Structure versus taxes

A limited liability company is a legal structure: you file Articles of Organization with the Ohio Secretary of State (the filing fee is $99), and the company becomes a separate legal person that protects your personal assets from the business’s debts.

An S corporation is a tax election. Both corporations and LLCs can file Form 2553 with the IRS and ask to be taxed as an S corporation. So the real choices are:

• an LLC taxed the default way (as a sole proprietorship or partnership);
• an LLC that elects to be taxed as an S corporation;
• a corporation, taxed as a C corporation or as an S corporation.

For most of our clients, an LLC is the right legal structure because it is flexible and simple to maintain. The interesting question is the tax election.

When the S election pays off

With default LLC taxation, all of your profit is subject to self-employment tax of about 15.3% on the first $176,100 (the 2025 Social Security wage base) and 2.9% above that. With an S election, you pay yourself a reasonable salary through payroll, and only that salary is subject to payroll taxes. The rest of the profit passes through to you without them.

A rough rule we use: once the business is reliably clearing $60,000 to $80,000 a year in profit after paying the owner, the S election is worth a serious look. Below that, the costs of running payroll, filing a separate business return and keeping more careful books tend to eat most of the savings.

Ohio wrinkles

• Ohio taxes business income from pass-through entities favourably: the first $250,000 of business income is deducted, and the rest is taxed at a flat 3%. That applies with or without the S election.
• The Commercial Activity Tax applies only once gross receipts pass the annual exclusion, so most new businesses will not owe it in their first years.
• Columbus and most Ohio cities levy their own income tax, which affects how the owner’s salary and distributions are treated. Your accountant will want to know which city you live in and where the business operates.

What we do

We do not prepare tax returns; we work alongside your accountant. In a formation consultation we run the numbers on your projected profit, recommend a structure, and draft an operating agreement that matches it. See our business formation page for what that includes.

1. How long you have to decide

If you are 40 or older, federal law (the Older Workers Benefit Protection Act) gives you at least 21 days to consider the agreement, or 45 days if you were let go as part of a group layoff, and seven days to change your mind after you sign. If you are under 40 there is no legal minimum, but asking for a week to have a lawyer look at it is normal and rarely refused.

2. What you are giving up

Almost every severance agreement includes a release: you agree not to sue the company for anything that happened before you signed. That release is what the company is paying for. If you think you were let go because of your age, a disability, a complaint you made or a medical leave you took, those claims may be worth more than the severance on the table, and you should talk to a lawyer before signing them away.

Some things cannot be released, such as your right to file a charge with the EEOC, to collect unemployment, or to claim vested retirement benefits. A good agreement says so.

3. Non-disparagement and confidentiality

Read these carefully. Are they mutual, or only binding on you? Do they stop you from talking about the terms of the agreement, or about your time at the company at all? Since the federal Speak Out Act took effect in 2022, a clause signed before a dispute arises cannot be used to silence claims of sexual harassment or assault.

4. Restrictive covenants that come along for the ride

Severance agreements often restate, or quietly extend, a non-compete or non-solicitation clause. If yours does, it is worth understanding before you start looking for your next job. Our non-compete article explains how Ohio courts treat them.

5. Whether the number can move

It often can. Employers set aside room to negotiate more often than people expect, especially when the employee has a plausible legal claim, long tenure, or is giving up something valuable like a commission that was nearly earned. Beyond more money, it is often possible to negotiate continued health coverage through COBRA paid by the employer, a neutral reference, accelerated vesting, or a later end date that carries you past a bonus date.

Getting help

We review severance agreements for a flat fee and, if it makes sense, negotiate with your former employer on your behalf. You can read more about how that works on our severance negotiation page, or simply contact us with your agreement and the deadline.

Ohio has no statute that bans or caps non-competes for most workers. Instead, courts apply a reasonableness test that the Ohio Supreme Court set out in Raimonde v. Van Vlerah in 1975. A non-compete is enforceable only to the extent that it:

1. is no broader than necessary to protect a legitimate business interest of the employer;
2. does not impose an undue hardship on the employee; and
3. is not harmful to the public.

What counts as a legitimate interest

An employer is allowed to protect its trade secrets, confidential information such as pricing and customer lists, and customer relationships that you built on its time and dime. It is not allowed to stop you from competing simply because it would prefer not to have the competition, or to keep you from using general skills and experience you would have gained anywhere.

Time and distance

Judges look hard at how long the restriction lasts and where it applies. One year within the counties where you actually worked is often upheld. Five years across the whole United States, for a sales representative who covered central Ohio, usually is not.

Ohio courts do not have to throw out an unreasonable non-compete entirely. They can, and often do, rewrite it to something reasonable and enforce that. So an overbroad agreement is not a free pass; it may simply be trimmed back.

Before you sign

If you are negotiating a new job, this is the moment you have the most leverage. Ask for:

• a shorter period, or one that applies only if you are fired for cause or resign;
• a narrower definition of “competitor,” ideally a named list;
• a non-solicitation clause in place of a full non-compete;
• pay during the restricted period if the employer wants to enforce it.

After you have left

If you receive a letter from a former employer’s lawyer, do not ignore it and do not reply in anger. Keep every document you took with you separate and untouched (better, return it), and talk to a lawyer before you answer. Many of these disputes end with a short letter agreeing on what you will and will not do.

We review non-competes for a flat fee. See what to expect and fees for details.