Business entities, such as a Limited Liability Company, Limited Partnership, or Corporation, can provide business owners with protection from personal liability for their business activities. When operating as one of the business entities referenced above, liability arising from breach of contract, injury to person or property arising out of business operation, or other damages caused by the negligence of an employee, will be limited to the owner’s interest in the entity, and the owner’s personal property and assets will be protected.
This protection from personal liability is one of the most important reasons for forming a business entity. However, to receive this protection, it is important to operate the business separately from one’s personal matters. Keeping business accounts separate from personal accounts, signing in one’s capacity as a representative of the business an not individually, and clearly identifying the business entity as an LLC or corporation on all contracts, business cards, advertising and marketing materials, websites, etc., is necessary to preserve this protection. Failure to operate the business as its own, separate entity can result in the “piercing of the corporate veil” and the imposition of personal liability on the owner. Additionally, the entity does not protect an owner from the owner’s negligence or intentional misconduct, liability on any loans or other obligations which the owner has personally guaranteed, fraud, and taxes owed by the business.
To establish an entity as a Limited Liability Company, Limited Partnership, or Corporation, Articles must be filed with the Ohio Secretary of State, a tax identification number must be obtained, and governing documents should be established. When there is more than one owner in a business, agreements should be considered to determine what happens if an owner dies, becomes disabled, divorces, or leaves the business.