing disaster recovery checklists for a variety of disasters, as well as emergency toolkits and guidance. The SBA also offers low-interest loans for businesses struck by disasters to help you get back on your feet. There is no cost to apply for these loans.

Manage Your Business: Sustaining Success

Once you have a business, keeping it never ceases to be a challenge. While a lot of the SBA’s resources are dedicated to fragile early-stage businesses, they also have help for ones that are well-established but may need a little bit of assistance.

Obtaining Additional Funding and Expansion

If your business needs more funds, you might need to attract new investors. It can be easier to go back to people who have helped you in the past, but that’s not always an issue. The Small Business Administration can help you make a case, such as for money to get through the slow time of year. The SBA runs local resource centers where you can meet with business mentors and local experts (and if you become successful enough)… Lender Match will help you find a lender who offers an SBA-guaranteed loan, which is handy for high-risk businesses.

Sometimes, the best way to grow is a new business location. This can get complicated, especially if you end up with locations (and employees) in multiple states. The SBA can help with this and advise if you’re ready to take the major step of selling franchises.

Special Focus on Diverse Businesses

Finally, the SBA offers special advice and assistance for diverse businesses. This includes offices for women-owned, Native American-owned, Veteran-owned, military spouse, LGBTQ-owned, rural, and minority-owned businesses. If you fall into any of these categories, you may be able to get extra help. You may get assistance, including access to women’s business centers or help for rural businesses in historically underused business zones.

Empower Your Small Business Administration in the U.S.

The U.S. Small Business Administration offers comprehensive tools and services for small businesses at every stage. You can leverage these resources to build stronger, more resilient businesses that thrive in today’s market. We can provide practical and actionable advice to help you make the most of this.

If you need legal representation, we help with options to fit your budget and needs, as well as advising on compliance issues and regulations. Contact Brenden Kelley Law to find out more!

Connect with us: Business Law | Contact Us

Explore our other Blog Posts for Business Owners: 5 Important contracts to know when starting a Small Business and Choosing the Best Corporation in Ohio: S-Corp or C-Corp?

Additional Resource: The Small Business Administration’s page Calculate Your Startup Costs, helps entrepreneurs estimate the costs of starting their business, which is crucial for securing funding and setting financial goals. It includes guidance on conducting a break-even analysis and other financial planning tools.