Beginning January 1, 2022, Ohio law regarding limited liability companies will be significantly restructured. The last significant change to Ohio’s laws on LLCs was almost a decade ago. Beginning with that most recent change, Ohio became a much more “business-friendly” state. The new changes enhance that public policy goal.
The new LLC law is a re-structuring of the whole body of laws that govern LLCs. The restructuring of the whole shebang generally simplifies some outdated legal gymnastics that no longer serve a purpose, like making a distinction on whether an LLC’s agent/decider/manager is an owner/member of the LLC or not. Now, whether someone is an owner/member of the LLC or not, the person’s title and status as an owner does not matter if/when that person is acting for the LLC.
The biggest substantive change in the new law is the ability for Ohio business owners to much more easily separate liability among different ventures.
Traditionally, each LLC has had its own set of records, accounts and assets. Money in one LLC could not be commingled with money in another LLC without jeopardizing the two LLCs being considered “partners,” which would lead to the LLCs sharing liability with each other.
For instance, if an apartment complex was owned by an LLC and the owners (called members) of that LLC also owned a rental house, the owners/members may want that rental home to also be in an LLC. However, due to the different risk classification between an apartment complex and a house, the owners would want any liability/accident at the apartment complex to not affect the rental house and vice versa.
Until now, in Ohio, the only way to shield the liabilities of the two investments (apartment complex and rental house) from each other was to have two LLCs—one to own the apartment complex and one to own the rental house. This has been effective, but it also has meant that there be a separate checking account for each LLC, a separate tax return for each LLC and an overall significantly increased paperwork burden.
Under the new law, one set of books and records can be maintained for one LLC with what can be considered “sub-entities” operating together, without liability sharing among those “sub-entities.” This business structure has been called “series LLCs” because this allows for one LLC to act like a series of LLCs that do not share liability with each other.
The new LLC law also gives LLC owners/members significantly more flexibility in writing the LLC’s internal rules (laid out in an “operating agreement”) regarding LLC decision-making and operations.
However, the new law also crystallizes the fact that some responsibilities of LLC owners/members to each other can never be altered, even by unanimous agreement. Specifically, the duties of good faith and fair dealing can never be ignored or overlooked.
In contrast, if there is agreement among owners/members, owners/members can ignore traditional responsibilities of loyalty and care to each other, which may allow some LLC owners/members more possibility to compete with the entities they own.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.