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Factors to Consider When Opening a Business

by | Feb 10, 2017 | Business Formation

When opening a business, you must consider several different factors while choosing the appropriate business form. In Ohio, businesses are separated into several categories, including:

  1. Sole Proprietorship
  2. General Partnership
  3. Limited Partnership
  4. Limited Liability Partnership
  5. Limited Liability Company
  6. Incorporation


Sole Proprietorships and General Partnerships

Sole Proprietorships and General Partnerships require no filing with the Secretary of State. While this option may seem attractive to those who are averse to bureaucracy and “red tape,” Sole Proprietorships and General Partnerships create a significant level of personal liability. This personal liability could cause you to lose your own assets, not merely the business assets, should a law suit be initiated against the Sole Proprietorship or General Partnership.

Limited Partnerships

A Limited Partnership requires a filing with the Secretary of State indicating who the General Partners are and who the Limited Partners are. As in a General Partnership, General Partners in a Limited Partnership maintain the same liability risk while the Limited Partners are protected from losing personal assets that were not used to invest in the business. However, with the status of Limited Partner, additional limitations apply. The Limited Partner is not permitted to participate in the day to day management of the Limited Partnership. Should the Limited Partner attempt to manage the Limited Partnership, the liability protection that he received from the Limited Partner status disappears.

Limited Liability Partnerships

A Limited Liability Partnership requires a filing with the Secretary of State and provides protection for each of the partners, regardless of whether he participates in the daily management of the business.

Limited Liability Companies

A Limited Liability Company was developed as a method of merging the benefits of both partnerships and incorporations. As can be read in the following paragraph, Incorporations require regular filing to remain in compliance with state and federal law. To mirror a partnership, Limited Liability Companies have members rather than the shareholders of Incorporations. Members are the owners of Limited Liability Companies and govern the daily business in whatever manner determined in the Operating Agreement. The Operating Agreement, while not required to be filed with the Secretary of State, acts as a binding contract between the members establishing their duties, responsibilities, and obligations to the Limited Liability Company.


An Incorporation creates the greatest liability protection but also requires the greatest efforts to ensure compliance with federal and state regulations. Incorporations are generally divided into two separate classes, Private and Public. A private Incorporation, shares are not sold on the open market. Private Incorporations can also be closely held, this lessens some of the yearly filing requirements but also heavily restricts the ability to transfer shares. Public Incorporations are traded publicly, generally through a stock exchange such as the New York or London Stock Exchanges. Incorporations generally are required to filed independent tax filings each year as well as partake in Annual Meetings in which the financial status of the Incorporation must be disclosed and the financial records available to each of the shareholders.


These business formats are appropriate business forms and legal in the state of Ohio. However, to determine the best business form for your individual situation, it is best to discuss your particular business and the risks associated with each business form with an attorney.