Attorneys are usually talented at identifying the legal benefits of various legal documents and tools, including limited liability companies (LLCs). However, every investment needs to be considered with its corresponding cost.
A struggle in the context of legal documents and tools is that the value of protection from the unknown is difficult to compare to objective costs in dollars and cents. In other words, the value of legal tools is often measured in apples, while cost of legal tools can be measured in oranges.
Nonetheless, cost is absolutely something that must be considered in the context of deciding which legal tools are appropriate. The Ohio Secretary of State requires a $99 filing fee to organize (create) an LLC. Beyond that filing fee, a proper LLC should have a detailed and practically usable operating agreement. Almost every LLC also needs a tax identification number. Additionally, I provide clients with various flowcharts and explanations of how to manage the LLC to ensure that its legal protections will be in place if ever tested. Of course, LLCs in Ohio must be capitalized, so funding each LLC with assets is also an important part of organizing that LLC.
In my practice, I do not bill by the hour, but I do invest several hours with each client getting to know that client in every way possible. Therefore, when I organize an entity for a client, I typically provide an effective “year guarantee” that the entity that I recommend is truly what the client needs and can use. My services also include coordination of the LLC formation and funding with the client’s accountant, insurance agent, lender, investment advisor and the Farm Service Agency, if the client is a farmer or owns farmland.
The cost to prepare the operating agreement and other documents as well as educating clients on an LLC varies. In our part of Ohio, establishment of an LLC typically incurs legal fees anywhere from $400 to $4,000.
Some attorneys include requirements in LLC operating agreements that the LLC have an annual meeting or conference with the attorney to value the LLC or evaluate its operation. I do not include such requirements in entities that I help establish. However, if those requirements are included in the LLC’s operating agreement, they should be considered when determining whether establishing an LLC is a worthwhile investment.
LLCs that have more than one owner usually (except if there are two owners who are married to each other and file a joint 1040 tax return) need to hire a tax preparer to prepare (or prepare themselves) a partnership tax return each tax year. The cost to prepare that partnership return varies in our region based upon the complexity of the return and sophistication of the preparer, but it typically falls between $75 and $500 per year, per return.
As a general rule, LLCs almost never create more tax liability for owners of the LLC. And, in some instances, LLCs can save their owners thousands of dollars in annual taxes.
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 [email protected] 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.